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Citizens Community Bancorp, Inc. Earns $5.5 Million, or $0.50 Per Share in 1Q21; Record Quarterly Earnings Increase 54% from 4Q20 Earnings; Asset Quality Continues to Improve

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EAU CLAIRE, Wis., April 26, 2021 (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 $5.5 million or $0.50 per diluted share for the quarter ended March 31, 2021 compared to $3.6 million, or $0.32 per diluted share for the quarter ended December 31, 2020, and $2.6 million, or $0.23 per diluted share for the quarter ended March 31, 2020. Net income as adjusted (non-GAAP)1 was $5.6 million or $0.51 per diluted share for the first quarter of 2021, compared to $3.7 million, or $0.33 per diluted share for the preceding quarter and $2.6 million or $0.23 per diluted share for the first quarter a year ago.

The Company’s first quarter 2021 operating results reflected: (1) lower net interest income largely resulting from decreased accretion due to reductions of purchased credit impaired loan payoffs, partially offset by higher accretion of deferred fees on the Small Business Administration’s Paycheck Protection Program (SBA PPP) debt forgiveness; (2) no loan loss provisions, primarily due to loan shrinkage, lower net charge-offs and no provision related to economic uncertainty recorded in 2020; (3) a slow-down in the refinancing market which led to decreased, yet strong gain on sale of loans; and (4) a decrease in non-interest expenses largely due to a reversal of $0.9 million of previously recorded MSR impairment as forecasted future prepayments slowed, and no branch closure costs, offset by modestly higher compensation expense and $0.1 million of debt termination costs.

Book value per share was $14.75 at March 31, 2021 compared to $14.52 at December 31, 2020 and $13.27 at March 31, 2020. Tangible book value per share (non-GAAP)5 was $11.39 at March 31, 2021 compared to $11.18 at December 31, 2020 and $9.80 at March 31, 2020. Book value per share increased $1.48 over the past 12 months, an 11% increase from March 31, 2020. Tangible book value per share increased $1.59 over the past 12 months, a 16% increase from March 31, 2020.

“I am pleased with our Team’s effort in building a strong culture focused on deepening our customer relationships has translated into strong financial results. Our continued focus on building tangible book value, improving asset quality and expense management was demonstrated in the quarter and year over year. Tangible book value increased 16% year over year and the cash dividend was increased 10% to $0.23 per share paid in the first quarter, despite operating in an uncertain environment. Nonperforming assets declined 19% in the quarter and have declined over 50% in the past 12 months. I am optimistic that with COVID-19 vaccinations increasing, our branch lobbies reopening in June, and our cold winter coming to a close, that loan demand should increase, especially since unemployment rates in our markets are below the national averages,” said Stephen Bianchi, Chairman, President and Chief Executive Officer. “We also assisted our business and farming customers seeking a second draw of SBA PPP loans, with the expected $3.3 million of deferred fees to be accreted over the life of the loans,” continued Bianchi.

March 31, 2021 Highlights: (as of or for the 3-month period ended March 31, 2021 compared to December 31, 2020 and March 31, 2020.)

  • Record quarterly earnings of $5.5 million, or $0.50 per diluted share for the first quarter ended March 31, 2021 were led by a continued strong mortgage origination climate, no loan loss provision and lower non-interest expenses supported by a reversal in mortgage servicing rights impairment charges. For the quarter ended December 31, 2020, earnings were $3.6 million or $0.32 per diluted share.

  • Stockholders’ equity as a percent of total assets was to 9.27% at March 31, 2021 compared to 9.74% at December 31, 2020. Tangible common equity as a percent of tangible assets (non-GAAP)5 was 7.32% at March 31, 2021 compared to 7.67% at December 31, 2020. These decreases were due to strong deposit growth which increased liquidity and resulted in asset growth.

  • No loan loss provisions were realized during the quarter ended March 31, 2021 due to improved asset quality, a smaller balance of loans receivable and lower charge-off activity. Economic conditions in our markets continued to improve from those seen in the last quarter of 2020. This has led to improving trends for businesses most impacted by the pandemic, but further improvements in their prospects will depend on the timing and efficacy of vaccinations, and related impact on consumer behavior and business activities.

  • The Bank’s COVID-19 related modifications under Section 4013 of the CARES Act totaled $57.3 million, or 5% of gross loans at March 31, 2021 versus $61 million, or 5% of gross loans at December 31, 2020. At March 31, 2021, hotel industry sector loans represent $48.9 million of the approved deferrals. Approximately $39 million of commercial loan modifications are scheduled to make their principal and interest payment in the second quarter. Approximately 45% of these dollars had a contractual payment due in April and all borrowers made this payment.

  • The allowance for loan losses on originated loans, excluding SBA PPP loans, increased to 1.84% at March 31, 2021 from 1.77% at December 31, 2020. Since SBA PPP loans are guaranteed by the SBA, they are excluded from this reserve calculation. Additionally, loans resulting from Bank acquisitions were effectively marked to market value at the time of their acquisition and were also excluded from this reserve calculation. The allowance for loan losses of $16.9 million, is allocated $15.0 million to the originated loan portfolio and $1.9 million to the acquired loan portfolio.

  • Nonperforming assets continued to decline and at March 31, 2021 were $9.3 million compared to $11.5 million one quarter earlier or a reduction of 19.3%.

Balance Sheet and Asset Quality

Total assets increased $83.2 million during the quarter to $1.73 billion at March 31, 2021 compared to $1.65 billion at December 31, 2020. This increase was approximately the same as the increase in deposits of $84.9 million.

Securities available for sale increased $41.0 million during the quarter ended March 31, 2021 to $185.2 million from $144.2 million at December 31, 2020. The Bank’s securities held to maturity increased $13.9 million in the quarter. This growth was largely through the purchase of 30-year agency mortgage-backed securities. These purchases allowed the Bank to modestly reduce the asset sensitive interest rate profile from December 31, 2020.

Loans receivable decreased by $45.5 million to $1.19 billion at March 31, 2021. The originated loan portfolio before SBA PPP loans decreased $18.3 million in the quarter. This decrease included the repayment of $5.5 million of draws on a line of credit originated the last business day of December and repaid on the first business day of January. Total SBA PPP loans decreased $4.8 million due to debt forgiveness of $52 million, offset by strong new SBA PPP second round loan originations of $47 million. Acquired loans decreased by $22.6 million. This decrease was partially due to reductions in agricultural real estate due to the borrower requesting a long-term fixed-rate loan which the Bank facilitated using Farmer Mac financing.

The allowance for loan losses modestly decreased to $16.9 million at March 31, 2021, representing 1.41% of loans receivable compared to $17.0 million at December 31, 2020, representing 1.38% of loans receivable. Excluding the SBA PPP loans, which are guaranteed by the SBA, the allowance for loan losses was 1.57% at March 31, 2021 compared to 1.53% at December 31, 2020. Approximately 22% of the loan portfolio at March 31, 2021 consists of loans purchased through whole bank acquisitions resulting in these loans being recorded at fair market value at acquisition. The allowance for loan losses as a percent of originated loans excluding PPP loans was 1.84% at March 31, 2021 compared to 1.77% at December 31, 2020. For the quarter ended March 31, 2021, the Bank had net charge-offs of $183,000.

Allowance for Loan Losses Percentages
(in thousands, except ratios)

March 31, 2021

December 31, 2020

September 30, 2020

March 31, 2020

Originated loans, net of deferred fees and costs

$

817,261

$

835,769

$

777,340

$

789,346

SBA PPP loans, net of deferred fees

115,920

120,711

135,177

Acquired loans, net of unamortized discount

258,945

281,101

317,622

391,605

Loans, end of period

$

1,192,126

$

1,237,581

$

1,230,139

$

1,180,951

SBA PPP loans, net of deferred fees

(115,920

)

(120,711

)

(135,177

)

Loans, net of SBA PPP loans and deferred fees

$

1,076,206

$

1,116,870

$

1,094,962

$

1,180,951

Allowance for loan losses allocated to originated loans

$

15,028

$

14,819

$

12,809

$

10,850

Allowance for loan losses allocated to other loans

1,832

2,224

2,027

985

Allowance for loan losses

$

16,860

$

17,043

$

14,836

$

11,835

Non-accretable difference on purchased credit impaired
loans

$

966

$

1,087

$

1,661

$

4,327

ALL as a percentage of loans, end of period

1.41

%

1.38

%

1.21

%

1.00

%

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

1.57

%

1.53

%

1.35

%

1.00

%

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

1.84

%

1.77

%

1.65

%

1.37

%


Nonperforming assets decreased 19.3% to $9.3 million or 0.54% of total assets at March 31, 2021 compared to $11.5 million or 0.70% of total assets at December 31, 2020. Included in nonperforming assets at March 31, 2021 are $6.5 million of nonperforming assets acquired during recent whole-bank acquisitions. Originated nonperforming assets were $2.8 million, or 0.16% of total assets for the most recent quarter. Over the past year, nonperforming assets declined 52% from $19.2 million at March 31, 2020 to $9.3 million at March 31, 2021.

Substandard and special mention loans increased $4.5 million during the quarter ended March 31, 2021 largely due to one hotel loan that moved to special mention. This loan is currently in payment deferral status. Over the past year, total criticized loans decreased 31.3% from $57.8 million at March 31, 2020 to $39.7 million at March 31, 2021.

(in thousands)

March 31, 2021

December 31, 2020

September 30, 2020

June 30, 2020

March 31, 2020

Special mention loan balances

$

13,659

$

6,672

$

7,777

$

19,958

$

19,387

Substandard loan balances

26,064

28,541

32,922

35,911

38,393

Criticized loans, end of period

$

39,723

$

35,213

$

40,699

$

55,869

$

57,780


Deposits increased $84.9 million to $1.38 billion at March 31, 2021 from $1.30 billion at December 31, 2020. The increase was in non-maturity deposits which more than offset the decrease of $23.8 million in certificates of deposit.
The decrease in certificates of deposit was due to the Company choosing not to match higher rate local retail certificate competition.

Review of Operations

Net interest income was $12.8 million for the first quarter ended March 31, 2021 compared to $13.4 million for the fourth quarter ended December 31, 2020 and $12.7 million for the quarter ended March 31, 2020. The net interest margin (“NIM”) decreased to 3.31% in the first quarter ended March 31, 2021 compared to 3.51% for the fourth quarter ended December 31, 2020. The decrease in NIM was primarily due to a larger percentage of lower yielding interest-bearing cash which lowered NIM by 11 basis points, lower yields on loans and securities, the impact of higher yielding loans being replaced by lower yielding investment securities, partially offset by the decrease in liability costs. The net interest margin for the current quarter also reflected a decrease in accretion on purchased credit impaired loans and an increased accretion on SBA PPP loans. Net interest income was negatively impacted by two fewer days in the quarter, which decreased net interest income approximately $0.3 million.

The net interest margin decreased to 3.31% for the quarter ended March 31, 2021 from 3.64% for the quarter ended March 31, 2020. This decrease is largely due to the Federal Reserve decreasing interest rates 125 basis points in six days in March 2020, which resulted in lower loan and security yields, partially offset by lower deposit costs. Approximately half of the decrease is due to uninvested liquidity.

The table below shows the impact of accretion related to purchased credit impaired loans and SBA PPP loans on interest income and NIM.

Net interest income and net interest margin analysis:
(in thousands, except yields and rates)

Three months ended

March 31, 2021

December 31, 2020

September 30, 2020

June 30, 2020

March 31, 2020

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

As reported

$

12,764

3.31

%

$

13,372

3.51

%

$

11,909

3.11

%

$

12,303

3.34

%

$

12,671

3.64

%

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

$

(58

)

(0.02

)

%

$

(324

)

(0.08

)

%

$

(130

)

(0.03

)

%

$

(196

)

(0.05

)

%

$

(1,043

)

(0.30

)

%

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

$

(90

)

(0.02

)

%

$

(872

)

(0.23

)

%

$

%

$

(99

)

(0.03

)

%

$

%

Less scheduled accretion interest

$

(266

)

(0.07

)

%

$

(252

)

(0.07

)

%

$

(276

)

(0.07

)

%

$

(247

)

(0.07

)

%

$

(233

)

(0.07

)

%

Without loan purchase accretion

$

12,350

3.20

%

$

11,924

3.13

%

$

11,503

3.01

%

$

11,761

3.19

%

$

11,395

3.27

%

Less SBA PPP net loan fee accretion

$

(1,750

)

(0.45

)

%

$

(985

)

(0.26

)

%

$

(643

)

(0.17

)

%

$

(500

)

(0.14

)

%

$

%

Without SBA PPP purchase and net loan fee accretion

$

10,600

2.75

%

$

10,939

2.87

%

$

10,860

2.84

%

$

11,261

3.05

%

$

11,395

3.27

%


The table below lists the SBA PPP loans and net deferred loan fee accretion balances related to 2020 and 2021 SBA PPP loan originations:


March 31, 2021

December 31, 2020

Balance

Net Deferred Fee Income

Balance

Net Deferred Fee Income

SBA PPP loans - Round 1

$

71,464

$

1,290

$

123,702

$

2,991

SBA PPP loans - Round 2

47,467

1,721

Total SBA PPP loans

$

118,931

$

3,011

$

123,702

$

2,991


The Bank’s current pipeline would add an additional $7 million of new SBA PPP loans and the Bank should collect an additional $1.6 million in fee income as not all fees associated with loans closed in the first quarter of 2021 were received at March 31, 2021.

The Bank continued to manage deposit interest rates, as various non-maturity deposit product rates were reduced, and interest rates on new and renewed certificates of deposit were lower than the previous quarter. These actions reduced the cost of deposits by 11 basis points in the quarter. At March 31, 2021, the Bank had approximately $160 million of certificate of deposit accounts maturing in 2021 with a weighted average cost of approximately 1.1% and approximately $110 million of certificate of deposit accounts maturing in 2022 with a weighted average cost of approximately 2.0%. The 2021 maturities are approximately evenly spread throughout the year, with approximately 85% of the 2022 maturities occurring in the first half of 2022. The approximate weighted average cost of new certificates in the first quarter of 2021 was below 0.5%.

Loan loss provisions were zero for the quarter ended March 31, 2021 compared to $2.5 million for the quarter ended December 31, 2020 and $2.0 million one year earlier. During the quarter ended March 31, 2021, asset quality improved as indicated by a lower level of non-performing assets, substandard assets and lower loan deferrals under Section 4013 of the Cares Act. This, along with reduced overall loan balances, resulted in an adequate ALLL without recording any loan loss provision in the quarter. Additionally, both the December 31, 2020 and March 31, 2020 quarters had provisions related to increases in Q-Factors related to COVID-19. With decreases in loan deferrals and improvements in general economic conditions, no such Q-factor increase was applied in the quarter ended March 31, 2021. To a lesser extent, the quarters ended December 31, 2020 and March 31, 2020 also had provisions related to loan growth.

Non-interest income decreased $0.6 million in the quarter ended March 31, 2021 to $4.2 million compared to $4.8 million in the quarter ended December 31, 2020 and increased $0.6 million from the quarter ended March 31, 2020. The decrease in the first quarter compared to the fourth quarter was largely due to a modest reduction in gain on sale of loans. This modest reduction was due to the impact of higher interest rates, which slowed refinancing activity and, to a lesser extent, colder weather, which slowed customer purchase activity. The increase during the quarter compared to the year ago quarter was largely due to higher gain on sale of loans, partially offset by the sale of Wells Insurance Agency in the second quarter of 2020 resulting in no insurance commission income in the first quarter of 2021.

Total non-interest expense decreased $1.3 million in the first quarter of 2021 to $9.5 million compared to $10.8 million for the quarter ended December 31, 2020 and $10.7 million for the quarter ended March 31, 2020. The decrease from the fourth quarter was largely due to the reversal of $0.9 million of previously recorded MSR impairment, compared to MSR impairment recorded in the fourth quarter of $0.3 million. This decrease in the first quarter of 2021 was offset by $0.1 million in debt termination charges and a $0.16 million increase in compensation expense, largely due to higher payroll taxes and benefit costs. In addition, the fourth quarter of 2020 had $0.2 million of costs related to the closure of 3 branches in mid-November.

Provisions for income taxes, with record earnings, increased to $1.9 million in the first quarter of 2021 from the fourth quarter of 2020 at $1.2 million. The effective tax rate for the most recent quarter was 26.1% compared to 25.9% for the prior quarter, and 26.4% for the comparable prior year quarter.

These financial results are preliminary until the Form 10-Q is filed in May 2021.

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 25 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; 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 year ended December 31, 2020 filed with the Securities and Exchange Commission (“SEC”) on March 8, 2021 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, net income as adjusted per share, tangible book value, tangible book value per share, tangible common equity as a percent of tangible assets, return on average tangible common equity and return on average tangible common equity as adjusted, 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 and net income as adjusted per share are non-GAAP measures that eliminate 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, tangible common equity as a percent of tangible assets and return on average tangible common equity 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

(CZWI-ER)


CITIZENS COMMUNITY BANCORP, INC.
Consolidated Balance Sheets
(in thousands, except shares and per share data)

March 31, 2021 (unaudited)

December 31, 2020 (audited)

March 31, 2020 (unaudited)

Assets

Cash and cash equivalents

$

196,039

$

119,440

$

41,347

Other interest-bearing deposits

2,016

3,752

4,006

Securities available for sale “AFS”

185,160

144,233

163,435

Securities held to maturity “HTM”

57,419

43,551

10,767

Equity securities with readily determinable fair value

297

200

163

Other investments

15,069

14,948

14,999

Loans receivable

1,192,126

1,237,581

1,180,951

Allowance for loan losses

(16,860

)

(17,043

)

(11,835

)

Loans receivable, net

1,175,266

1,220,538

1,169,116

Loans held for sale

2,267

3,075

3,281

Mortgage servicing rights, net

3,999

3,252

3,728

Office properties and equipment, net

21,081

21,165

21,066

Accrued interest receivable

5,464

5,652

4,822

Intangible assets

5,095

5,494

7,175

Goodwill

31,498

31,498

31,498

Foreclosed and repossessed assets, net

85

197

1,432

Bank owned life insurance (“BOLI”)

23,837

23,684

23,205

Other assets

7,702

8,416

5,124

TOTAL ASSETS

$

1,732,294

$

1,649,095

$

1,505,164

Liabilities and Stockholders’ Equity

Liabilities:

Deposits

$

1,380,202

$

1,295,256

$

1,180,055

Federal Home Loan Bank (“FHLB”) advances

115,481

123,498

123,477

Other borrowings

58,354

58,328

43,576

Other liabilities

17,595

11,449

10,123

Total liabilities

1,571,632

1,488,531

1,357,231

Stockholders’ equity:

Common stock— $0.01 par value,
authorized 30,000,000; 10,893,872;
11,056,349 and 11,151,009 shares issued
and outstanding, respectively

109

111

112

Additional paid-in capital

125,005

126,704

127,732

Retained earnings

35,783

32,809

22,690

Unearned deferred compensation

(1,239

)

(550

)

(992

)

Accumulated other comprehensive income (loss)

1,004

1,490

(1,609

)

Total stockholders’ equity

160,662

160,564

147,933

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$

1,732,294

$

1,649,095

$

1,505,164

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

March 31, 2021 (unaudited)

December 31, 2020 (unaudited)

March 31, 2020 (unaudited)

Interest and dividend income:

Interest and fees on loans

$

14,517

$

15,463

$

15,459

Interest on investments

1,103

1,052

1,449

Total interest and dividend income

15,620

16,515

16,908

Interest expense:

Interest on deposits

1,714

1,958

3,180

Interest on FHLB and FRB borrowed funds

411

428

508

Interest on other borrowed funds

731

757

549

Total interest expense

2,856

3,143

4,237

Net interest income before provision for loan losses

12,764

13,372

12,671

Provision for loan losses

2,500

2,000

Net interest income after provision for loan losses

12,764

10,872

10,671

Non-interest income:

Service charges on deposit accounts

398

496

560

Interchange income

530

520

464

Loan servicing income

893

1,014

685

Gain on sale of loans

1,595

2,108

780

Loan fees and service charges

278

342

477

Insurance commission income

279

Net gains on investment securities

235

13

73

Other

247

277

285

Total non-interest income

4,176

4,770

3,603

Non-interest expense:

Compensation and related benefits

5,596

5,440

5,435

Occupancy

992

1,017

1,006

Office

390

502

543

Data processing

1,276

1,255

1,017

Amortization of intangible assets

399

399

412

Mortgage servicing rights expense

(450

)

720

736

Advertising, marketing and public relations

163

165

239

FDIC premium assessment

165

148

68

Professional services

521

438

604

Gains on repossessed assets, net

(117

)

(64

)

(68

)

Other

554

806

739

Total non-interest expense

9,489

10,826

10,731

Income before provision for income taxes

7,451

4,816

3,543

Provision for income taxes

1,945

1,246

937

Net income attributable to common stockholders

$

5,506

$

3,570

$

2,606

Per share information:

Basic earnings

$

0.50

$

0.32

$

0.23

Diluted earnings

$

0.50

$

0.32

$

0.23

Cash dividends paid

$

0.23

$

$

0.21

Book value per share at end of period

$

14.75

$

14.52

$

13.27

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

$

11.39

$

11.18

$

9.80

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

Twelve Months Ended

March 31, 2021

December 31, 2020

March 31, 2020

December 31, 2020

GAAP pretax income

$

7,451

$

4,816

$

3,543

$

17,280

Branch closure costs (1)

165

165

Net gain on sale of acquired business lines (2)

(432

)

Settlement proceeds (3)

(131

)

FHLB borrowings prepayment fee (4)

102

Pretax income as adjusted (5)

7,553

4,981

3,543

16,882

Provision for income tax on net income as adjusted (6)

1,971

1,290

937

4,457

Net income as adjusted after income taxes (non-GAAP) (5)

$

5,582

$

3,691

$

2,606

$

12,425

GAAP diluted earnings per share, net of tax

$

0.50

$

0.32

$

0.23

$

1.14

Branch closure costs, net of tax

0.01

0.01

Net gain on sale of acquired business lines

(0.03

)

Settlement proceeds

(0.01

)

FHLB borrowings prepayment fee

$

0.01

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

$

0.51

$

0.33

$

0.23

$

1.11

Average diluted shares outstanding

10,985,994

11,128,628

11,219,660

11,161,811


(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) Net 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.
(3) 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.
(4) FHLB borrowings prepayment fee resulted from the early termination of $8 million in FHLB borrowings at a weighted average rate of 2.19% and weighted average maturity of 8.75 months included in other non-interest expense in the consolidated statement of operations.
(5) 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.
(6) Provision for income tax on net income as adjusted is calculated at our effective tax rate for each respective period presented.


Loan Composition (in thousands)

March 31, 2021

December 31, 2020

March 31, 2020

Originated Loans:

Commercial/Agricultural real estate:

Commercial real estate

$

365,603

$

351,113

$

313,147

Agricultural real estate

38,140

31,741

35,652

Multi-family real estate

111,503

112,731

89,474

Construction and land development

83,936

91,241

81,685

C&I/Agricultural operating:

Commercial and industrial

76,693

95,290

85,249

Agricultural operating

21,149

24,457

22,700

Residential mortgage:

Residential mortgage

82,285

86,283

102,854

Purchased HELOC loans

5,291

6,260

7,601

Consumer installment:

Originated indirect paper

23,186

25,851

36,414

Other consumer

10,951

12,056

15,080

Originated loans before SBA PPP loans

818,737

837,023

789,856

SBA PPP loans

118,931

123,702

Total originated loans

$

937,668

$

960,725

$

789,856

Acquired Loans:

Commercial/Agricultural real estate:

Commercial real estate

$

149,586

$

156,562

$

207,003

Agricultural real estate

32,427

37,054

47,766

Multi-family real estate

7,485

9,421

13,509

Construction and land development

6,796

7,276

14,233

C&I/Agricultural operating:

Commercial and industrial

19,240

21,263

36,757

Agricultural operating

7,101

8,328

15,240

Residential mortgage:

Residential mortgage

40,046

45,103

62,957

Consumer installment:

Other consumer

913

1,157

2,104

Total acquired loans

$

263,594

$

286,164

$

399,569

Total Loans:

Commercial/Agricultural real estate:

Commercial real estate

$

515,189

$

507,675

$

520,150

Agricultural real estate

70,567

68,795

83,418

Multi-family real estate

118,988

122,152

102,983

Construction and land development

90,732

98,517

95,918

C&I/Agricultural operating:

Commercial and industrial

95,933

116,553

122,006

Agricultural operating

28,250

32,785

37,940

Residential mortgage:

Residential mortgage

122,331

131,386

165,811

Purchased HELOC loans

5,291

6,260

7,601

Consumer installment:

Originated indirect paper

23,186

25,851

36,414

Other consumer

11,864

13,213

17,184

Gross loans before SBA PPP loans

1,082,331

1,123,187

1,189,425

SBA PPP loans

118,931

123,702

Gross loans

$

1,201,262

$

1,246,889

$

1,189,425

Unearned net deferred fees and costs and loans in process

(4,487

)

(4,245

)

(510

)

Unamortized discount on acquired loans

(4,649

)

(5,063

)

(7,964

)

Total loans receivable

$

1,192,126

$

1,237,581

$

1,180,951


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

March 31, 2021 and
Three Months Ended

December 31, 2020
and Three Months Ended

March 31, 2020 and
Three Months Ended

Nonperforming assets:

Originated nonperforming assets:

Nonaccrual loans

$

2,344

$

3,649

$

4,017

Accruing loans past due 90 days or more

391

415

1,174

Total originated nonperforming loans (“NPL”)

2,735

4,064

5,191

Other real estate owned (“OREO”)

63

337

Other collateral owned

28

41

20

Total originated nonperforming assets (“NPAs”)

$

2,763

$

4,168

$

5,548

Acquired nonperforming assets:

Nonaccrual loans

$

6,335

$

7,098

$

12,073

Accruing loans past due 90 days or more

145

171

496

Total acquired nonperforming loans (“NPL”)

6,480

7,269

12,569

Other real estate owned (“OREO”)

57

93

1,075

Other collateral owned

Total acquired nonperforming assets (“NPAs”)

$

6,537

$

7,362

$

13,644

Total nonperforming assets (“NPAs”)

$

9,300

$

11,530

$

19,192

Loans, end of period

$

1,192,126

$

1,237,581

$

1,180,951

Total assets, end of period

$

1,732,294

$

1,649,095

$

1,505,164

Ratios:

Originated NPLs to total loans

0.23

%

0.33

%

0.44

%

Acquired NPLs to total loans

0.54

%

0.59

%

1.06

%

Originated NPAs to total assets

0.16

%

0.25

%

0.37

%

Acquired NPAs to total assets

0.38

%

0.45

%

0.91

%


Nonperforming Total Assets
(in thousands, except ratios)

March 31, 2021 and
Three Months Ended

December 31, 2020
and Three Months Ended

March 31, 2020 and
Three Months Ended

Nonperforming assets:

Nonaccrual loans

Commercial real estate

$

760

$

827

$

3,505

Agricultural real estate

4,511

5,084

7,162

Commercial and industrial (“C&I”)

391

357

1,360

Agricultural operating

764

1,872

1,739

Residential mortgage

2,167

2,451

2,139

Consumer installment

86

156

185

Total nonaccrual loans

$

8,679

$

10,747

$

16,090

Accruing loans past due 90 days or more

536

586

1,670

Total nonperforming loans (“NPLs”)

9,215

11,333

17,760

Foreclosed and repossessed assets, net

85

197

1,432

Total nonperforming assets (“NPAs”)

$

9,300

$

11,530

$

19,192

Troubled Debt Restructurings (“TDRs”)

$

17,442

$

18,477

$

12,088

Nonaccrual TDRs

$

5,690

$

6,735

$

7,711

Loans, end of period

$

1,192,126

$

1,237,581

$

1,180,951

Total assets, end of period

$

1,732,294

$

1,649,095

$

1,505,164

Ratios:

NPLs to total loans

0.77

%

0.92

%

1.50

%

NPAs to total assets

0.54

%

0.70

%

1.28

%


Deposit Composition
(in thousands)

March 31,
2021

December 31,
2020

March 31,
2020

Non-interest bearing demand deposits

$

257,042

$

238,348

$

150,139

Interest bearing demand deposits

352,302

301,764

242,824

Savings accounts

222,448

196,348

161,038

Money market accounts

258,942

245,549

243,715

Certificate accounts

289,468

313,247

382,339

Total deposits

$

1,380,202

$

1,295,256

$

1,180,055


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

Three months ended March 31, 2021

Three months ended December, 31 2020

Three months ended March, 31 2020

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

$

129,642

$

29

0.09

%

$

79,225

$

21

0.11

%

$

31,069

$

118

1.53

%

Loans receivable

1,213,562

14,517

4.85

%

1,240,895

15,463

4.96

%

1,172,246

15,459

5.30

%

Interest bearing deposits

3,437

20

2.36

%

3,752

23

2.44

%

4,362

27

2.49

%

Investment securities (1)

202,981

885

1.77

%

176,802

824

1.85

%

179,287

1,131

2.54

%

Other investments

15,038

169

4.56

%

15,015

184

4.88

%

15,006

173

4.64

%

Total interest earning assets (1)

$

1,564,660

$

15,620

4.05

%

$

1,515,689

$

16,515

4.33

%

$

1,401,970

$

16,908

4.85

%

Average interest bearing liabilities:

Savings accounts

$

197,647

$

83

0.17

%

$

187,474

$

87

0.18

%

$

154,596

$

151

0.39

%

Demand deposits

330,674

251

0.31

%

285,001

200

0.28

%

234,822

375

0.64

%

Money market accounts

254,120

202

0.32

%

243,631

206

0.34

%

236,470

609

1.04

%

CD’s

266,044

1,043

1.59

%

284,728

1,304

1.82

%

354,095

1,846

2.10

%

IRA’s

40,877

135

1.34

%

41,493

161

1.54

%

42,695

199

1.87

%

Total deposits

$

1,089,362

$

1,714

0.64

%

$

1,042,327

$

1,958

0.75

%

$

1,022,678

$

3,180

1.25

%

FHLB advances and other borrowings

180,635

1,142

2.56

%

182,463

1,185

2.58

%

146,810

1,057

2.90

%

Total interest bearing liabilities

$

1,269,997

$

2,856

0.91

%

$

1,224,790

$

3,143

1.02

%

$

1,169,488

$

4,237

1.46

%

Net interest income

$

12,764

$

13,372

$

12,671

Interest rate spread

3.14

%

3.31

%

3.39

%

Net interest margin (1)

3.31

%

3.51

%

3.64

%

Average interest earning assets to
average interest bearing liabilities

1.23

1.24

1.20



(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, 2021, December 31, 2020 and March 31, 2020. The FTE adjustment to net interest income included in the rate calculations totaled $1, $1 and $0 thousand for the three months ended March 31, 2021, December 31, 2020 and March 31, 2020, respectively.


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

Three Months Ended

March 31, 2021

December 31, 2020

March 31, 2020

Ratios based on net income:

Return on average assets (annualized)

1.33

%

0.87

%

0.69

%

Return on average equity (annualized)

13.97

%

8.93

%

7.01

%

Return on average tangible common equity5 (annualized)

18.14

%

11.67

%

11.45

%

Efficiency ratio

56

%

60

%

66

%

Net interest margin with loan purchase accretion

3.31

%

3.51

%

3.64

%

Net interest margin without loan purchase accretion

3.20

%

3.13

%

3.27

%

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

Return on average assets as adjusted2 (annualized)

1.35

%

0.90

%

0.69

%

Return on average equity as adjusted3 (annualized)

14.16

%

9.24

%

7.01

%

Return on average tangible common equity as adjusted5 (annualized)

18.39

%

12.06

%

9.50

%

Efficiency ratio4 as adjusted (non-GAAP)

55

%

59

%

66

%


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

Three Months Ended

March 31, 2021

December 31, 2020

March 31 2020

GAAP earnings after income taxes

$

5,506

$

3,570

$

2,606

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

$

5,582

$

3,691

$

2,606

Average assets

$

1,682,064

$

1,634,459

$

1,516,957

Return on average assets (annualized)

1.33

%

0.87

%

0.69

%

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

1.35

%

0.90

%

0.69

%

(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

March 31, 2021

December 31, 2020

March 31 2020

GAAP earnings after income taxes

$

5,506

$

3,570

$

2,606

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

$

5,582

$

3,691

$

2,606

Average equity

$

159,881

$

158,968

$

149,441

Return on average equity (annualized)

13.97

%

8.93

%

7.01

%

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

14.16

%

9.24

%

7.01

%

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


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

Three Months Ended

March 31, 2021

December 31, 2020

March 31, 2020

Total stockholders’ equity

$

160,662

$

160,564

$

147,790

Less: Goodwill

(31,498

)

(31,498

)

(31,498

)

Less: Intangible assets

(5,095

)

(5,494

)

(6,293

)

Tangible common equity (non-GAAP)

$

124,069

$

123,572

$

109,999

Average tangible common equity (non-GAAP)

$

123,088

$

121,752

$

110,364

GAAP earnings after income taxes

$

5,506

$

3,570

$

2,606

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

$

5,582

$

3,691

$

2,606

Return on average tangible common equity (annualized)

18.14

%

11.67

%

9.50

%

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

18.39

%

12.06

%

9.50

%

(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

March 31, 2021

December 31, 2020

March 31 2020

Non-interest expense (GAAP)

$

9,489

$

10,826

$

10,731

Branch Closure Costs (1)

(165

)

FHLB borrowings prepayment fee (1)

(102

)

Non-interest expense as adjusted (non-GAAP)

9,387

10,661

10,731

Non-interest income

4,176

4,770

3,603

Net interest margin

12,764

13,372

12,671

Efficiency ratio denominator (GAAP)

$

16,940

$

18,142

$

16,274

Net gain on acquired business lines (1)

Settlement proceeds (1)

Efficiency ratio denominator (non-GAAP)

$

16,940

$

18,142

$

16,274

Efficiency ratio (GAAP)

56

%

60

%

66

%

Efficiency ratio as adjusted (non-GAAP)

55

%

59

%

66

%

(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

March 31, 2021

December 31, 2020

March 31, 2020

Total stockholders’ equity

$

160,662

$

160,564

$

147,933

Less: Goodwill

(31,498

)

(31,498

)

(31,498

)

Less: Intangible assets

(5,095

)

(5,494

)

(7,175

)

Tangible common equity (non-GAAP)

$

124,069

$

123,572

$

109,260

Ending common shares outstanding

10,893,872

11,056,349

11,151,009

Book value per share

$

14.75

$

14.52

$

13.27

Tangible book value per share (non-GAAP)

$

11.39

$

11.18

$

9.80


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

March 31, 2021

December 31, 2020

March 31, 2020

Total stockholders’ equity

$

160,662

$

160,564

$

147,933

Less: Goodwill

(31,498

)

(31,498

)

(31,498

)

Less: Intangible assets

(5,095

)

(5,494

)

(7,175

)

Tangible common equity (non-GAAP)

$

124,069

$

123,572

$

109,260

Total Assets

$

1,732,294

$

1,649,095

$

1,505,164

Less: Goodwill

(31,498

)

(31,498

)

(31,498

)

Less: Intangible assets

(5,095

)

(5,494

)

(7,175

)

Tangible Assets (non-GAAP)

$

1,695,701

$

1,612,103

$

1,466,491

Less SBA PPP Loans

(118,931

)

(123,702

)

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

$

1,576,770

$

1,488,401

$

1,466,491

Total stockholders’ equity to total assets ratio

9.27

%

9.74

%

9.83

%

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

7.32

%

7.67

%

7.45

%

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

7.87

%

8.30

%

7.45

%

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, tangible common equity as a percent of tangible assets, return on tangible common equity and return on tangible common equity as adjusted are non-GAAP measures 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)”, “Reconciliation of tangible common equity as a percent of tangible assets (non-GAAP)”, and “Reconciliation of return on average tangible common equity and Reconciliation of Return on Average Tangible Common Equity as Adjusted (non-GAAP)”.