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Citizens Community Bancorp, Inc. Earns $953,000 For Quarter Ending March 31, 2019; Loans up 3% From Quarter Ended December 31, 2018

EAU CLAIRE, Wis., April 26, 2019 (GLOBE NEWSWIRE) -- Citizens Community Bancorp, Inc. (the "Company") (CZWI), the parent company of Citizens Community Federal N.A. (the “Bank” or "CCFBank"), today reported earnings of $953,000, or $0.09 per diluted share for the quarter ended March 31, 2019, compared to $1.26 million, or $0.12 per diluted share for the previous quarter ended December 31, 2018. The current quarter’s operations reflected merger related costs, financial reporting expenses associated with changing our year end and higher loan loss provisions related to a growing loan portfolio and specific reserves related to a dairy loan and modest increases to specific reserves due to methodology enhancements.

"We continue to build momentum in our banking platform. Despite a harsh winter, our pipeline for new loans is healthy,” said Stephen Bianchi, Chairman, President and Chief Executive Officer. “We are seeing better community recognition of our brand while our efforts to better staff branches, train our team and leverage our name through acquisitions are beginning to pay dividends with solid organic loan and deposit growth. We completed the conversion of the United Bank data systems in February and expect to close the acquisition of F. & M. Bancorp. of Tomah, Inc. this summer."

Net income as adjusted (non-GAAP)1 was $1.82 million, or $0.17 per diluted share for the quarter ended March 31, 2019, compared to $2.19 million, or $0.20 per diluted shares for the quarter ended December 31, 2018. Net income as adjusted (non-GAAP)1 excludes (1) merger and branch closure expenditures, (2) certain audit and financial reporting costs related to the change in year end, (3) initial Sarbanes-Oxley Act ("SOX") implementation costs, which are higher than the forecasted ongoing run rate, as well as (4) 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 Net Income and Net Income as Adjusted (non-GAAP)1.

March 31, 2019 Highlights: (as of or for the periods ended March 31, 2019, compared to December 31, 2018 and /or September 30, 2018)

  • Our Community Banking loan portfolio, consisting of commercial, agricultural and consumer loans, increased $41 million, or 5.7%, as of March 31, 2019, while our Legacy Loan portfolio of indirect paper and one-to-four family loans, declined $14 million from December 31, 2018. Gross loan growth for the quarter was $27 million or a 3% quarterly growth rate.

  • Merger related costs were $659,000 for the quarter ended March 31, 2019, while audit and financial reporting costs of $358,000 were realized associated with changing our fiscal year end to December 31.

  • Nonperforming assets, delinquencies and troubled debt restructures typically increase in the next couple of quarters following a merger due to updated reporting and risk rating of the loan portfolio to CCFBank standards. We experienced this again as nonperforming assets increased to 1.03% of total assets at March 31, 2019, from 0.83% of total assets at December 31, 2018. Total impaired loans, which included trouble debt restructured loans, purchased credit impaired loans and substandard non-performing loans, was $50 million at March 31, 2019, compared to $47 million at December 31, 2018.

  • Loan loss provisions were $1.225 million for the quarter ended March 31, 2019. Provision expense for the quarter of approximately (1) $600,000 was due to newly originated loan growth reflecting strong organic loan growth, (2) $122,000 was due to net charge offs for the quarter and (3) $500,000 was due to increases in specific reserves on impaired credits.

  • The quarter was impacted by our typical first quarter slowdown due to weather and fewer days within the quarter relative to the prior quarter. As a result, net pretax income reductions occurred in the following: (1) net interest income was approximately $220,000 lower due to fewer days, (2) deposit service charges were $70,000 lower, (3) gain on sale of loans was $80,000 lower and (4) payroll tax expense was higher by $75,000 due to payroll expense seasonality. These reductions in net pretax income were partially offset by lower compensation expense of approximately $100,000 due to fewer business days within the quarter. In total, these items were approximately $365,000 lower, pretax, than the previous calendar quarter. Additionally, the Bank recorded a one-time charge of approximately $160,000 related to Wisconsin domicile taxes associated with the Bank's initial public offering in 2006.

  • The stabilized interest rate environment helped to reduce the accumulated other comprehensive loss in equity from $1.8 million at December 31, 2018 to $722,000 at March 31, 2019. At September 30, 2018, the accumulated other comprehensive loss was $2.7 million.

Estimated Bank and Company capital ratios exceeded regulatory guidelines for a well-capitalized financial institution under the Basel III regulatory requirements at March 31, 2019:

Citizens
Community
Federal N.A.

Citizens
Community
Bancorp, Inc.

To Be Well Capitalized Under
Prompt Corrective Action
Provisions

Tier 1 leverage ratio (to adjusted total assets)

9.6%

7.9%

5.0%

Tier 1 capital (to risk weighted assets)

11.9%

9.8%

8.0%

Common equity tier 1 capital (to risk weighted assets)

11.9%

9.8%

6.5%

Total capital (to risk weighted assets)

12.7%

12.2%

10.0%

Balance Sheet and Asset Quality Review

Total assets were $1.327 billion at March 31, 2019, compared to $1.288 billion at December 31, and $975 million at September 30, 2018. Strong organic loan and deposit growth largely supported the increase in assets in the current quarter. The asset growth from September 30, 2018 through December 31, 2018 was mainly due to the acquisition of United Bank as well as approximately $30 million in organic loan growth.

Total loans were $1.02 billion at March 31, 2019, compared to $993 million at December 31, 2018. Community Banking loans increased $41 million to $759 million at March 31, 2019, from $718 million at December 31, 2018, and more than offset the planned runoff of Legacy Loans. The growth was centered in CRE, multifamily and construction and land development loans in various stages. Legacy loans decreased $14 million to $267 million at March 31, 2019, from $281 million at December 31, 2018.

At March 31, 2019, total gross Community Banking portfolio loans, consisting of commercial, agricultural and consumer loans, represented 74% of gross loans, while the gross Legacy Loan portfolio of indirect paper and one-to-four family loans was 26% of gross loans. One year earlier, the Community Banking portfolio loans totaled 58% of gross loans.

The allowance for loan and lease losses increased to $8.7 million, at March 31, 2019, representing 0.85% of total loans, compared to $7.6 million and 0.77% of total loans at December 31, 2018. Approximately 35% of the Bank's loan portfolio represents acquired performing loans and marked to fair value as of the acquisition date, with a remaining $4.1 million purchase-discount related to credit impaired acquired loans. Net charge offs were $122,000 for the quarter ended March 31, 2019, compared to $94,000 for the quarter ended December 31, 2018.

Nonperforming assets increased to $13.7 million, or 1.03% of total assets at March 31, 2019, compared to $10.7 million or 0.83% of total assets at December 31, 2018. The increase primarily relates to the dairy credit discussed above and increases in loan relationships aggregating $550,000 or less partially offset by the reduction in foreclosed assets.

Securities available for sale increased $13 million to $160 million at March 31, 2019, from $147 million at December 31, 2018, as the Bank increased on-balance sheet liquidity modestly.

Other assets increased to $10 million at March 31, 2019, from $3 million at December 31, 2018, due primarily to the adoption of new accounting standards requiring asset recognition for operating leases which totaled $5 million at March 31, 2019.

Deposits increased $23 million to $1.03 billion at March 31, 2019. The deposit growth was primarily from our commercial area in money market accounts, along with retail certificate of deposit growth, which helped offset the reduction in brokered and listing service deposits of $16 million and $2 million, respectively, at March 31, 2019 compared to December 31, 2018. As of March 31, 2019, our brokered and listing service deposits were $39 million and $7 million, respectively.

Other liabilities increased by $2 million to $10 million, at March 31, 2019, due primarily to the new accounting standard related to liability recognition of operating leases which totaled $5 million at March 31, 2019.

Total stockholders’ equity increased to $138.4 million at March 31, 2019, from $138.2 million one quarter earlier, as the Company benefitted from the addition of earnings and a reduction in accumulated other comprehensive loss, mainly due to lower long-term interest rates, offset by the annual common stock dividend payment. Tangible book value per share (non-GAAP)2 was $9.07 at March 31, 2019, compared to $9.06 at December 31, 2018. Tangible common equity (non-GAAP)2 as a percent of tangible assets (non-GAAP) was 7.74% at March 31, 2019, compared to 7.94% at December 31, 2018 and 6.26% one year earlier.

Review of Operations

Net interest income was $10.06 million for the first quarter of 2019, compared to $10.04 million for the fourth quarter of 2018, and $7.36 million for the first quarter a year ago. The net interest margin (“NIM”) decreased to 3.43% for the quarter ended March 31, 2019 compared to 3.56% in the preceding quarter and 3.40% for the like quarter one year earlier. For the preceding quarter, the Company’s net interest margin benefited from $235,000, or 8 bp, of interest income realized on the payoff of classified loans, compared to $15,000, or 1 bp, in the current quarter. Scheduled accretion for acquired loans, was $194,000, $182,000, and $142,000 for the quarters ended March 31, 2019, December 31, 2018 and March 31, 2018, respectively. The impact on margin was 1 bp at March 31, 2019 and 8 bp at December 31, 2018. Increased deposit costs more than offset higher asset yields, which resulted in the remainder of the decline in NIM.

Loan loss provisions were $1.225 million for the quarter ended March 31, 2019. Provision expense for the quarter of approximately (1) $600,000 was due to newly originated loan growth reflecting strong organic loan growth, (2) $122,000 was due to net charge offs for the quarter and (3) $500,000 was due to increases in specific reserves on impaired credits. Provision expense was higher mainly due to increasing specific reserves. The largest specific reserve was established on a single dairy relationship of approximately $350,000 or $0.02 per share, whose status changed to nonaccrual during the quarter ended March 31, 2019. While the agricultural sector is currently challenged, the issues on this specific credit were isolated and are being addressed. Management believes its agricultural lending processes remain prudent and there is no evidence to suggest systemic problems.
Additionally, approximately half of the specific reserves increase was due to enhancements on various impaired loans.

Total non-interest income was $2.33 million for the quarter ended March 31, 2019 compared to $2.53 million for the quarter ended December 31, 2018 and $1.68 million one year earlier. The slight decline in non-interest income relates partially to the seasonality of gains recognized on the sale of loans into the secondary market and service charges on deposit accounts.

Total non-interest expense was $9.89 million for the first quarter of 2019, compared to $9.79 million on a linked quarter basis and $7.10 million for the first quarter a year ago. Total non-interest expense for the current quarter reflects lower compensation and benefit expenses which decreased to $4.71 million for the quarter ended March 31, 2019, from $4.95 million for the quarter ended December 31, 2018.

Compensation and benefits expense decreased $240,000 in the current quarter. During the current quarter, merger related compensation expense decreased by approximately $280,000. Two fewer business days in the quarter resulted in $100,000 less compensation expense, offset by higher seasonal payroll tax expense of $75,000. This net decrease was partially offset by higher compensation costs related to the full quarter impact of United Bank, and reduced by lower health care costs and reductions in FTE's.

Additionally, professional fees declined from $1.12 million for the quarter ended December 31, 2018 to $825,000 for the quarter ended March 31, 2019, due to changes in professional fees discussed below and normal fiscal year audit expenses in the quarter ended December 31, 2018.

Increase in other expense includes a one-time charge of approximately $160,000 related to Wisconsin domicile taxes associated with the Bank's initial public offering in 2006 and an additional one-time charge of approximately $140,000 related to Wisconsin domicile taxes arising from our 2018 United Bank Acquisition.

Merger related expenses incurred this quarter and included in the consolidated statement of operations consisted of the following: (1) $74,000 recorded in compensation and benefits, (2) $204,000 recorded in professional services and (3) $381,000 recorded in other non-interest expense. Branch closure costs incurred this quarter consisted of $4,000 recorded in professional services and $11,000 recorded in other non-interest expense in the consolidated statement of operations. Audit and financial reporting expenses, related to our year end change, consisted of $358,000 recorded in professional services in the consolidated statement of operations during the quarter ended March 31, 2019.

Merger related expenses incurred in the quarter ended December 31, 2018 and included in the consolidated statement of operations consisted of the following: (1) $352,000 recorded in compensation and benefits, (2) $580,000 recorded in professional services and (3) $125,000 recorded in other non-interest expense. Branch closure costs incurred in the quarter ended December 31, 2018 consisted of $9,000 recorded in professional services and $3,000 recorded in other non-interest expense in the consolidated statement of operations. Audit and financial reporting expenses, related to our year end change, consisted of $135,000 recorded in professional services in the consolidated statement of operations during the quarter ended December 31, 2018.

The effective tax rate declined to 25.3% for the quarter ended March 31, 2019 from 30.8% the previous quarter. Provisions for income taxes were $322,000 for the quarter ended March 31, 2019 compared to $561,000 for the quarter ended December 31, 2018. The higher effective tax rate for the quarter ended December 31, 2018 was partially the result of non-deductible tax expenses related to the United Bank acquisition and the true-up of the Company's net deferred tax asset. Tax expense for the quarter ended December 31, 2018, includes the impact of $461,000 of tax non-deductible merger expenses.

These financial results are preliminary until the Form 10-Q is filed in May 2019.

About the Company

Citizens Community Bancorp, Inc. (NASDAQ: “CZWI”) is the holding company of the Bank, a national bank based in Altoona, Wisconsin, currently serving customers primarily in Wisconsin and Minnesota through 26 branch locations, along with one branch in Michigan which the Company has a signed agreement to sell. Its primary markets include the Chippewa Valley Region in Wisconsin, the Twin Cities and Mankato markets in Minnesota, and various rural communities around these areas. The Bank offers traditional community banking services to businesses, Ag operators and consumers, including one-to-four family mortgages.

Cautionary Statement Regarding Forward-Looking Statements

Certain 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 using 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 the Company and the Bank. These uncertainties include the 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 Company or Bank; increases in FDIC insurance premiums or special assessments by the FDIC; disintermediation risk; our inability to obtain needed liquidity; risks related to the success of the acquisition of F. & M. Bancorp. of Tomah, Inc. ("F&M") through merger (the “F&M Merger”) and integration of F&M into the Company’s operations; the risk that the F&M Merger may be more difficult, costly or time consuming or that the expected benefits are not realized; the risk that the combined company may be unable to retain the Company and/or F&M personnel successfully after the F&M Merger is completed; the risk that regulatory approvals needed effect the F&M Merger may not be received, may take longer than expected or may impose unanticipated conditions; the possibility that the F&M Merger Agreement may be terminated in accordance with its terms and may not be completed in the anticipated timeframe or at all; the risk that if the F&M Merger were not completed it could negatively impact the stock price and the future business and financial results of the Company; the transaction and merger-related costs in connection with the F&M Merger; litigation relating to the F&M Merger, which could require the Company and F&M to incur significant costs and suffer management distraction, as well as delay and/or enjoin the F&M Merger; our ability to successfully execute our acquisition growth strategy; risks posed by acquisitions and other expansion opportunities, including difficulties and delays in integrating the acquired business operations or fully realizing the cost savings and other benefits; 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; changes in federal or state tax laws; 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. Stockholders, 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 transition period ended December 31, 2018 filed with the Securities and Exchange Commission ("SEC") on March 8, 2019 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 Measures

This press release contains non-GAAP financial measures, such as net income as adjusted, tangible book value per share and tangible common equity as a percent of tangible assets, which management believes may be helpful in understanding the Company's results of operations or financial position and comparing results over different periods.

Net income as adjusted is a non-GAAP measure that eliminates the impact of certain 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, which management believes enhances investors' ability to better understand the underlying business performance and trends related to core business activities. 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. Tangible book value per share and tangible common equity as a percent of tangible assets are non-GAAP measures that eliminate the impact of preferred stock equity, goodwill and intangible assets on our financial position. Management believes these measures are useful in assessing the strength of our financial position.

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.

Contact: Steve Bianchi, CEO
(715)-836-9994

CITIZENS COMMUNITY BANCORP, INC.
Consolidated Balance Sheets
(in thousands)

March 31,
2019
(unaudited)

December 31,
2018
(audited)

September 30,
2018
(audited)

March 31,
2018
(unaudited)

Assets

Cash and cash equivalents

$

41,358

$

45,778

$

34,494

$

31,468

Other interest bearing deposits

6,235

7,460

7,180

8,399

Securities available for sale "AFS"

160,201

146,725

118,482

118,314

Securities held to maturity "HTM"

4,711

4,850

4,619

5,013

Equity securities with readily determinable fair value

182

Non-marketable equity securities, at cost

11,206

11,261

7,218

7,707

Loans receivable

1,019,678

992,556

759,247

721,128

Allowance for loan losses

(8,707

)

(7,604

)

(6,748

)

(5,887

)

Loans receivable, net

1,010,971

984,952

752,499

715,241

Loans held for sale

1,231

1,927

1,917

1,520

Mortgage servicing rights

4,424

4,486

1,840

1,849

Office properties and equipment, net

13,487

13,513

10,034

9,151

Accrued interest receivable

4,369

4,307

3,600

3,251

Intangible assets

7,174

7,501

4,805

5,126

Goodwill

31,474

31,474

10,444

10,444

Foreclosed and repossessed assets, net

2,100

2,570

2,768

7,080

Bank owned life insurance

17,905

17,792

11,661

11,502

Other assets

9,562

3,328

3,848

4,318

TOTAL ASSETS

$

1,326,590

$

1,287,924

$

975,409

$

940,383

Liabilities and Stockholders’ Equity

Liabilities:

Deposits

$

1,030,649

$

1,007,512

$

746,529

$

748,615

Federal Home Loan Bank advances

122,828

109,813

63,000

85,000

Other borrowings

24,675

24,647

24,619

29,479

Other liabilities

10,058

7,765

5,414

3,780

Total liabilities

1,188,210

1,149,737

839,562

866,874

Stockholders’ equity:

Common stock— $0.01 par value,
authorized 30,000,000; 10,990,033;
10,953,512, 10,913,853; and
5,902,481 shares issued and
outstanding, respectively

110

109

109

59

Additional paid-in capital

125,940

125,512

125,063

63,575

Retained earnings

14,008

15,264

14,003

12,401

Unearned deferred compensation

(956

)

(857

)

(622

)

(515

)

Accumulated other comprehensive
loss

(722

)

(1,841

)

(2,706

)

(2,011

)

Total stockholders’ equity

138,380

138,187

135,847

73,509

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$

1,326,590

$

1,287,924

$

975,409

$

940,383

Note: Certain items previously reported were reclassified for consistency with the current presentation.


CITIZENS COMMUNITY BANCORP, INC.

Consolidated Statements of Operations
(in thousands, except per share data)

Three Months Ended

Twelve Months Ended

March 31,
2019
(unaudited)

December 31,
2018
(audited)

March 31,
2018
(unaudited)

September 30,
2018
(audited)

Interest and dividend income:

Interest and fees on loans

$

12,414

$

11,839

$

8,539

$

35,539

Interest on investments

1,304

1,208

813

3,357

Total interest and dividend income

13,718

13,047

9,352

38,896

Interest expense:

Interest on deposits

2,593

2,131

1,250

5,543

Interest on FHLB borrowed funds

661

482

314

1,310

Interest on other borrowed funds

402

394

432

1,740

Total interest expense

3,656

3,007

1,996

8,593

Net interest income before provision for loan losses

10,062

10,040

7,356

30,303

Provision for loan losses

1,225

950

100

1,300

Net interest income after provision for loan losses

8,837

9,090

7,256

29,003

Non-interest income:

Service charges on deposit accounts

550

619

430

1,792

Interchange income

338

336

302

1,284

Loan servicing income

554

510

346

1,379

Gain on sale of loans

308

388

189

943

Loan fees and service charges

128

273

87

521

Insurance commission income

184

162

187

720

Gains (losses) on investment securities

34

(21

)

(17

)

Other

236

238

155

748

Total non-interest income

2,332

2,526

1,675

7,370

Non-interest expense:

Compensation and benefits

4,706

4,946

3,806

14,979

Occupancy

954

808

761

2,975

Office

522

464

426

1,715

Data processing

987

993

733

2,928

Amortization of intangible assets

327

325

161

644

Amortization of mortgage servicing rights

191

175

76

335

Advertising, marketing and public relations

203

226

146

745

FDIC premium assessment

94

144

115

472

Professional services

825

1,118

323

2,323

(Gains) losses on repossessed assets, net

(37

)

(30

)

535

Other

1,122

625

556

2,113

Total non-interest expense

9,894

9,794

7,103

29,764

Income before provision for income taxes

1,275

1,822

1,828

6,609

Provision for income taxes

322

561

487

2,326

Net income attributable to common stockholders

$

953

$

1,261

$

1,341

$

4,283

Per share information:

Basic earnings

$

0.09

$

0.12

$

0.23

$

0.72

Diluted earnings

$

0.09

$

0.12

$

0.23

$

0.58

Cash dividends paid

$

0.20

$

$

0.20

$

0.20

Book value per share at end of period

$

12.59

$

12.62

$

12.45

$

12.45

Tangible book value per share at end of period (non-
GAAP)

$

9.07

$

9.06

$

9.82

$

11.05

Note: Certain items previously reported were reclassified for consistency with the current presentation.


Reconciliation of GAAP Net Income and Net Income as Adjusted (non-GAAP):

Three Months Ended

Twelve Months
Ended

March 31,
2019

December 31,
2018

March 31,
2018

September 30,
2018

GAAP earnings before income taxes

$

1,275

$

1,822

$

1,828

$

6,609

Merger related costs (1)

659

1,057

10

463

Branch closure costs (2)

15

12

1

26

Audit and Financial Reporting (3)

358

135

Net income as adjusted before income taxes (4)

2,307

3,026

1,839

7,098

Provision for income tax on net income as adjusted (5)

484

832

451

1,739

Tax Cuts and Jobs Act of 2017 (6)

338

Total Provision for income tax

484

832

451

2,077

Net income as adjusted after income taxes (non-GAAP) (4)

$

1,823

$

2,194

$

1,388

$

5,021

GAAP diluted earnings per share, net of tax

$

0.09

$

0.12

$

0.23

$

0.58

Merger related costs, net of tax (1)

0.05

0.07

0.06

Branch closure costs, net of tax

Audit and Financial Reporting

0.03

0.01

Tax Cuts and Jobs Act of 2017 tax provision (6)

0.04

Diluted earnings per share, as adjusted, net of tax (non-GAAP)

$

0.17

$

0.20

$

0.23

$

0.68

Average diluted shares outstanding

10,986,466

10,967,386

5,932,342

7,335,247

(1) Costs incurred are included as data processing, advertising, marketing and public relations, professional fees, compensation and other non-interest expense in the consolidated statement of operations and include costs of $119,000, $461,000 and $0 for the quarters ended March 31, 2019, December 31, 2018 and March 31, 2018, respectively, and $350,000 for the year ended September 30, 2018, which are nondeductible expenses for federal income tax purposes.
(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, legal costs related to the sale of the sole Michigan branch, are recorded in professional services and included in these Branch closure costs.
(3) Audit and financial reporting costs include professional fees related to initial SOX compliance and additional audit and professional fees related to the change in our year end from September 30 to December 31.
(4) Net income as adjusted is a non-GAAP measure that management believes enhances the market's ability to assess the underlying business performance and trends related to core business activities.
(5) Provision for income tax on net income as adjusted is calculated at 21.0% for the quarter ended March 31, 2019, 26.0% for the quarter ended December 31, 2018 and at 24.5% for all quarters in fiscal 2018, which represents our federal statutory tax rate for each respective period presented.
(6) As a result of the Tax Cuts and Jobs Act of 2017, we recorded a one-time net tax provision of $275,000 and $63,000 in December 2017 and September 2018, respectively, totaling $338,000 in fiscal 2018. These tax entries are included in provision for income taxes expense in the consolidated statement of operations.

Reconciliation of tangible book value per share (non-GAAP):

Tangible book value per share at end of period

March 31,
2019

December 31,
2018

September 30,
2018

March 31,
2018

Total stockholders' equity

$

138,380

$

138,187

$

135,847

$

73,509

Less: Preferred stock

Less: Goodwill

(31,474

)

(31,474

)

(10,444

)

(10,444

)

Less: Intangible assets

(7,174

)

(7,501

)

(4,805

)

(5,126

)

Tangible common equity (non-GAAP)

$

99,732

$

99,212

$

120,598

$

57,939

Ending common shares outstanding

10,990,033

10,953,512

10,913,853

5,902,481

Book value per share

$

12.59

$

12.62

$

12.45

$

12.45

Tangible book value per share (non-GAAP)

$

9.07

$

9.06

$

11.05

$

9.82


Reconciliation of tangible common equity as a percent of tangible assets (non-GAAP):

Tangible common equity as a percent of tangible assets at end of period

March 31,
2019

December 31,
2018

September 30,
2018

March 31,
2018

Total stockholders' equity

$

138,380

$

138,187

$

135,847

$

73,509

Less: Goodwill

(31,474

)

(31,474

)

(10,444

)

(10,444

)

Less: Intangible assets

(7,174

)

(7,501

)

(4,805

)

(5,126

)

Tangible common equity (non-GAAP)

$

99,732

$

99,212

$

120,598

$

57,939

Total Assets

$

1,326,590

$

1,287,924

$

975,409

$

940,383

Less: Goodwill

(31,474

)

(31,474

)

(10,444

)

(10,444

)

Less: Intangible assets

(7,174

)

(7,501

)

(4,805

)

(5,126

)

Tangible Assets (non-GAAP)

$

1,287,942

$

1,248,949

$

960,160

$

924,813

Total stockholders' equity to total assets ratio

10.43

%

10.73

%

13.93

%

7.82

%

Tangible common equity as a percent of tangible assets (non-GAAP)

7.74

%

7.94

%

12.56

%

6.26

%

1Net income as adjusted 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 Net Income and Net Income as Adjusted (non-GAAP)".

2Tangible book value per share and tangible common equity as a percent of tangible assets are non-GAAP measure that management believes enhances investors' ability to better understand the Company's financial position. For a detailed reconciliation of GAAP to non-GAAP results, see the accompanying financial table "Reconciliation of tangible book value per share (non-GAAP)" and “Reconciliation of tangible common equity as a percent of tangible assets (non-GAAP).”


Nonperforming Assets:

March 31,
2019
and Three
Months
Ended

December 31,
2018
and Three
Months
Ended

September 30,
2018
and Twelve
Months
Ended

March 31,
2018
and Three
Months
Ended

Nonperforming assets:

Nonaccrual loans

$

9,871

$

7,354

$

7,210

$

6,642

Accruing loans past due 90 days or more

1,713

736

1,117

281

Total nonperforming loans (“NPLs”)

11,584

8,090

8,327

6,923

Other real estate owned ("OREO")

2,071

2,522

2,749

7,015

Other collateral owned

29

48

19

65

Total nonperforming assets (“NPAs”)

$

13,684

$

10,660

$

11,095

$

14,003

Troubled Debt Restructurings (“TDRs”)

$

9,984

$

8,722

$

8,418

$

8,699

Nonaccrual TDRs

$

2,501

$

2,667

$

2,687

$

2,607

Average outstanding loan balance

$

996,778

$

921,951

$

735,602

$

725,601

Loans, end of period

$

1,019,678

$

992,556

$

759,247

$

721,128

Total assets, end of period

$

1,326,590

$

1,287,924

$

975,409

$

940,383

Allowance for loan losses ("ALL"), at beginning of period

$

7,604

$

6,748

$

5,942

$

5,859

Loans charged off:

Residential real estate

(67

)

(43

)

(202

)

(49

)

Commercial/Agricultural real estate

(74

)

(8

)

Consumer non-real estate

(78

)

(79

)

(379

)

(67

)

Commercial/Agricultural non-real estate

(52

)

Total loans charged off

(145

)

(122

)

(707

)

(124

)

Recoveries of loans previously charged off:

Residential real estate

1

4

80

4

Commercial/Agricultural real estate

Consumer non-real estate

22

24

121

48

Commercial/Agricultural non-real estate

12

Total recoveries of loans previously charged off:

23

28

213

52

Net loans charged off (“NCOs”)

(122

)

(94

)

(494

)

(72

)

Additions to ALL via provision for loan losses charged to operations

1,225

950

1,300

100

ALL, at end of period

$

8,707

$

7,604

$

6,748

$

5,887

Ratios:

ALL to NCOs (annualized)

1,784.22

%

2,022.34

%

1,365.99

%

2,044.10

%

NCOs (annualized) to average loans

0.05

%

0.04

%

0.07

%

0.04

%

ALL to total loans

0.85

%

0.77

%

0.89

%

0.82

%

NPLs to total loans

1.14

%

0.82

%

1.10

%

0.96

%

NPAs to total assets

1.03

%

0.83

%

1.14

%

1.49

%

Nonaccrual Loans Rollforward:

Quarter Ended

March 31,
2019

December 31,
2018

September 30,
2018

March 31,
2018

Balance, beginning of period

$

7,354

$

7,210

$

6,627

$

6,388

Additions

3,428

906

2,030

901

Acquired nonaccrual loans

941

Charge offs

(31

)

(40

)

(68

)

(34

)

Transfers to OREO

(362

)

(201

)

(400

)

(334

)

Return to accrual status

(175

)

(93

)

Payments received

(282

)

(1,429

)

(676

)

(257

)

Other, net

(61

)

(33

)

(210

)

(22

)

Balance, end of period

$

9,871

$

7,354

$

7,210

$

6,642

Other Real Estate Owned Rollforward:

Quarter Ended

March 31,
2019

December 31,
2018

September 30,
2018

March 31,
2018

Balance, beginning of period

$

2,522

$

2,749

$

5,328

$

6,996

Loans transferred in

362

201

400

334

Branch properties sales

(1,245

)

Sales

(808

)

(210

)

(1,762

)

(256

)

Write-downs

(6

)

(127

)

(27

)

Other, net

1

(218

)

155

(32

)

Balance, end of period

$

2,071

$

2,522

$

2,749

$

7,015

Troubled Debt Restructurings in Accrual Status

March 31, 2019

December 31, 2018

September 30, 2018

March 31, 2018

Number of
Modifications

Recorded
Investment

Number of
Modifications

Recorded
Investment

Number of
Modifications

Recorded
Investment

Number of
Modifications

Recorded
Investment

Troubled debt restructurings: Accrual Status

Residential real estate

37

$

3,454

34

$

3,319

34

$

3,495

28

$

3,015

Commercial/Agricultural real estate

17

3,454

15

2,209

14

1,646

12

2,414

Consumer non-real estate

11

90

13

99

14

109

16

146

Commercial/Agricultural non-real estate

3

485

2

428

3

481

3

517

Total loans

68

$

7,483

64

$

6,055

65

$

5,731

59

$

6,092

Loan Composition - Detail

To help better understand the Bank's loan trends, we have added the table below. 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.

March 31, 2019

December 31, 2018

September 30, 2018

March 31, 2018

Community Banking Loan Portfolios:

Commercial/Agricultural real estate:

Commercial real estate

$

368,530

$

357,959

$

216,703

$

187,735

Agricultural real estate

90,920

86,015

70,517

64,143

Multi-family real estate

83,961

69,400

48,061

38,389

Construction and land development

42,446

22,691

17,739

13,180

Commercial/Agricultural non-real estate:

Commercial non-real estate

105,803

112,427

76,254

58,200

Agricultural non-real estate

36,254

36,327

26,549

23,529

Residential real estate:

Purchased HELOC loans

12,346

12,883

13,729

16,187

Consumer non-real estate:

Other consumer

19,048

20,214

18,844

18,402

Total Community Banking Loan Portfolios

759,308

717,916

488,396

419,765

Legacy Loan Portfolios:

Residential real estate:

One to four family

201,796

209,926

196,052

209,044

Consumer non-real estate:

Originated indirect paper

52,422

56,585

60,991

73,599

Purchased indirect paper

12,910

15,006

17,254

22,665

Total Legacy Loan Portfolios

267,128

281,517

274,297

305,308

Gross loans

$

1,026,436

$

999,433

$

762,693

$

725,073


Loan Composition

March 31, 2019

December 31, 2018

September 30, 2018

March 31, 2018

Originated Loans:

Residential real estate:

One to four family

$

119,477

$

121,053

$

122,797

$

122,903

Purchased HELOC loans

12,346

12,883

13,729

16,187

Commercial/Agricultural real estate:

Commercial real estate

225,393

200,875

168,319

130,795

Agricultural real estate

33,311

29,589

27,017

12,683

Multi-family real estate

75,534

61,574

44,767

36,713

Construction and land development

27,414

15,812

14,648

8,990

Consumer non-real estate:

Originated indirect paper

52,422

56,585

60,991

73,599

Purchased indirect paper

12,910

15,006

17,254

22,665

Other Consumer

15,123

15,553

15,991

14,466

Commercial/Agricultural non-real estate:

Commercial non-real estate

72,889

73,518

62,196

41,141

Agricultural non-real estate

20,661

17,341

17,514

13,064

Total originated loans

$

667,480

$

619,789

$

565,223

$

493,206

Acquired Loans:

Residential real estate:

One to four family

$

82,319

$

88,873

$

73,255

$

86,141

Commercial/Agricultural real estate:

Commercial real estate

143,137

157,084

48,384

56,940

Agricultural real estate

57,609

56,426

43,500

51,460

Multi-family real estate

8,427

7,826

3,294

1,676

Construction and land development

15,032

6,879

3,091

4,190

Consumer non-real estate:

Other Consumer

3,925

4,661

2,853

3,936

Commercial/Agricultural non-real estate:

Commercial non-real estate

32,914

38,909

14,058

17,059

Agricultural non-real estate

15,593

18,986

9,035

10,465

Total acquired loans

$

358,956

$

379,644

$

197,470

$

231,867

Total Loans:

Residential real estate:

One to four family

$

201,796

$

209,926

$

196,052

$

209,044

Purchased HELOC loans

12,346

12,883

13,729

16,187

Commercial/Agricultural real estate:

Commercial real estate

368,530

357,959

216,703

187,735

Agricultural real estate

90,920

86,015

70,517

64,143

Multi-family real estate

83,961

69,400

48,061

38,389

Construction and land development

42,446

22,691

17,739

13,180

Consumer non-real estate:

Originated indirect paper

52,422

56,585

60,991

73,599

Purchased indirect paper

12,910

15,006

17,254

22,665

Other Consumer

19,048

20,214

18,844

18,402

Commercial/Agricultural non-real estate:

Commercial non-real estate

105,803

112,427

76,254

58,200

Agricultural non-real estate

36,254

36,327

26,549

23,529

Gross loans

$

1,026,436

$

999,433

$

762,693

$

725,073

Unearned net deferred fees and costs and loans in process

318

409

557

839

Unamortized discount on acquired loans

(7,076

)

(7,286

)

(4,003

)

(4,784

)

Total loans receivable

$

1,019,678

$

992,556

$

759,247

$

721,128


Deposit Composition:

March 31,
2019

December 31,
2018

September 30,
2018

March 31,
2018

Non-interest bearing demand deposits

$

138,280

$

155,405

$

87,495

$

79,945

Interest bearing demand deposits

195,741

169,310

139,276

151,860

Savings accounts

159,325

192,310

97,329

100,363

Money market accounts

174,508

126,021

109,314

115,299

Certificate accounts

362,795

364,466

313,115

301,148

Total deposits

$

1,030,649

$

1,007,512

$

746,529

$

748,615

Average balances, Interest Yields and Rates:

Three months ended March 31,
2019

Three months ended December 31,
2018

Three months ended March 31,
2018

Average
Balance

Interest
Income/
Expense

Average
Yield/
Rate (1)

Average
Balance

Interest
Income/
Expense

Average
Yield/
Rate (1)

Average
Balance

Interest
Income/
Expense

Average
Yield/
Rate (1)

Average interest earning assets:

Cash and cash equivalents

$

26,014

$

168

2.62

%

$

40,733

$

195

1.90

%

$

27,772

$

62

0.91

%

Loans receivable

996,778

12,414

5.05

%

921,951

11,839

5.09

%

725,601

8,540

4.77

%

Interest bearing deposits

6,913

39

2.29

%

7,268

40

2.18

%

7,281

31

1.73

%

Investment securities (1)

156,157

947

2.57

%

145,114

861

2.47

%

113,943

620

2.39

%

Non-marketable equity securities, at cost

10,375

150

5.86

%

7,974

112

5.57

%

8,005

99

5.02

%

Total interest earning assets (1)

$

1,196,237

$

13,718

4.66

%

$

1,123,040

$

13,047

4.62

%

$

882,602

$

9,352

4.32

%

Average interest bearing liabilities:

Savings accounts

$

164,129

$

175

0.43

%

$

165,434

$

145

0.35

%

$

94,497

$

28

0.12

%

Demand deposits

189,348

354

0.76

%

162,866

166

0.40

%

153,032

114

0.30

%

Money market accounts

152,963

382

1.01

%

140,321

367

1.04

%

118,622

161

0.55

%

CD’s

326,834

1,529

1.90

%

309,428

1,329

1.70

%

265,621

863

1.32

%

IRA’s

39,857

153

1.56

%

37,789

124

1.30

%

33,688

84

1.01

%

Total deposits

$

873,131

$

2,593

1.20

%

$

815,838

$

2,131

1.04

%

$

665,460

$

1,250

0.76

%

FHLB advances and other borrowings

126,239

1,063

3.41

%

99,595

876

3.49

%

117,939

746

2.57

%

Total interest bearing liabilities

$

999,370

$

3,656

1.48

%

$

915,433

$

3,007

1.30

%

$

783,399

$

1,996

1.03

%

Net interest income

$

10,062

$

10,040

$

7,356

Interest rate spread

3.18

%

3.32

%

3.29

%

Net interest margin (1)

3.43

%

3.56

%

3.40

%

Average interest earning assets to average interest bearing liabilities

1.20

1.23

1.13

(1) Fully taxable equivalent (FTE). The average yield on tax exempt securities is computed on a tax equivalent basis using a tax rate of 21% for the quarters ended March 31, 2019 and December 31, 2018 and 24.5% for the quarter ended March 31, 2018. The FTE adjustment to net interest income included in the rate calculations totaled $42,000, $43,000 and $52,000 for the three months ended March 31, 2019, December 31, 2018 and March 31, 2018, respectively.

CITIZENS COMMUNITY FEDERAL N.A.
Selected Capital Composition Highlights (unaudited)

March 31,
2019

December 31,
2018

September 30,
2018

March 31,
2018

To Be Well Capitalized Under
Prompt Corrective Action
Provisions

Tier 1 leverage ratio (to adjusted total assets)

9.6%

9.7%

9.2%

9.3%

5.0%

Tier 1 capital (to risk weighted assets)

11.9%

11.9%

12.2%

12.4%

8.0%

Common equity tier 1 capital (to risk weighted assets)

11.9%

11.9%

12.2%

12.4%

6.5%

Total capital (to risk weighted assets)

12.7%

12.7%

13.1%

13.2%

10.0%