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Citizens Community Bancorp, Inc. Earns $3.5 Million, or $0.31 Per Share in 3Q20; Criticized Assets Decline 27%; Nonperforming Assets Decline 14.3%

EAU CLAIRE, Wis., Oct. 27, 2020 (GLOBE NEWSWIRE) -- Citizens Community Bancorp, Inc. (the Company) (Nasdaq: CZWI), the parent company of Citizens Community Federal N.A. (the Bank or CCFBank), today reported earnings of $3.5 million, or $0.31 per share for the quarter ended September 30, 2020, compared to $3.1 million, or $0.28 per diluted share for the quarter ended June 30, 2020. Net income as adjusted (non-GAAP) 1 of $3.3 million, or $0.30 per share was reported for the quarter ended September 30, 2020, compared to $2.8 million, or $0.25 per share for the quarter ended June 30, 2020.

The Companys third quarter operating results reflected: (1) modestly lower net interest income largely due to loan portfolio reductions,  (2) lower loan loss provisions, while increasing COVID-19-related qualitative provision, (3) a continued robust refinancing market which led to all-time high gains on sale of mortgage loans and (4) lower non-interest expenses due to reduced compensation expense and decreased impairment of mortgage servicing right assets.

Book value per share was $14.10 at September 30, 2020 compared to $13.70 at June 30, 2020 and $13.13 at September 30, 2019.  Book value per share increased $0.74, or a 7% annualized increase, from December 31, 2019. Tangible book value per share (non-GAAP) 5 was $10.75 at September 30, 2020 compared to $10.31 at June 30, 2020 and $9.60 at September 30, 2019.

The increase in book value and tangible book value (non-GAAP) 5 in the third quarter reflects net income of $3.5 million and a quarterly increase in accumulated other comprehensive income unrealized gain of $0.9 million. Additionally, the increase in tangible book value (non-GAAP) 5 in the third quarter reflects the reduction of core deposit intangibles of $0.4 million.

We were pleased with the continued execution of our strategic priorities.  This year we have increased tangible book value $0.86 per share, or a 12% annualized increase. Asset quality continued to improve with a quarterly decrease of 14% and year-to-date decrease of 31% in non-performing assets, an $18 million reduction, or 28%, in criticized assets from March 31 levels and $37 thousand of net charge-offs in the quarter. We completed an extensive review of our business during the COVID-19 pandemic to build more efficient workflows and staffing models, to better manage operating expenses, announced branch closings effective in the fourth quarter and strengthened our culture centered on caring for our customers and colleagues, said Stephen Bianchi, Chairman, President and Chief Executive Officer.

As expected, COVID-19 deferrals remain concentrated in the hospitality segment where occupancy rates have been tracking with national averages. We are working with our clients as the pandemic persists by requiring additional support from the borrower in exchange for further deferral periods. Restaurants, especially quick service, have rebounded and many have resumed full payment status. All other segments have or are scheduled to return to regular payment status. Nevertheless, we have increased loan loss reserves adding $3.5 million in COVID-19 qualitative reserves over the last three quarters, continued Bianchi.

For the nine months ended September 30, 2020, the Company earned $9.2 million or $0.82 per share compared to earnings of $6.3 million, or $0.57 per share for the nine months ended September 30, 2019.

September 30, 2020 Highlights: (as of or for the 3-month period ended September 30, 2020, compared to June 30, 2020)

  • Stockholders equity as a percent of total assets increased from 9.51% to 9.70% during the quarter. Tangible common equity (non-GAAP) 5 relative to tangible assets (non-GAAP) 5 , less SBA Paycheck Protection Program (PPP) loans increased to 8.29% at September 30, 2020 compared to 8.03% at June 30, 2020.

  • The Bank recorded provision for loan losses of $1.50 million for the quarter ended September 30, 2020, compared to $1.75 million for the quarter ended June 30, 2020.  In continued anticipation of a COVID-19 related adverse economic impact, the COVID-19 related provision was $1.5 million in the quarter ended September 30, 2020 increasing the allowance for loan losses allocated to COVID-19 to $3.5 million.  This was a modest increase from the $1.25 million provided for COVID-19 for the quarter ended June 30, 2020. The COVID-19 pandemic continued to result in reduced operating capacity and uncertainty regarding potential future revenue and cash flows for certain businesses, including bank borrowers. Hotels and restaurants represent our portfolios two industry sectors most directly and adversely affected by the COVID-19 pandemic. These sectors loans totaled approximately $102 million and $39 million, respectively, at September 30, 2020.

  • As of September 30, 2020, the Banks COVID-19 related modifications under Section 4013 of the CARES Act, totaled $126.7 million, or 10% of gross loans versus $197.3 million, or 15% of gross loans at June 30, 2020. At September 30, 2020, hotel industry sector loans represent approximately $71 million of the approved deferrals and the restaurant industry sectors represent approximately $5 million. The Bank has approximately $50 million of total payment deferrals expiring in the fourth quarter of 2020.

  • The sum of special mention and substandard assets, or criticized assets, decreased $15.2 million to $40.7 million at September 30, 2020 from $55.9 million at June 30, 2020, a decrease of 27%.

  • The allowance for loan losses on originated loans, excluding PPP loans, increased to 1.65%.  Since PPP loans are guaranteed by the SBA, they are excluded from this reserve calculation.  Additionally, loans acquired through acquisition were effectively marked to market value at the time of their acquisition and were also excluded from this reserve calculation.

  • On August 12, 2020, the Bank announced the fourth quarter closure of three branch operations located at Minnesota Lake, Minnesota, Eau Claire, Wisconsin, and Eleva, Wisconsin. The branch operations will be consolidated into nearby branch locations.

Balance Sheet and Asset Quality

Total assets increased $15 million during the quarter to $1.62 billion at September 30, 2020 compared to $1.61 billion at June 30, 2020.  The increase is primarily due to increases in cash and cash equivalents, partially offset by decreases in the loan portfolio.

Cash and cash equivalents increased to $115.5 million at September 30, 2020 from $39.6 million the prior quarter. Deposit levels remain robust, while the Bank experienced loan shrinkage and chose to maintain the investment portfolio at previous levels due to low yielding investment options.  As such, the Company has chosen to maintain a high level of liquidity.

Loans receivable decreased to $1.23 billion at September 30, 2020 from $1.28 billion at June 30, 2020. New loan originations actually remain at previous account levels. However, due to repayments of criticized assets, $12 million in loan payoffs in acquired loans due to sale of property and the Banks decision not to match selected acquired loans refinancing interest rates totaling $14 million, the portfolio shrank.

The originated loan portfolio declined $9.7 million to $917.5 million at September 30, 2020 compared to $927.2 million at June 30, 2020. Acquired loans declined $42.4 million to $324.3 million in the current quarter from $366.7 million in the previous quarter.

The allowance for loan losses increased to $14.8 million at September 30, 2020 representing 1.21% of loans receivable at September 30, 2020 compared to 1.04% of loans receivable at June 30, 2020.  Excluding the PPP loans which are guaranteed by the SBA, the allowance for loan losses was 1.35% at September 30, 2020 compared to 1.16% the prior quarter.  A significant portion of the current loan portfolio includes loans purchased through whole bank acquisitions resulting in purchased credit impairments which are not included in the allowance for loan losses. The allowance for loan losses as a percent of originated loans excluding PPP loans was 1.65% at September 30, 2020 compared to 1.53% the prior quarter.  The increase in the allowance in the third quarter of 2020 was primarily due to the $1.5 million loan loss provisions related to anticipated COVID-19 adverse economic impacts.

Allowance for Loan Losses Percentages

(in thousands, except ratios)

 

 

September 30, 2020

 

June 30, 2020

 

December 31, 2019

 

September 30, 2019

Originated loans, net of deferred fees and costs

 

$

777,340

 

 

 

$

789,075

 

 

 

$

762,127

 

 

$

687,290

 

SBA PPP loans, net of deferred fees

 

135,177

 

 

 

132,800

 

 

 

 

 

 

 

 

Acquired loans, net of unamortized discount

 

317,622

 

 

 

359,300

 

 

 

415,253

 

 

437,088

 

Loans, end of period

 

$

1,230,139

 

 

 

$

1,281,175

 

 

 

$

1,177,380

 

 

$

1,124,378

 

SBA PPP loans, net of deferred fees

 

(135,177)

 

 

 

(132,800)

 

 

 

 

 

 

 

 

Loans, net of SBA PPP loans and deferred fees

 

$

1,094,962

 

 

 

$

1,148,375

 

 

 

$

1,177,380

 

 

$

1,124,378

 

Allowance for loan losses allocated to originated loans

 

$

12,809

 

 

 

$

12,109

 

 

 

$

9,551

 

 

$

8,694

 

Allowance for loan losses allocated to other loans

 

2,027

 

 

 

1,264

 

 

 

769

 

 

483

 

Allowance for loan losses

 

$

14,836

 

 

 

$

13,373

 

 

 

$

10,320

 

 

$

9,177

 

Non-accretable difference on purchased credit impaired loans

 

$

1,661

 

 

 

$

3,355

 

 

 

$

6,290

 

 

$

6,737

 

ALL as a percentage of loans, end of period

 

1.21%

 

 

 

1.04%

 

 

 

0.88%

 

 

0.82%

 

ALL as a percentage of loans, net of SBA PPP loans and deferred fees

 

1.35%

 

 

 

1.16%

 

 

 

0.88%

 

 

0.82%

 

ALL allocated to originated loans as a percentage of originated loans, net of deferred fees and costs

 

1.65%

 

 

 

1.53%

 

 

 

1.25%

 

 

1.26%

 

ALL plus non-accretable difference as a percentage of loans, net of SBA PPP loans and deferred fees and costs

 

1.51%

 

 

 

1.46%

 

 

 

1.41%

 

 

1.42%

 

One of the Companys strategic objectives for 2020 was to reduce nonperforming assets and classified assets.
Nonperforming assets decreased to $14.9 million or 0.92% of total assets at September 30, 2020 compared to $17.4 million or 1.08% of total assets at June 30, 2020. Included in nonperforming assets at September 30, 2020 are $10.5 million of nonperforming assets acquired during recent whole-bank acquisitions.  Originated nonperforming assets were only $4.4 million, 0.27% of total assets for the most recent quarter compared to $5.7 million, or 0.36% the prior quarter.

Substandard and special mention loans declined $15.2 million, or 27%, during the quarter ended September 30, 2020.  The table below shows the decreases in substandard loans by quarter during 2020.

 

 

(in thousands)

 

 

September 30, 2020

 

June 30, 2020

 

March 31, 2020

 

December 31, 2019

 

September 30, 2019

Special mention loan balances

 

$

7,777

 

 

$

19,958

 

 

$

19,387

 

 

$

10,856

 

 

$

12,959

 

Substandard loan balances

 

32,922

 

 

35,911

 

 

38,393

 

 

39,892

 

 

38,527

 

Criticized loans, end of period

 

$

40,699

 

 

$

55,869

 

 

$

57,780

 

 

$

50,748

 

 

$

51,486

 

Deposits decreased $1 million to $1.271 billion at September 30, 2020 compared to $1.272 billion at June 30, 2020. Certificates of deposit represented all the deposit decline while money market, demand and savings accounts reflected increased balances. Certificates of deposit decreased by $26.4 million as the Company chose not to match higher rate local retail certificate competition.

On August 27, 2020, the Company issued ten-year, 6.00% fixed-to-floating subordinated notes totaling $15 million. The notes have a five-year non-call feature. The Company plans to use the funds for general corporate purposes with the ability to downstream to the Bank as capital if needed.

Review of Operations
Net interest income was $11.9 million for the third quarter of 2020 compared to $12.3 million for the second quarter of 2020, and $11.6 million for the quarter ended September 30, 2019.  The net interest margin decreased to 3.11% for the third quarter of 2020 compared to 3.34% for both the second quarter of 2020 and the third quarter ended September 30, 2019.  For the quarter ended September 30, 2020, the decrease in net interest income was primarily due to lower yields on interest-earning assets and loan portfolio shrinkage compared to the previous quarter.

Net interest income and net interest margin with and without loan purchase accounting:
(in thousands, except yields and rates)

 

 

Three months ended

 

 

September 30, 2020

 

June 30, 2020

 

March 31, 2020

 

December 31, 2019

 

September 30, 2019

 

 

Net
Interest Income

 

Net
Interest Margin

 

Net
Interest Income

 

Net Interest Margin

 

Net
Interest Income

 

Net Interest Margin

 

Net
Interest Income

 

Net Interest Margin

 

Net
Interest Income

 

Net Interest Margin

With loan purchase
accretion

 

$

11,909

 

 

 

3.11%

 

 

 

$

12,303

 

 

 

3.34%

 

 

 

$

12,671

 

 

 

3.64%

 

 

 

$

11,775

 

 

 

3.41%

 

 

 

$

11,593

 

 

 

3.34%

 

 

Less non-accretable difference realized as interest from payoff of
purchased credit
impaired loans

 

(130)

 

 

 

(0.03)%

 

 

 

(196)

 

 

 

(0.05)%

 

 

 

(1,043)

 

 

 

(0.30)%

 

 

 

(271)

 

 

 

(0.08)%

 

 

 

(50)

 

 

 

(0.01)%

 

 

Less accelerated accretion from payoff of certain PCI loans with transferred non-accretable differences

 

 

 

 

%

 

 

 

(99)

 

 

 

(0.03)%

 

 

 

 

 

 

%

 

 

 

 

 

 

%

 

 

 

 

 

 

%

 

 

Less scheduled
accretion interest

 

(276)

 

 

 

(0.07)%

 

 

 

(247)

 

 

 

(0.07)%

 

 

 

(233)

 

 

 

(0.07)%

 

 

 

(233)

 

 

 

(0.07)%

 

 

 

(233)

 

 

 

(0.08)%

 

 

Without loan purchase accretion

 

$

11,503

 

 

 

3.01%

 

 

 

$

11,761

 

 

 

3.19%

 

 

 

$

11,395

 

 

 

3.27%

 

 

 

$

11,271

 

 

 

3.26%

 

 

 

$

11,310

 

 

 

3.25%

 

 

The yield on interest earning assets was 3.98% for the third quarter of 2020, compared to 4.32% the prior quarter, and 4.67% for the third quarter one year earlier.  From the second quarter, the decrease in yield on interest earning assets is largely due to the increase in interest-bearing cash and cash equivalents.  The cost of interest-bearing liabilities decreased to 1.06% for the third quarter from 1.16% one quarter earlier and 1.56% one year earlier.  The primary decrease in the third quarter funding costs was due to lower deposit costs as the Bank repriced various deposit products and relied less on higher-costing certificates of deposit.  For the nine months ended September 30, 2020, the net interest margin was 3.36% compared to 3.35% for the same time period one year earlier.

Loan loss provisions were $1.50 million for the quarter ended September 30, 2020 compared to $1.75 million for the quarter ended June 30, 2020 and $575,000 one year earlier. As previously mentioned, the Company provided $1.5 million related to the COVID-19 Q-factor in the third quarter bringing the 2020 COVID-19 Q-factor to $3.5 million. For the nine months ended September 30, 2020, provisions for loan losses were $5.25 million compared to $2.13 million for the nine months ended September 30, 2019.

Non-interest income increased to a quarter end high of $5.1 million for the quarter ended September 30, 2020 from the previous quarter end high of $5.0 million for the quarter ended June 30, 2020. The increase is largely due to higher gains on sale of mortgage loans, an increase in retail customer activity and the annual incentive paid on higher debit card activity, which is recorded in other income. Additionally, in the quarter ended September 30, 2020, the Banks acquired wealth management business partner exercised their contractual call originated prior to the acquisition, resulting in the sale of the wealth management business.  The sale resulted in a $180 thousand gain recorded in the current quarter. For the nine months ended September 30, 2020, total non-interest income was $13.7 million compared to $11.2 million for the same period one year earlier.

Total non-interest expense declined to $10.7 million for the quarter ended September 30, 2020, or 6% from $11.4 million for the quarter ended June 30, 2020.  This was due to a lower compensation expense and lower impairment on mortgage servicing rights (MSR), partially offset by increased data processing expenses associated with a larger average asset size and some seasonal increases in occupancy.   For the nine months ended September 30, 2020, total non-interest expenses were $32.8 million compared to $32.3 million for the nine months ended June 30, 2019.  The impact of the F&M acquisition on July 1, 2019 increased non-interest expense in 2020 in addition to the items discussed above.

Provisions for income taxes were $1.3 million for the third quarter ended September 30, 2020 compared to $1.1 million during the preceding quarter.  For the nine months ended September 30, 2020, provisions for income taxes were $3.3 million compared to $2.3 million for the nine months ended September 30, 2019.  The effective tax rate for the most recent quarter was 26.7% compared to 26.5% the prior quarter.  For the nine-month period ended September 30, 2020, the effective tax rate was 26.6% compared to 26.4% for the corresponding period one year earlier.

These financial results are preliminary until the Form 10-Q is filed in November 2020.

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 28 branch locations.  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 residential mortgage loans.

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, estimates, intend, may, preliminary, 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; adverse impacts to the Company or Bank arising from the COVID-19 pandemic; 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 maintain our reputation; 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 ongoing integration of F. & M. Bancorp. of Tomah, Inc. into the Companys operations; 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 Companys performance are discussed further in Part I, Item 1A, Risk Factors, in the Companys Form 10-K, for the year ended December 31, 2019 filed with the Securities and Exchange Commission (SEC) on March 10, 2020 and the Companys 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, net income as adjusted per share, tangible book value, tangible book value per share and tangible common equity as a percent of tangible assets, which management believes may be helpful in understanding the Companys results of operations or financial position and comparing results over different periods.

Net income as adjusted and net income as adjusted per share are non-GAAP measures 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, the gain on sale of branch deposits and fixed assets 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, 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, except shares and per share data)

 

 

September 30, 2020 (unaudited)

 

June 30, 2020 (unaudited)

 

December 31, 2019 (audited)

 

September 30, 2019 (unaudited)

Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

115,474

 

 

 

$

39,581

 

 

 

$

55,840

 

 

 

$

52,276

 

 

Other interest-bearing deposits

 

3,752

 

 

 

3,752

 

 

 

4,744

 

 

 

5,245

 

 

Securities available for sale AFS

 

150,908

 

 

 

162,716

 

 

 

180,119

 

 

 

182,956

 

 

Securities held to maturity HTM

 

16,927

 

 

 

10,541

 

 

 

2,851

 

 

 

3,665

 

 

Equity securities with readily determinable fair value

 

187

 

 

 

188

 

 

 

246

 

 

 

241

 

 

Other investments

 

15,075

 

 

 

15,193

 

 

 

15,005

 

 

 

12,622

 

 

Loans receivable

 

1,230,139

 

 

 

1,281,175

 

 

 

1,177,380

 

 

 

1,124,378

 

 

Allowance for loan losses

 

(14,836)

 

 

 

(13,373)

 

 

 

(10,320)

 

 

 

(9,177)

 

 

Loans receivable, net

 

1,215,303

 

 

 

1,267,802

 

 

 

1,167,060

 

 

 

1,115,201

 

 

Loans held for sale

 

4,938

 

 

 

8,876

 

 

 

5,893

 

 

 

3,262

 

 

Mortgage servicing rights

 

3,498

 

 

 

3,509

 

 

 

4,282

 

 

 

4,245

 

 

Office properties and equipment, net

 

21,607

 

 

 

21,318

 

 

 

21,106

 

 

 

20,938

 

 

Accrued interest receivable

 

5,829

 

 

 

5,855

 

 

 

4,738

 

 

 

4,993

 

 

Intangible assets

 

5,893

 

 

 

6,293

 

 

 

7,587

 

 

 

7,999

 

 

Goodwill

 

31,498

 

 

 

31,498

 

 

 

31,498

 

 

 

31,841

 

 

Foreclosed and repossessed assets, net

 

812

 

 

 

734

 

 

 

1,460

 

 

 

1,373

 

 

Bank owned life insurance (BOLI)

 

23,514

 

 

 

23,357

 

 

 

23,063

 

 

 

22,895

 

 

Other assets

 

7,378

 

 

 

6,301

 

 

 

5,757

 

 

 

5,612

 

 

TOTAL ASSETS

 

$

1,622,593

 

 

 

$

1,607,514

 

 

 

$

1,531,249

 

 

 

$

1,475,364

 

 

Liabilities and Stockholders Equity

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

Deposits

 

$

1,270,778

 

 

 

$

1,272,197

 

 

 

$

1,195,702

 

 

 

$

1,161,750

 

 

Federal Home Loan Bank (FHLB) and Federal Reserve Bank (FRB) advances

 

124,491

 

 

 

124,484

 

 

 

130,971

 

 

 

113,466

 

 

Other borrowings

 

58,297

 

 

 

43,595

 

 

 

43,560

 

 

 

44,545

 

 

Other liabilities

 

11,704

 

 

 

14,448

 

 

 

10,463

 

 

 

7,574

 

 

Total liabilities

 

1,465,270

 

 

 

1,454,724

 

 

 

1,380,696

 

 

 

1,327,335

 

 

Stockholders equity:

 

 

 

 

 

 

 

 

Common stock $0.01 par value,
authorized 30,000,000; 11,154,645;
11,150,695; 11,266,954 and 11,270,710
shares issued and outstanding, respectively

 

112

 

 

 

112

 

 

 

113

 

 

 

113

 

 

Additional paid-in capital

 

127,778

 

 

 

127,734

 

 

 

128,856

 

 

 

128,926

 

 

Retained earnings

 

29,239

 

 

 

25,759

 

 

 

22,517

 

 

 

19,348

 

 

Unearned deferred compensation

 

(710)

 

 

 

(834)

 

 

 

(462)

 

 

 

(630)

 

 

Accumulated other comprehensive income (loss)

 

904

 

 

 

19

 

 

 

(471)

 

 

 

272

 

 

Total stockholders equity

 

157,323

 

 

 

152,790

 

 

 

150,553

 

 

 

148,029

 

 

TOTAL LIABILITIES AND STOCKHOLDERS EQUITY

 

$

1,622,593

 

 

 

$

1,607,514

 

 

 

$

1,531,249

 

 

 

$

1,475,364

 

 

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

 

Nine Months Ended

 

 

September 30,
2020
(unaudited)

 

June 30,
2020
(unaudited)

 

September 30,
2019
(unaudited)

 

September 30,
2020
(unaudited)

 

September 30,
2019  
(unaudited)

Interest and dividend income:

 

 

 

 

 

 

 

 

 

 

Interest and fees on loans

 

$

14,154

 

 

 

$

14,687

 

 

 

$

14,646

 

 

 

$

44,300

 

 

 

$

40,036

 

 

Interest on investments

 

1,064

 

 

 

1,199

 

 

 

1,577

 

 

 

3,712

 

 

 

4,241

 

 

Total interest and dividend income

 

15,218

 

 

 

15,886

 

 

 

16,223

 

 

 

48,012

 

 

 

44,277

 

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

Interest on deposits

 

2,255

 

 

 

2,607

 

 

 

3,371

 

 

 

8,042

 

 

 

8,890

 

 

Interest on FHLB and FRB borrowed funds

 

430

 

 

 

448

 

 

 

639

 

 

 

1,386

 

 

 

2,213

 

 

Interest on other borrowed funds

 

624

 

 

 

528

 

 

 

620

 

 

 

1,701

 

 

 

1,436

 

 

Total interest expense

 

3,309

 

 

 

3,583

 

 

 

4,630

 

 

 

11,129

 

 

 

12,539

 

 

Net interest income before provision for loan losses

 

11,909

 

 

 

12,303

 

 

 

11,593

 

 

 

36,883

 

 

 

31,738

 

 

Provision for loan losses

 

1,500

 

 

 

1,750

 

 

 

575

 

 

 

5,250

 

 

 

2,125

 

 

Net interest income after provision for loan losses

 

10,409

 

 

 

10,553

 

 

 

11,018

 

 

 

31,633

 

 

 

29,613

 

 

Non-interest income:

 

 

 

 

 

 

 

 

 

 

Service charges on deposit accounts

 

431

 

 

 

345

 

 

 

625

 

 

 

1,336

 

 

 

1,756

 

 

Interchange income

 

556

 

 

 

489

 

 

 

476

 

 

 

1,509

 

 

 

1,267

 

 

Loan servicing income

 

1,144

 

 

 

1,315

 

 

 

714

 

 

 

3,144

 

 

 

1,902

 

 

Gain on sale of loans

 

1,987

 

 

 

1,818

 

 

 

679

 

 

 

4,585

 

 

 

1,560

 

 

Loan fees and service charges

 

320

 

 

 

244

 

 

 

471

 

 

 

1,041

 

 

 

860

 

 

Insurance commission income

 

1

 

 

 

195

 

 

 

197

 

 

 

475

 

 

 

573

 

 

Net gains (losses) on investment securities

 

(1)

 

 

 

25

 

 

 

96

 

 

 

97

 

 

 

151

 

 

Net gain (loss) on sale of branch

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,295

 

 

Net gain (loss) on sale of acquired business lines

 

180

 

 

 

252

 

 

 

 

 

 

 

432

 

 

 

 

 

 

Settlement proceeds

 

 

 

 

 

131

 

 

 

 

 

 

 

131

 

 

 

 

 

 

Other

 

444

 

 

 

199

 

 

 

363

 

 

 

928

 

 

 

827

 

 

Total non-interest income

 

5,062

 

 

 

5,013

 

 

 

3,621

 

 

 

13,678

 

 

 

11,191

 

 

Non-interest expense:

 

 

 

 

 

 

 

 

 

 

Compensation and related benefits

 

5,538

 

 

 

5,908

 

 

 

5,295

 

 

 

16,881

 

 

 

14,605

 

 

Occupancy

 

993

 

 

 

899

 

 

 

905

 

 

 

2,898

 

 

 

2,725

 

 

Office

 

532

 

 

 

575

 

 

 

599

 

 

 

1,650

 

 

 

1,649

 

 

Data processing

 

1,145

 

 

 

1,024

 

 

 

1,092

 

 

 

3,165

 

 

 

2,953

 

 

Amortization of intangible assets

 

399

 

 

 

412

 

 

 

412

 

 

 

1,223

 

 

 

1,085

 

 

Mortgage servicing rights expense

 

603

 

 

 

991

 

 

 

325

 

 

 

2,330

 

 

 

822

 

 

Advertising, marketing and public relations

 

260

 

 

 

303

 

 

 

315

 

 

 

802

 

 

 

974

 

 

FDIC premium assessment

 

188

 

 

 

180

 

 

 

78

 

 

 

436

 

 

 

318

 

 

Professional services

 

434

 

 

 

353

 

 

 

561

 

 

 

1,391

 

 

 

1,961

 

 

Gains on repossessed assets, net

 

(105)

 

 

 

(22)

 

 

 

(16)

 

 

 

(195)

 

 

 

(143)

 

 

Other

 

737

 

 

 

769

 

 

 

3,409

 

 

 

2,266

 

 

 

5,309

 

 

Total non-interest expense

 

10,724

 

 

 

11,392

 

 

 

12,975

 

 

 

32,847

 

 

 

32,258

 

 

Income before provision for income taxes

 

4,747

 

 

 

4,174

 

 

 

1,664

 

 

 

12,464

 

 

 

8,546

 

 

Provision for income taxes

 

1,267

 

 

 

1,105

 

 

 

430

 

 

 

3,309

 

 

 

2,252

 

 

Net income attributable to common stockholders

 

$

3,480

 

 

 

$

3,069

 

 

 

$

1,234

 

 

 

$

9,155

 

 

 

$

6,294

 

 

Per share information:

 

 

 

 

 

 

 

 

 

 

Basic earnings

 

$

0.31

 

 

 

$

0.28

 

 

 

$

0.11

 

 

 

$

0.82

 

 

 

$

0.57

 

 

Diluted earnings

 

$

0.31

 

 

 

$

0.28

 

 

 

$

0.11

 

 

 

$

0.82

 

 

 

$

0.57

 

 

Cash dividends paid

 

$

 

 

 

 

$

 

 

 

 

$

 

 

 

 

$

0.21

 

 

 

$

0.20

 

 

Book value per share at end of period

 

$

14.10

 

 

 

$

13.70

 

 

 

$

13.13

 

 

 

$

14.10

 

 

 

$

13.13

 

 

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

 

$

10.75

 

 

 

$

10.31

 

 

 

$

9.60

 

 

 

$

10.75

 

 

 

$

9.60

 

 

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)
(in thousands, except per share data)

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30, 2020

 

June 30, 2020

 

September 30, 2019

 

September 30, 2020

 

September 30, 2019

 

 

 

 

 

 

 

 

 

 

GAAP pretax income

 

$

4,747

 

 

 

$

4,174

 

 

 

$

1,664

 

 

$

12,464

 

 

 

$

8,546

 

 

Merger related costs

 

 

 

 

 

 

 

 

 

2,911

 

 

 

 

 

 

3,776

 

 

Branch closure costs (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

15

 

 

Audit and Financial Reporting (2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

358

 

 

Net gain on sale of branch (3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,295)

 

 

Net gain on sale of acquired business lines (4)

 

(180)

 

 

 

(252)

 

 

 

 

 

 

(432)

 

 

 

 

 

 

Settlement proceeds (5)

 

 

 

 

 

(131)

 

 

 

 

 

 

(131)

 

 

 

 

 

 

Pretax income as adjusted (6)

 

4,567

 

 

 

3,791

 

 

 

4,575

 

 

11,901

 

 

 

10,400

 

 

Provision for income tax on net income as
adjusted (7)

 

1,219

 

 

 

1,005

 

 

 

1,180

 

 

3,166

 

 

 

2,746

 

 

Net income as adjusted after income taxes
(non-GAAP) (6)

 

$

3,348

 

 

 

$

2,786

 

 

 

$

3,395

 

 

$

8,735

 

 

 

$

7,654

 

 

GAAP diluted earnings per share, net of tax

 

$

0.31

 

 

 

$

0.28

 

 

 

$

0.11

 

 

$

0.82

 

 

 

$

0.57

 

 

Merger related costs, net of tax

 

 

 

 

 

 

 

 

 

0.19

 

 

 

 

 

 

0.25

 

 

Branch closure costs, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Audit and Financial Reporting

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

0.02

 

 

Net gain on sale of branch

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(0.15)

 

 

Net gain on sale of acquired business lines

 

(0.01)

 

 

 

(0.02)

 

 

 

 

 

 

(0.03)

 

 

 

 

 

 

Settlement proceeds

 

 

 

 

 

(0.01)

 

 

 

 

 

 

(0.01)

 

 

 

 

 

 

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

 

$

0.30

 

 

 

$

0.25

 

 

 

$

0.30

 

 

$

0.78

 

 

 

$

0.69

 

 

 

 

 

 

 

 

 

 

 

 

 

Average diluted shares outstanding

 

11,155,337

 

 

 

11,150,785

 

 

 

11,276,005

 

 

11,172,641

 

 

 

11,068,227

 

 

(1)  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.
(2) Audit and financial reporting costs include additional audit and professional fees related to the change in our year end from September 30 to December 31, effective December 31, 2018.
(3) Gain on sale of branch resulted from the sale of our sole Michigan office in Rochester Hills.
(4) Gain on sale of acquired business lines resulted from (1) the sale of Wells Insurance Agency and (2) the termination and sale of the wealth management business line sales contract acquired in a former acquisition.  
(5) Settlement proceeds includes litigation income from a JP Morgan Residential Mortgage Backed Security (RMBS) claim.  This distribution represents a supplement to the proceeds received in March 2017 from a JP Morgan RMBS previously owned by the Bank and sold in 2011.
(6) Net income as adjusted is a non-GAAP measure that management believes enhances the markets ability to assess the underlying business performance and trends related to core business activities.
(7)  Provision for income tax on net income as adjusted is calculated at our effective tax rate for each respective period presented.


Nonperforming Originated and Acquired Assets
(in thousands, except ratios)

 

 

September 30, 2020 
and Three Months
Ended

 

June 30, 2020 and
Three Months
Ended

 

December 31, 2019
and Three Months
Ended

 

September 30, 2019
and Three Months
Ended

Nonperforming assets:

 

 

 

 

 

 

 

 

Originated nonperforming assets:

 

 

 

 

 

 

 

 

Nonaccrual loans

 

$

3,255

 

 

$

3,951

 

 

$

4,285

 

 

$

4,816

 

Accruing loans past due 90 days or more

 

698

 

 

1,455

 

 

946

 

 

842

 

Total originated nonperforming loans (NPL)

 

3,953

 

 

5,406

 

 

5,231

 

 

5,658

 

Other real estate owned (OREO)

 

352

 

 

270

 

 

441

 

 

195

 

Other collateral owned

 

56

 

 

42

 

 

28

 

 

25

 

Total originated nonperforming assets (NPAs)

 

$

4,361

 

 

$

5,718

 

 

$

5,700

 

 

$

5,878

 

Acquired nonperforming assets:

 

 

 

 

 

 

 

 

Nonaccrual loans

 

$

9,899

 

 

$

10,836

 

 

$

14,771

 

 

$

14,206

 

Accruing loans past due 90 days or more

 

252

 

 

425

 

 

158

 

 

257

 

Total acquired nonperforming loans (NPL)

 

10,151

 

 

11,261

 

 

14,929

 

 

14,463

 

Other real estate owned (OREO)

 

404

 

 

422

 

 

988

 

 

1,153

 

Other collateral owned

 

 

 

 

 

 

 

3

 

 

 

 

Total acquired nonperforming assets (NPAs)

 

$

10,555

 

 

$

11,683

 

 

$

15,920

 

 

$

15,616

 

Total nonperforming assets (NPAs)

 

$

14,916

 

 

$

17,401

 

 

$

21,620

 

 

$

21,494

 

Loans, end of period

 

$

1,230,139

 

 

$

1,281,175

 

 

$

1,177,380

 

 

$

1,124,378

 

Total assets, end of period

 

$

1,622,593

 

 

$

1,607,514

 

 

$

1,531,249

 

 

$

1,475,364

 

Ratios:

 

 

 

 

 

 

 

 

Originated NPLs to total loans

 

0.32%

 

 

0.42%

 

 

0.44%

 

 

0.50%

 

Acquired NPLs to total loans

 

0.83%

 

 

0.88%

 

 

1.27%

 

 

1.29%

 

Originated NPAs to total assets

 

0.27%

 

 

0.35%

 

 

0.37%

 

 

0.40%

 

Acquired NPAs to total assets

 

0.65%

 

 

0.73%

 

 

1.04%

 

 

1.06%

 

Nonperforming Total Assets

(in thousand, except ratios)

 

 

September 30, 2020 
and Three Months
Ended

 

June 30, 2020 and
Three Months
Ended

 

December 31, 2019
and Three Months
Ended

 

September 30, 2019
and Three Months
Ended

Nonperforming assets:

 

 

 

 

 

 

 

 

Nonaccrual loans

 

 

 

 

 

 

 

 

Commercial real estate

 

$

2,762

 

 

$

3,221

 

 

$

5,705

 

 

$

6,324

 

Agricultural real estate

 

5,252

 

 

5,979

 

 

7,568

 

 

6,191

 

Commercial and industrial (C&I)

 

853

 

 

1,306

 

 

1,850

 

 

2,072

 

Agricultural operating

 

1,651

 

 

1,496

 

 

1,702

 

 

1,989

 

Residential mortgage

 

2,536

 

 

2,666

 

 

2,063

 

 

2,255

 

Consumer installment 100 119 168 191 Total nonaccrual loans $13,154 $14,787 $19,056 $19,022 Accruing loans past due 90 days or more 950 1,880 1,104 1,099 Total nonperforming loans (“NPLs”) 14,104 16,667 20,160 20,121 Foreclosed and repossessed assets, net 812 734 1,460 1,373 Total nonperforming assets (“NPAs”) $14,916 $17,401 $21,620 $21,494 Troubled Debt Restructurings (“TDRs”) $19,778 $13,119 $12,594 $11,795 Nonaccrual TDRs $7,199 $6,992 $7,198 $4,601 Loans, end of period $1,230,139 $1,281,175 $1,177,380 $1,124,378 Total assets, end of period $1,622,593 $1,607,514 $1,531,249 $1,475,364 Ratios: NPLs to total loans 1.15% 1.30% 1.71% 1.79% NPAs to total assets 0.92% 1.08% 1.41% 1.46%

Allowance for Loan Losses
(in thousand, except ratios)

September 30, 2020
and Three Months
Ended

June 30, 2020 and
Three Months
Ended

December 31, 2019
and Three Months
Ended

September 30, 2019
and Three Months
Ended

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

$

13,373

$

11,835

$

9,177

$

8,759

Loans charged off:

Commercial/Agricultural real estate

(156

)

C&I/Agricultural operating

(103

)

(246

)

Residential mortgage

(51

)

(16

)

(133

)

Consumer installment

(10

)

(65

)

(119

)

(46

)

Total loans charged off

(164

)

(311

)

(291

)

(179

)

Recoveries of loans previously charged off:

Commercial/Agricultural real estate

73

76

C&I/Agricultural operating

33

Residential mortgage

1

6

3

1

Consumer installment

20

17

31

21

Total recoveries of loans previously charged off:

127

99

34

22

Net loans charged off (“NCOs”)

(37

)

(212

)

(257

)

(157

)

Additions to ALL via provision for loan losses charged to operations

1,500

1,750

1,400

575

ALL, at end of period

$

14,836

$

13,373

$

10,320

$

9,177

Average outstanding loan balance

$

1,258,224

$

1,266,273

$

1,136,330

$

1,143,252

Ratios:

NCOs (annualized) to average loans

0.01%

0.07%

0.09%

0.05%


Loan Composition (in thousands)

September 30, 2020

June 30, 2020

December 31, 2019

September 30, 2019

Originated Loans:

Commercial/Agricultural real estate:

Commercial real estate

$

322,028

$

314,390

$

302,546

$

244,809

Agricultural real estate

32,530

35,138

34,026

34,527

Multi-family real estate

100,148

90,617

71,877

69,556

Construction and land development

80,992

94,856

71,467

52,319

C&I/Agricultural operating:

Commercial and industrial

79,959

80,369

89,730

80,941

Agricultural operating

24,324

25,813

20,717

22,057

Residential mortgage:

Residential mortgage

90,100

95,664

108,619

114,507

Purchased HELOC loans

6,547

6,861

8,407

10,120

Consumer installment:

Originated indirect paper

28,535

32,031

39,585

42,894

Other consumer

13,221

14,175

15,546

15,718

Originated loans before SBA PPP loans

778,384

789,914

762,520

687,448

SBA PPP loans

139,166

137,330

Total originated loans

$

917,550

$

927,244

$

762,520

$

687,448

Acquired Loans:

Commercial/Agricultural real estate:

Commercial real estate

$

178,645

$

195,335

$

211,913

$

220,237

Agricultural real estate

40,613

43,054

51,337

54,914

Multi-family real estate

9,520

13,022

15,131

18,202

Construction and land development

8,346

15,276

14,943

13,231

C&I/Agricultural operating:

Commercial and industrial

24,413

29,477

44,004

46,291

Agricultural operating

9,634

12,124

17,063

17,770

Residential mortgage:

Residential mortgage

51,754

56,760

67,713

73,563

Consumer installment:

Other consumer

1,409

1,639

2,640

3,052

Total acquired loans

$

324,334

$

366,687

$

424,744

$

447,260

Total Loans:

Commercial/Agricultural real estate:

Commercial real estate

$

500,673

$

509,725

$

514,459

$

465,046

Agricultural real estate

73,143

78,192

85,363

89,441

Multi-family real estate

109,668

103,639

87,008

87,758

Construction and land development

89,338

110,132

86,410

65,550

C&I/Agricultural operating:

Commercial and industrial

104,372

109,846

133,734

127,232

Agricultural operating

33,958

37,937

37,780

39,827

Residential mortgage:

Residential mortgage

141,854

152,424

176,332

188,070

Purchased HELOC loans

6,547

6,861

8,407

10,120

Consumer installment:

Originated indirect paper

28,535

32,031

39,585

42,894

Other consumer

14,630

15,814

18,186

18,770

Gross loans before SBA PPP loans

1,102,718

1,156,601

1,187,264

1,134,708

SBA PPP loans

139,166

137,330

Gross loans

$

1,241,884

$

1,293,931

$

1,187,264

$

1,134,708

Unearned net deferred fees and costs and loans in process

(5,033)

(5,369)

(393)

(158)

Unamortized discount on acquired loans

(6,712)

(7,387)

(9,491)

(10,172)

Total loans receivable

$

1,230,139

$

1,281,175

$

1,177,380

$

1,124,378

Deposit Composition
(in thousands)

September 30,
2020

June 30,
2020

December 31,
2019

September 30,
2019

Non-interest bearing demand deposits

$

229,217

$

223,536

$

168,157

$

174,202

Interest bearing demand deposits

279,648

270,116

223,102

209,644

Savings accounts

191,511

185,816

156,599

165,419

Money market accounts

246,651

242,536

246,430

193,654

Certificate accounts

323,751

350,193

401,414

418,831

Total deposits

$

1,270,778

$

1,272,197

$

1,195,702

$

1,161,750

Average balances, Interest Yields and Rates
(in thousands, except yields and rates)

Three months ended September 30, 2020

Three months ended June 30, 2020

Three months ended September 30, 2019

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

$

77,774

$

18

0.09

%

$

19,995

$

5

0.10

%

$

32,376

$

203

2.49

%

Loans receivable

1,258,224

14,154

4.48

%

1,266,273

14,687

4.66

%

1,143,252

14,646

5.08

%

Interest bearing deposits

3,752

23

2.44

%

3,788

23

2.44

%

5,577

34

2.42

%

Investment securities (1)

166,622

846

2.02

%

174,875

988

2.27

%

185,921

1,174

2.56

%

Other investments

15,145

177

4.65

%

15,160

183

4.86

%

13,072

166

5.04

%

Total interest earning assets (1)

$

1,521,517

$

15,218

3.98

%

$

1,480,091

$

15,886

4.32

%

$

1,380,198

$

16,223

4.67

%

Average interest bearing liabilities:

Savings accounts

$

183,381

$

98

0.21

%

$

171,285

$

99

0.23

%

$

158,967

$

155

0.39

%

Demand deposits

285,993

231

0.32

%

267,429

260

0.39

%

219,955

550

0.99

%

Money market accounts

255,160

280

0.44

%

243,264

350

0.58

%

200,647

593

1.17

%

CD’s

297,691

1,469

1.96

%

328,543

1,706

2.09

%

381,331

1,870

1.95

%

IRA’s

41,852

177

1.68

%

42,117

192

1.83

%

44,184

203

1.82

%

Total deposits

$

1,064,077

$

2,255

0.84

%

$

1,052,638

$

2,607

1.00

%

$

1,005,084

$

3,371

1.33

%

FHLB advances and other borrowings

173,758

1,054

2.41

%

186,191

976

2.11

%

169,908

1,259

2.94

%

Total interest bearing liabilities

$

1,237,835

$

3,309

1.06

%

$

1,238,829

$

3,583

1.16

%

$

1,174,992

$

4,630

1.56

%

Net interest income

$

11,909

$

12,303

$

11,593

Interest rate spread

2.92

%

3.16

%

3.11

%

Net interest margin (1)

3.11

%

3.34

%

3.34

%

Average interest earning assets to average interest bearing liabilities

1.23

1.19

1.17

(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 September 30, 2020, June 30, 2020 and September 30, 2019. The FTE adjustment to net interest income included in the rate calculations totaled $0, $0 and $27 thousand for the three months ended September 30, 2020, June 30, 2020, and September 30, 2019, respectively.

Nine months ended September 30, 2020

Nine months ended September 30, 2019

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

$

42,946

$

141

0.44

%

$

29,489

$

542

2.46

%

Loans receivable

1,232,678

44,300

4.80

%

1,054,492

40,036

5.08

%

Interest bearing deposits

3,967

73

2.46

%

6,153

107

2.33

%

Investment securities (1)

173,595

2,965

2.28

%

167,023

3,119

2.58

%

Other investments

15,104

533

4.71

%

11,853

473

5.34

%

Total interest earning assets (1)

$

1,468,290

$

48,012

4.37

%

$

1,269,010

$

44,277

4.68

%

Average interest bearing liabilities:

Savings accounts

$

169,754

$

348

0.27

%

$

156,851

$

479

0.41

%

Demand deposits

262,748

865

0.44

%

200,387

1,288

0.86

%

Money market accounts

244,965

1,240

0.68

%

172,671

1,423

1.10

%

CD’s

326,776

5,021

2.05

%

348,139

5,163

1.98

%

IRA’s

42,221

568

1.80

%

41,576

537

1.73

%

Total deposits

$

1,046,464

$

8,042

1.03

%

$

919,624

$

8,890

1.29

%

FHLB advances and other borrowings

185,256

3,087

2.23

%

153,960

3,649

3.17

%

Total interest bearing liabilities

$

1,231,720

$

11,129

1.21

%

$

1,073,584

$

12,539

1.56

%

Net interest income

$

36,883

$

31,738

Interest rate spread

3.16

%

3.12

%

Net interest margin (1)

3.36

%

3.35

%

Average interest earning assets to average interest bearing liabilities

1.19

1.18

(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 nine months ended September 30, 2020 and September 30, 2019. The FTE adjustment to net interest income included in the rate calculations totaled $1 thousand and $103 thousand for the nine months ended September 30, 2020 and September 30, 2019, respectively.

The following table reports key financial metric ratios based on a net income and net income as adjusted basis:

Three Months Ended

Nine Months Ended

September 30, 2020

June 30, 2020

September 30,
2019

September 30, 2020

September 30, 2019

Ratios based on net income:

Return on average assets (annualized)

0.85

%

0.78

%

0.34

%

0.87

%

0.61

%

Return on average equity (annualized)

8.93

%

8.23

%

3.35

%

9.05

%

5.94

%

Efficiency ratio

63

%

66

%

85

%

65

%

75

%

Net interest margin with loan purchase accretion

3.11

%

3.34

%

3.34

%

3.36

%

3.35

%

Net interest margin without loan purchase accretion

3.01

%

3.19

%

3.25

%

3.15

%

3.27

%

Ratios based on net income as adjusted (non-GAAP):

Return on average assets as adjusted2 (annualized)

0.82

%

0.71

%

0.93

%

66

%

75

%

Return on average equity as adjusted3 (annualized)

8.59

%

7.47

%

9.22

%

7.69

%

7.23

%

Efficiency ratio4 as adjusted (non-GAAP)

64

%

67

%

66

%

66

%

69

%

Reconciliation of Return on Average Assets as Adjusted (non-GAAP)
(in thousands, except ratios)

Three Months Ended

Nine Months Ended

September 30, 2020

June 30, 2020

September 30, 2019

September 30, 2020

September 30, 2019

GAAP earnings after income taxes

$

3,480

$

3,069

$

1,234

$

9,155

$

6,294

Net income as adjusted after income
taxes (non-GAAP) (1)

$

3,348

$

2,786

$

3,395

$

8,735

$

7,654

Average assets

$

1,627,497

$

1,585,421

$

1,454,455

$

1,580,733

$

1,368,430

Return on average assets (annualized)

0.85

%

0.78

%

0.34

%

0.87

%

0.61

%

Return on average assets as adjusted
(non-GAAP) (annualized)

0.82

%

0.71

%

0.93

%

0.66

%

0.75

%

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

Reconciliation of Return on Average Equity as Adjusted (non-GAAP)
(in thousands, except ratios)

Three Months Ended

Nine Months Ended

September 30, 2020

June 30, 2020

September 30, 2019

September 30, 2020

September 30, 2019

GAAP earnings after income taxes

$

3,480

$

3,069

$

1,234

$

9,155

$

6,294

Net income as adjusted after income
taxes (non-GAAP) (1)

$

3,348

$

2,786

$

3,395

$

8,735

$

7,654

Average equity

$

154,996

$

149,973

$

146,116

$

151,691

$

141,608

Return on average equity (annualized)

8.93

%

8.23

%

3.35

%

9.05

%

5.94

%

Return on average equity as adjusted
(non-GAAP) (annualized)

8.59

%

7.47

%

9.22

%

7.69

%

7.23

%

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

Reconciliation of Efficiency Ratio as Adjusted (non-GAAP)
(in thousands, except ratios)

Three Months Ended

Nine Months Ended

September 30, 2020

June 30, 2020

September 30, 2019

September 30, 2020

September 30, 2019

Non-interest expense (GAAP)

$

10,724

$

11,392

$

12,975

$

32,847

$

32,258

Merger related Costs (1)

(2,911

)

(3,776

)

Branch Closure Costs (1)

(15

)

Audit and financial reporting (1)

(358

)

Non-interest expense as adjusted (non-GAAP)

10,724

11,392

10,064

32,847

28,109

Non-interest income

5,062

5,013

3,621

13,678

11,191

Net interest margin

11,909

12,303

11,593

36,883

31,738

Efficiency ratio denominator (GAAP)

$

16,971

$

17,316

$

15,214

$

50,561

$

42,929

Net gain on sale of branch (1)

(2,295

)

Net gain on acquired business lines (1)

(180

)

(252

)

(432

)

Settlement proceeds (1)

(131

)

(131

)

Efficiency ratio denominator (non-GAAP)

$

16,791

$

16,933

$

15,214

$

49,998

$

40,634

Efficiency ratio (GAAP)

63%

66%

85%

65%

75%

Efficiency ratio as adjusted (non-GAAP)

64%

67%

66%

66%

69%

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


Reconciliation of tangible book value per share (non-GAAP)
(in thousands, except per share data)

Tangible book value per share at end of period

September 30, 2020

June 30, 2020

September 30, 2019

Total stockholders’ equity

$

157,323

$

152,790

$

148,029

Less: Goodwill

(31,498)

(31,498)

(31,841)

Less: Intangible assets

(5,893)

(6,293)

(7,999)

Tangible common equity (non-GAAP)

$

119,932

$

114,999

$

108,189

Ending common shares outstanding

11,154,645

11,150,695

11,270,710

Book value per share

$

14.10

$

13.70

$

13.13

Tangible book value per share (non-GAAP)

$

10.75

$

10.31

$

9.60


Reconciliation of tangible common equity as a percent of tangible assets (non-GAAP)
(in thousands, except ratios)

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

September 30, 2020

June 30, 2020

September 30, 2019

Total stockholders’ equity

$

157,323

$

152,790

$

148,029

Less: Goodwill

(31,498

)

(31,498

)

(31,841

)

Less: Intangible assets

(5,893

)

(6,293

)

(7,999

)

Tangible common equity (non-GAAP)

$

119,932

$

114,999

$

108,189

Total Assets

$

1,622,593

$

1,607,514

$

1,475,364

Less: Goodwill

(31,498

)

(31,498

)

(31,841

)

Less: Intangible assets

(5,893

)

(6,293

)

(7,999

)

Tangible Assets (non-GAAP)

$

1,585,202

$

1,569,723

$

1,435,524

Less SBA PPP Loans

(139,166

)

(137,330

)

Tangible Assets, excluding SBA PPP Loans (non-GAAP)

$

1,446,036

$

1,432,393

$

1,435,524

Total stockholders’ equity to total assets ratio

9.70

%

9.50%

10.03

%

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

7.57

%

7.33%

7.54

%

Tangible common equity as a percent of tangible assets, excluding SBA PPP Loans (non-GAAP)

8.29

%

8.03%

7.54

%

1Net income as adjusted and net income as adjusted per share are non-GAAP financial measures 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)”.

2Return on average assets as adjusted is a non-GAAP measure that management believes enhances investors’ ability to better understand the underlying business performance and trends relative to average assets. For a detailed reconciliation of GAAP to non-GAAP results, see the accompanying financial table “Reconciliation of Return on Average Assets as Adjusted (non-GAAP)”.

3Return on average equity as adjusted is a non-GAAP measure that management believes enhances investors’ ability to better understand the underlying business performance and trends relative to average equity. For a detailed reconciliation of GAAP to non-GAAP results, see the accompanying financial table “Reconciliation of Return on Average Equity as Adjusted (non-GAAP)”.

4The efficiency ratio as adjusted (non-GAAP) is a non-GAAP measure that management believes enhances investors’ ability to better understand the underlying business performance and the Company’s ability to use what it has to generate the most profit possible for shareholders relative to core business activities. For a detailed reconciliation of GAAP to non-GAAP results, see the accompanying financial table “Reconciliation of Efficiency Ratio as Adjusted (non-GAAP)”.

5Tangible book value, tangible 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)”.


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