8-K
Citizens Community Bancorp Inc. (CZWI)
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
________________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): January 28, 2021
CITIZENS COMMUNITY BANCORP, INC.
(Exact name of registrant as specified in its charter)
Maryland
(State or other jurisdiction of incorporation)
| 001-33003 | 20-5120010 |
|---|---|
| (Commission File Number) | (I.R.S. Employer Identification No.) |
2174 EastRidge Center
Eau Claire, WI 54701
(Address and Zip Code of principal executive offices)
715-836-9994
(Registrant's telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|---|---|
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered or to be registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
|---|---|---|
| Common Stock, $.01 par value per share | CZWI | NASDAQ Global Market |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933. (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter.)
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02. Results of Operations and Financial Condition.
On January 28, 2021, Citizens Community Bancorp, Inc. (the “Company”) issued a press release announcing our financial results for the three and twelve months ended December 31, 2020 and posted its Earnings Release Supplement to its website. A copy of the press release is attached as Exhibit 99.1 to this Current Report on Form 8-K, and a copy of the Earnings Release Supplement is attached hereto as Exhibit 99.2. The attached Exhibits 99.1 and 99.2 are furnished pursuant to Item 2.02 of Form 8-K.
The information in this Item 2.02, Item 9.01 and Exhibits 99.1 and 99.2 attached hereto shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of such section, nor shall it be deemed incorporated by reference in any filing of the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934, regardless of any general incorporation language in such filing, unless expressly incorporated by specific reference in such filing.
Item 8.01. Other Events.
On January 28, 2021, the Board of Directors declared an annual cash dividend of $0.23 per share, to holders of record as of February 11, 2021, payable on February 25, 2021.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits. The following exhibit is being furnished herewith:
| 99.1 | Press Release dated January 28, 2021 |
|---|---|
| 99.2 | Earnings Release Supplement Earnings Release Supplement dated January 28, 2021 |
| 104 | The cover page from this Current Report on Form 8-K in Inline XBRL (Extensible Business Reporting Language) |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| CITIZENS COMMUNITY BANCORP, INC. | ||
|---|---|---|
| Date: January 28, 2021 | By: | /s/ James S. Broucek |
| James S. Broucek | ||
| Chief Financial Officer |
Document
EXHIBIT 99.1
Citizens Community Bancorp, Inc. Earns $3.6 Million, or $0.32 Per Share in 4Q20;
Record 2020 Annual Earnings Increase 34% from Prior Year Annual Earnings;
Asset Quality Continues to Improve;
2021 Annual Cash Dividend Increases to $0.23 Per Share
EAU CLAIRE, WI, January 28, 2021 - 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 $3.6 million, or $0.32 per diluted share for the quarter ended December 31, 2020, compared to $3.5 million, or $0.31 per diluted share for the quarter ended September 30, 2020 and $3.2 million, or $0.28 per diluted share for the quarter ended December 31, 2019. Net income as adjusted (non-GAAP)1 of $3.7 million, or $0.33 per diluted share was reported for the quarter ended December 31, 2020, compared to $3.3 million, or $0.30 per diluted share for the quarter ended September 30, 2020. For the fiscal year ended December 31, 2020, the Company earned a record $12.7 million, or $1.14 per diluted share compared to earnings of $9.5 million, or $0.85 per diluted share for the fiscal year ended December 31, 2019.
The Company’s fourth quarter operating results reflected: (1) increased net interest income largely due to increased accretion related to both reductions of purchased credit impaired loans and the Small Business Administration’s Paycheck Protection Program (SBA PPP) debt forgiveness; (2) higher loan loss provisions, primarily due to the impact of loan growth and economic uncertainty; (3) a continued robust refinancing market which led to an all-time high on gains on sale of mortgage loans; and (4) a modest increase in non-interest expenses due to branch closure costs and modestly higher impairment of mortgage servicing right assets, offset by lower compensation and a seasonal reduction in advertising.
Book value per share was $14.52 at December 31, 2020 compared to $14.10 at September 30, 2020 and $13.36 at December 31, 2019. Tangible book value per share (non-GAAP)5 was $11.18 at December 31, 2020 compared to $10.75 at September 30, 2020 and $9.89 at December 31, 2019. Book value per share increased $1.16 in fiscal 2020, a 9% increase from December 31, 2019. Tangible book value per share increased $1.29 in fiscal 2020, a 13.0% increase from December 31, 2019. In addition to building tangible book value per share 13.0% over the past year, the Company paid an annual dividend of $0.21 per share in fiscal 2020. On January 28, 2021, the Board of Directors approved a 10% increase in the annual cash dividend to $0.23 per share. The dividend will be payable on February 25, 2021 to the shareholders of record on February 11, 2021.
Stephen Bianchi, Chairman, President and Chief Executive Officer, in expressing his appreciation of the Citizens team, said, “I am very proud of the focus and commitment by our colleagues to clients, to each other and to the communities we serve. Their dedication in the face of adversity helped the Bank deliver strong returns to stakeholders and positions us well for the future.”
“The continued execution of our strategic priorities resulted in the following highlights; (1) a 13% increase in tangible book value, or $1.29 per share, to $11.18; (2) continued asset quality improvement in the quarter with a $3.4 million, or
23%, decrease in nonperforming assets and a decrease for the year of $10.1 million, or 47%; (3) Criticized assets declined 39% from March 31, 2020 levels; (4) originated loans, net of SBA PPP loans, grew by $59 million or 8% on a linked quarter basis; and (5) efforts to build more efficient workflows using technology and lower staffing levels through attrition and three branch closures were partially reflected in the fourth quarter as non-interest expense declined. The full cost savings will be more fully reflected in the first quarter of 2021,” continued Stephen Bianchi.
“Fourth quarter commercial activity accelerated across our markets where unemployment through November was below 5% in all markets and under 4% in select markets. As expected, COVID-19 deferrals remain concentrated in the hospitality segment where occupancy rates generally have been tracking with, or slightly better than, national averages depending on the property. We have been working with our clients as the pandemic persists by requiring additional support from the borrower in exchange for further deferral periods and expect the second PPP draws will be beneficial to this segment,” continued Bianchi.
December 31, 2020 Highlights: (as of or for the 3-month period ended December 31, 2020 and year ended December 31, 2020, compared to September 30, 2020 and December 31, 2019.)
•Stockholders’ equity as a percent of total assets increased to 9.74% from 9.70% during the quarter ended December 31, 2020. Tangible common equity as a percent of tangible assets (non-GAAP)5, increased to 7.67% from 7.57% during the quarter ended December 31, 2020.
•Return on average assets increased to 0.80% from 0.68% during the year ended December 31, 2020. Return on average equity increased to 8.29% from 6.59% during the year ended December 31, 2020. Return on average tangible common equity5 (non-GAAP) increased to 11.04% from 8.98% during the year ended December 31, 2020.
•The Bank recorded provision for loan losses of $2.5 million for the quarter ended December 31, 2020, compared to $1.5 million for the quarter ended September 30, 2020. The increase was largely due to organic loan growth along with qualitative factor increases related to the potential adverse economic impact of COVID-19. 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. Economic conditions in our markets continued to improve during the last quarter of 2020. This has supported improving trends for businesses most impacted by the pandemic, but further improvements in their prospects will be dependent on the timing and efficacy of vaccinations, and related impact on consumer behavior and business activities.
•As of December 31, 2020, the Bank’s COVID-19 related modifications under Section 4013 of the CARES Act, totaled $61 million, or 5% of gross loans versus $126.7 million, or 10% of gross loans at September 30, 2020. At December 31, 2020, hotel industry sector loans represent $51.6 million of the approved deferrals. The Bank has approximately $2.4 million of total payment deferrals expiring in the first quarter of 2021.
•The sum of special mention and substandard loans decreased $5.5 million to $35.2 million at December 31, 2020 from $40.7 million at September 30, 2020, a decrease of 13%.
•The allowance for loan losses on originated loans, excluding PPP loans, increased to 1.77% at December 31, 2020 from 1.65% at September 30, 2020. Since 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 $17.0 million, is allocated $14.8 million to the originated loan portfolio and $2.2 million to the acquired loan portfolio.
•During the fourth quarter, the Bank closed three branch operations located at Minnesota Lake, Minnesota, Eau Claire, Wisconsin, and Eleva, Wisconsin. These branch operations were consolidated into nearby branch locations. These closures resulted in pretax net branch closure costs of $165 thousand as presented in the “Reconciliation of GAAP Net Income and Net Income as Adjusted (non-GAAP)” table.
•Nonperforming assets continued to decline during the quarter ended December 31, 2020 to $11.5 million from $14.9 million one quarter earlier.
•On November 30, 2020, the Board of Directors approved a stock repurchase program. Under this program the Company may repurchase up to 557,728 shares of its common stock, or approximately 5% of the current outstanding shares. Through December 31, 2020, the Company has repurchased approximately 98,000 shares under this new stock repurchase program.
Balance Sheet and Asset Quality
Total assets increased $26.5 million during the quarter to $1.65 billion at December 31, 2020, compared to $1.62 billion at September 30, 2020. This increase was approximately the same as the increase in deposits of $24.5 million.
Securities available for sale decreased $6.7 million during the quarter ended December 31, 2020 to $144.2 million from $150.9 million at September 30, 2020. Meanwhile, the Bank’s securities held to maturity increased $26.0 million in the quarter. With strong deposit levels and SBA PPP loan debt forgiveness expected to increase in 2021, the Bank purchased $29 million of agency mortgage-backed certificates during the fourth quarter, in the held to maturity category.
Loans receivable increased by $7.4 million to $1.24 billion at December 31, 2020. The originated loan portfolio before SBA PPP loans increased $59 million in the quarter. Approximately $5.5 million of the loan growth was represented by draws on lines of credit taken on December 31, 2020 with the proceeds deposited into the customer’s money market accounts at the Bank, and repaid on January 4, 2021. SBA’s PPP loans decreased $15 million in the quarter due to debt forgiveness. Acquired loans decreased by $38 million. The acquired loan portfolio asset quality improved with a reduction of $4 million in substandard loans, which included the prepayment of $3 million of nonaccrual loans and the payoff of hotel loans on deferral of $8 million.
The allowance for loan losses increased to $17.0 million at December 31, 2020 representing 1.38% of loans receivable at December 31, 2020, compared to $14.8 million at September 30, 2020 representing 1.21% of loans receivable at September 30, 2020. Excluding the PPP loans, which are guaranteed by the SBA, the allowance for loan losses was 1.53% at December 31, 2020 compared to 1.35% at September 30, 2020. Approximately 23% of the loan portfolio at December 31, 2020 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 1.77% at December 31, 2020 compared to 1.65% at September 30, 2020. For the quarter ended December 31, 2020, the Bank had net charge-offs of $293,000.
Allowance for Loan Losses Percentages
(in thousands, except ratios)
| December 31, 2020 | September 30, 2020 | June 30, 2020 | December 31, 2019 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Originated loans, net of deferred fees and costs | $ | 835,769 | $ | 777,340 | $ | 789,075 | $ | 762,127 | ||||
| SBA PPP loans, net of deferred fees | 120,711 | 135,177 | 132,800 | — | ||||||||
| Acquired loans, net of unamortized discount | 281,101 | 317,622 | 359,300 | 415,253 | ||||||||
| Loans, end of period | $ | 1,237,581 | $ | 1,230,139 | $ | 1,281,175 | $ | 1,177,380 | ||||
| SBA PPP loans, net of deferred fees | (120,711) | (135,177) | (132,800) | — | ||||||||
| Loans, net of SBA PPP loans and deferred fees | $ | 1,116,870 | $ | 1,094,962 | $ | 1,148,375 | $ | 1,177,380 | ||||
| Allowance for loan losses allocated to originated loans | $ | 14,819 | $ | 12,809 | $ | 12,109 | $ | 9,551 | ||||
| Allowance for loan losses allocated to other loans | 2,224 | 2,027 | 1,264 | 769 | ||||||||
| Allowance for loan losses | $ | 17,043 | $ | 14,836 | $ | 13,373 | $ | 10,320 | ||||
| Non-accretable difference on purchased credit impaired loans | $ | 1,087 | $ | 1,661 | $ | 3,355 | $ | 6,290 | ||||
| ALL as a percentage of loans, end of period | 1.38 | % | 1.21 | % | 1.04 | % | 0.88 | % | ||||
| ALL as a percentage of loans, net of SBA PPP loans and deferred fees | 1.53 | % | 1.35 | % | 1.16 | % | 0.88 | % | ||||
| ALL allocated to originated loans as a percentage of originated loans, net of deferred fees and costs | 1.77 | % | 1.65 | % | 1.53 | % | 1.25 | % |
Nonperforming assets decreased 22.7% to $11.5 million or 0.70% of total assets at December 31, 2020 compared to $14.9 million or 0.92% of total assets at September 30, 2020. Included in nonperforming assets at December 31, 2020 are $7.4 million of nonperforming assets acquired during recent whole-bank acquisitions. Originated nonperforming assets were only $4.2 million, or 0.25% of total assets for the most recent quarter. Over the past year, nonperforming assets declined 47% from $21.6 million at December 31, 2019 to $11.5 million at December 31, 2020.
Substandard and special mention loans declined $5.5 million, or 13%, during the quarter ended December 31, 2020. The table below shows the decreases in substandard loans by quarter during 2020. Over the past year, total criticized loans decreased 30.6% from $50.7 million at December 31, 2019 to $35.2 million at December 31, 2020.
| (in thousands) | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| December 31, 2020 | September 30, 2020 | June 30, 2020 | March 31, 2020 | December 31, 2019 | ||||||
| Special mention loan balances | $ | 6,672 | $ | 7,777 | $ | 19,958 | $ | 19,387 | $ | 10,856 |
| Substandard loan balances | 28,541 | 32,922 | 35,911 | 38,393 | 39,892 | |||||
| Criticized loans, end of period | $ | 35,213 | $ | 40,699 | $ | 55,869 | $ | 57,780 | $ | 50,748 |
Deposits increased $24.5 million to $1.295 billion at December 31, 2020 compared to $1.271 billion at September 30, 2020. The increase was in non-maturity deposits which more than offset the modest decrease of $10 million in certificates of deposit. Deposit growth of $5.5 million represents line of credit draw proceeds deposited into customers’ money market accounts, which were subsequently withdrawn to repay the line of credits on January 4, 2021. 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 $13.4 million for the fourth quarter of 2020 compared to $11.9 million for the third quarter of 2020, and $11.8 million for the quarter ended December 31, 2019. The net interest margin increased to 3.51% for the fourth quarter of 2020 compared to 3.11% for the third quarter of 2020 and 3.41% for the fourth quarter ended December 31, 2019.
Net interest income and net interest margin with and without loan purchase accounting:
(in thousands, except yields and rates)
| Three months ended | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 31, 2020 | September 30, 2020 | June 30, 2020 | March 31, 2020 | December 31, 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 | $ | 13,372 | 3.51 | % | $ | 11,909 | 3.11 | % | $ | 12,303 | 3.34 | % | $ | 12,671 | 3.64 | % | $ | 11,775 | 3.41 | % |
| Less non-accretable difference realized as interest from payoff of purchased credit impaired loans | (324) | (0.08) | % | (130) | (0.03) | % | (196) | (0.05) | % | (1,043) | (0.30) | % | (271) | (0.08) | % | |||||
| Less accelerated accretion from payoff of certain PCI loans with transferred non-accretable differences | (872) | (0.23) | % | — | — | % | (99) | (0.03) | % | — | — | % | — | — | % | |||||
| Less scheduled accretion interest | (252) | (0.07) | % | (276) | (0.07) | % | (247) | (0.07) | % | (233) | (0.07) | % | (233) | (0.07) | % | |||||
| Without loan purchase accretion | $ | 11,924 | 3.13 | % | $ | 11,503 | 3.01 | % | $ | 11,761 | 3.19 | % | $ | 11,395 | 3.27 | % | $ | 11,271 | 3.26 | % |
As noted above, the current quarter net interest margin was favorably impacted by reductions in purchased credit impaired loans and associated income realization. The Company realized $1.2 million, or 31 basis points, of such accelerated accretion in the quarter ended December 31, 2020. In addition, current quarter SBA PPP fee accretion of $0.98 million represented a $0.34 million, or 10 basis point, net interest margin increase over the prior quarter’s accretion of $0.64 million. The increase in SBA PPP fee accretion results from such loans qualifying for and receiving debt forgiveness. Deferred SBA PPP fees were approximately $3 million at December 31, 2020.
The Company continued to manage deposit interest rates. Various non-maturity deposit product yields were reduced and the Bank was able to lower the cost of certificate of deposit accounts as the interest rates on new and renewed certificates of deposit were lower than the previous quarter. Additionally, the Bank relied less on higher-costing certificates of deposit. These actions reduced the cost of deposits by 9 basis points in the quarter which more than offset the full quarter impact of the third quarter’s subordinated debt issuance. The Bank has $61 million of certificates of deposits maturing in the first quarter of 2021 with a blended interest cost of approximately 1.90% and an additional $124 million maturing in the remaining three quarters of 2021 at a blended interest cost of approximately 1.05%. The weighted average cost of new certificates in the fourth quarter of 2020 was approximately 0.50%.
Loan loss provisions were $2.5 million for the quarter ended December 31, 2020 compared to $1.50 million for the quarter ended September 30, 2020 and $1.4 million one year earlier. There was no provision on the $5.5 million lines of credit drawn in late December and repaid on January 4, 2021. The increase was largely due to organic growth, along with qualitative factor increases related to the potential adverse impact of COVID-19. We estimate the COVID-19/qualitative factor increase impact on the provisions for loan losses to be approximately $1.3 million and $4.8 million for the three and twelve months ended December 31, 2020. For the year ended December 31, 2020, provisions for loan losses were $7.750 million compared to $3.525 million for the year ended December 31, 2019.
Non-interest income decreased modestly in the quarter ended December 31, 2020 to $4.8 million from the previous quarter ended September 30, 2020 level of $5.1 million. The decrease in the fourth quarter was largely due to a recognized gain in the third quarter on the disposition of an acquired business line and the third quarter recognition of a higher annual incentive paid on debit card activity. For the year ended December 31, 2020, non-interest income increased by $3.5 million to $18.4 million with stronger gain on sale of loans and loan servicing income being partially offset by the sale of the Company’s only Michigan branch in the second quarter of 2019.
Total non-interest expense increased by $0.1 million to $10.8 million for the quarter ended December 31, 2020. This was due to modestly higher impairment on mortgage servicing rights (“MSR”) of $0.33 million and $0.17 million of
costs related to the closure of 3 branches in mid-November. MSR impairment for the quarter ended December 31, 2020 totaled $0.33 million compared to $0.25 million for the quarter ended September 30, 2020. These increases were partially offset by lower compensation due to a smaller level of FTE and lower seasonal marketing costs. For the year ended December 31, 2020, total non-interest expense was $43.7 million compared to $42.7 million for the year ended December 21, 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 remained unchanged in the fourth quarter at $1.3 million compared to the preceding quarter. For the year ended December 31, 2020, provisions for income taxes were $4.6 million compared to $2.8 million for the year ended December 31, 2019, which included a $0.3 million reduction due to a favorable tax treatment of certain acquired bank-owned life insurance. The effective tax rate for the most recent quarter was 25.9% compared to 26.7% the prior quarter.
These financial results are preliminary until the Form 10-K is filed in March 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; risks related to the ongoing integration of F. & M. Bancorp. of Tomah, Inc. into the Company’s 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 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, 2019 filed with the Securities and Exchange Commission (“SEC”) on March 10, 2020 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 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, 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
CITIZENS COMMUNITY BANCORP, INC.
Consolidated Balance Sheets
(in thousands, except shares and per share data)
| December 31, 2020 (unaudited) | September 30, 2020 (unaudited) | December 31, 2019 (audited) | ||||
|---|---|---|---|---|---|---|
| Assets | ||||||
| Cash and cash equivalents | $ | 119,440 | $ | 115,474 | $ | 55,840 |
| Other interest-bearing deposits | 3,752 | 3,752 | 4,744 | |||
| Securities available for sale “AFS” | 144,233 | 150,908 | 180,119 | |||
| Securities held to maturity “HTM” | 43,551 | 16,927 | 2,851 | |||
| Equity securities with readily determinable fair value | 200 | 187 | 246 | |||
| Other investments | 14,948 | 15,075 | 15,005 | |||
| Loans receivable | 1,237,581 | 1,230,139 | 1,177,380 | |||
| Allowance for loan losses | (17,043) | (14,836) | (10,320) | |||
| Loans receivable, net | 1,220,538 | 1,215,303 | 1,167,060 | |||
| Loans held for sale | 3,075 | 4,938 | 5,893 | |||
| Mortgage servicing rights | 3,252 | 3,498 | 4,282 | |||
| Office properties and equipment, net | 21,165 | 21,607 | 21,106 | |||
| Accrued interest receivable | 5,652 | 5,829 | 4,738 | |||
| Intangible assets | 5,494 | 5,893 | 7,587 | |||
| Goodwill | 31,498 | 31,498 | 31,498 | |||
| Foreclosed and repossessed assets, net | 197 | 812 | 1,460 | |||
| Bank owned life insurance (“BOLI”) | 23,684 | 23,514 | 23,063 | |||
| Other assets | 8,416 | 7,378 | 5,757 | |||
| TOTAL ASSETS | $ | 1,649,095 | $ | 1,622,593 | $ | 1,531,249 |
| Liabilities and Stockholders’ Equity | ||||||
| Liabilities: | ||||||
| Deposits | $ | 1,295,256 | $ | 1,270,778 | $ | 1,195,702 |
| Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank (“FRB”) advances | 123,498 | 124,491 | 130,971 | |||
| Other borrowings | 58,328 | 58,297 | 43,560 | |||
| Other liabilities | 11,449 | 11,704 | 10,463 | |||
| Total liabilities | 1,488,531 | 1,465,270 | 1,380,696 | |||
| Stockholders’ equity: | ||||||
| Common stock— $0.01 par value, authorized 30,000,000; 11,056,349; 11,154,645 and 11,266,954 shares issued and outstanding, respectively | 111 | 112 | 113 | |||
| Additional paid-in capital | 126,704 | 127,778 | 128,856 | |||
| Retained earnings | 32,809 | 29,239 | 22,517 | |||
| Unearned deferred compensation | (550) | (710) | (462) | |||
| Accumulated other comprehensive income (loss) | 1,490 | 904 | (471) | |||
| Total stockholders’ equity | 160,564 | 157,323 | 150,553 | |||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 1,649,095 | $ | 1,622,593 | $ | 1,531,249 |
Note: Certain items previously reported were reclassified for consistency with the current presentation.
CITIZENS COMMUNITY BANCORP, INC.
Consolidated Statements of Operations
(in thousands, except per share data)
| Three Months Ended | Twelve Months Ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| December 31, 2020 (unaudited) | September 30, 2020 (unaudited) | December 31, 2019 (unaudited) | December 31, 2020 (unaudited) | December 31, 2019 (audited) | ||||||
| Interest and dividend income: | ||||||||||
| Interest and fees on loans | $ | 15,463 | $ | 14,154 | $ | 14,611 | $ | 59,763 | $ | 54,647 |
| Interest on investments | 1,052 | 1,064 | 1,535 | 4,764 | 5,776 | |||||
| Total interest and dividend income | 16,515 | 15,218 | 16,146 | 64,527 | 60,423 | |||||
| Interest expense: | ||||||||||
| Interest on deposits | 1,958 | 2,255 | 3,284 | 10,000 | 12,174 | |||||
| Interest on FHLB and FRB borrowed funds | 428 | 430 | 508 | 1,814 | 2,721 | |||||
| Interest on other borrowed funds | 757 | 624 | 579 | 2,458 | 2,015 | |||||
| Total interest expense | 3,143 | 3,309 | 4,371 | 14,272 | 16,910 | |||||
| Net interest income before provision for loan losses | 13,372 | 11,909 | 11,775 | 50,255 | 43,513 | |||||
| Provision for loan losses | 2,500 | 1,500 | 1,400 | 7,750 | 3,525 | |||||
| Net interest income after provision for loan losses | 10,872 | 10,409 | 10,375 | 42,505 | 39,988 | |||||
| Non-interest income: | ||||||||||
| Service charges on deposit accounts | 496 | 431 | 612 | 1,832 | 2,368 | |||||
| Interchange income | 520 | 556 | 468 | 2,029 | 1,735 | |||||
| Loan servicing income | 1,014 | 1,144 | 772 | 4,158 | 2,674 | |||||
| Gain on sale of loans | 2,108 | 1,987 | 902 | 6,693 | 2,462 | |||||
| Loan fees and service charges | 342 | 320 | 285 | 1,383 | 1,145 | |||||
| Insurance commission income | — | — | 161 | 475 | 734 | |||||
| Net gains (losses) on investment securities | 13 | (1) | 120 | 110 | 271 | |||||
| Net gain (loss) on sale of branch | — | — | — | 432 | 2,295 | |||||
| Net gain (loss) on sale of acquired business lines | — | 180 | — | — | — | |||||
| Settlement proceeds | — | — | — | 131 | — | |||||
| Other | 277 | 445 | 464 | 1,205 | 1,291 | |||||
| Total non-interest income | 4,770 | 5,062 | 3,784 | 18,448 | 14,975 | |||||
| Non-interest expense: | ||||||||||
| Compensation and related benefits | 5,440 | 5,538 | 5,720 | 22,321 | 20,325 | |||||
| Occupancy | 1,017 | 993 | 972 | 3,915 | 3,697 | |||||
| Office | 502 | 532 | 539 | 2,152 | 2,188 | |||||
| Data processing | 1,210 | 1,145 | 985 | 4,375 | 3,938 | |||||
| Amortization of intangible assets | 399 | 399 | 412 | 1,622 | 1,496 | |||||
| Mortgage servicing rights expense | 720 | 603 | 286 | 3,050 | 1,108 | |||||
| Advertising, marketing and public relations | 165 | 260 | 240 | 967 | 1,214 | |||||
| FDIC premium assessment | 148 | 188 | (60) | 584 | 258 | |||||
| Professional services | 438 | 434 | 496 | 1,829 | 2,457 | |||||
| Gains (losses) on repossessed assets, net | (64) | (105) | 18 | (259) | (125) | |||||
| Other | 851 | 737 | 820 | 3,117 | 6,130 | |||||
| Total non-interest expense | 10,826 | 10,724 | 10,428 | 43,673 | 42,686 | |||||
| Income before provision for income taxes | 4,816 | 4,747 | 3,731 | 17,280 | 12,277 | |||||
| Provision for income taxes | 1,246 | 1,267 | 562 | 4,555 | 2,814 | |||||
| Net income attributable to common stockholders | $ | 3,570 | $ | 3,480 | $ | 3,169 | $ | 12,725 | $ | 9,463 |
| Per share information: | ||||||||||
| Basic earnings | $ | 0.32 | $ | 0.31 | $ | 0.28 | $ | 1.14 | $ | 0.85 |
| Diluted earnings | $ | 0.32 | $ | 0.31 | $ | 0.28 | $ | 1.14 | $ | 0.85 |
| Cash dividends paid | $ | — | $ | — | $ | — | $ | 0.21 | $ | 0.20 |
| Book value per share at end of period | $ | 14.52 | $ | 14.10 | $ | 13.36 | $ | 14.52 | $ | 13.36 |
| Tangible book value per share at end of period (non-GAAP) | $ | 11.18 | $ | 10.75 | $ | 9.89 | $ | 11.18 | $ | 9.89 |
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 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| December 31, 2020 | September 30, 2020 | December 31, 2019 | December 31, 2020 | December 31, 2019 | ||||||
| GAAP pretax income | $ | 4,816 | $ | 4,747 | $ | 3,731 | $ | 17,280 | $ | 12,277 |
| Merger related costs | — | — | 104 | — | 3,880 | |||||
| Branch closure costs (1) | 165 | — | — | 165 | 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) | — | (432) | — | |||||
| Settlement proceeds (5) | — | — | — | (131) | — | |||||
| Pretax income as adjusted (6) | 4,981 | 4,567 | 3,835 | 16,882 | 14,235 | |||||
| Provision for income tax on net income as adjusted (7) | 1,290 | 1,219 | 579 | 4,457 | 3,260 | |||||
| Tax impact of certain acquired BOLI policies (8) | — | — | 300 | — | 300 | |||||
| Total Provision for income tax | 1,290 | 1,219 | 879 | 4,457 | 3,560 | |||||
| Net income as adjusted after income taxes (non-GAAP) (6) | $ | 3,691 | $ | 3,348 | $ | 2,956 | $ | 12,425 | $ | 10,675 |
| GAAP diluted earnings per share, net of tax | $ | 0.32 | $ | 0.31 | $ | 0.28 | $ | 1.14 | $ | 0.85 |
| Merger related costs, net of tax | — | — | 0.01 | — | 0.27 | |||||
| Branch closure costs, net of tax | 0.01 | — | — | 0.01 | — | |||||
| Audit and Financial Reporting | — | — | — | — | 0.02 | |||||
| Net gain on sale of branch | — | — | — | — | (0.15) | |||||
| Tax impact of certain acquired BOLI policies | — | — | (0.03) | (0.03) | ||||||
| Net gain on sale of acquired business lines | — | (0.01) | — | (0.03) | — | |||||
| Settlement proceeds | — | — | — | (0.01) | — | |||||
| Diluted earnings per share, as adjusted, net of tax (non-GAAP) | $ | 0.33 | $ | 0.30 | $ | 0.26 | $ | 1.11 | $ | 0.96 |
| Average diluted shares outstanding | 11,128,628 | 11,155,337 | 11,275,961 | 11,161,811 | 11,121,435 |
(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 market’s 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.
(8) Tax impact of certain BOLI policies acquired from United Bank equal to $300 thousand.
| Loan Composition (in thousands) | December 31, 2020 | September 30, 2020 | June 30, 2020 | December 31, 2019 | ||||
|---|---|---|---|---|---|---|---|---|
| Originated Loans: | ||||||||
| Commercial/Agricultural real estate: | ||||||||
| Commercial real estate | $ | 351,113 | $ | 322,028 | $ | 314,390 | $ | 302,546 |
| Agricultural real estate | 31,741 | 32,530 | 35,138 | 34,026 | ||||
| Multi-family real estate | 112,731 | 100,148 | 90,617 | 71,877 | ||||
| Construction and land development | 91,241 | 80,992 | 94,856 | 71,467 | ||||
| C&I/Agricultural operating: | ||||||||
| Commercial and industrial | 95,290 | 79,959 | 80,369 | 89,730 | ||||
| Agricultural operating | 24,457 | 24,324 | 25,813 | 20,717 | ||||
| Residential mortgage: | ||||||||
| Residential mortgage | 86,283 | 90,100 | 95,664 | 108,619 | ||||
| Purchased HELOC loans | 6,260 | 6,547 | 6,861 | 8,407 | ||||
| Consumer installment: | ||||||||
| Originated indirect paper | 25,851 | 28,535 | 32,031 | 39,585 | ||||
| Other consumer | 12,056 | 13,221 | 14,175 | 15,546 | ||||
| Originated loans before SBA PPP loans | 837,023 | 778,384 | 789,914 | 762,520 | ||||
| SBA PPP loans | 123,702 | 139,166 | 137,330 | — | ||||
| Total originated loans | $ | 960,725 | $ | 917,550 | $ | 927,244 | $ | 762,520 |
| Acquired Loans: | ||||||||
| Commercial/Agricultural real estate: | ||||||||
| Commercial real estate | $ | 156,562 | $ | 178,645 | $ | 195,335 | $ | 211,913 |
| Agricultural real estate | 37,054 | 40,613 | 43,054 | 51,337 | ||||
| Multi-family real estate | 9,421 | 9,520 | 13,022 | 15,131 | ||||
| Construction and land development | 7,276 | 8,346 | 15,276 | 14,943 | ||||
| C&I/Agricultural operating: | ||||||||
| Commercial and industrial | 21,263 | 24,413 | 29,477 | 44,004 | ||||
| Agricultural operating | 8,328 | 9,634 | 12,124 | 17,063 | ||||
| Residential mortgage: | ||||||||
| Residential mortgage | 45,103 | 51,754 | 56,760 | 67,713 | ||||
| Consumer installment: | ||||||||
| Other consumer | 1,157 | 1,409 | 1,639 | 2,640 | ||||
| Total acquired loans | $ | 286,164 | $ | 324,334 | $ | 366,687 | $ | 424,744 |
| Total Loans: | ||||||||
| Commercial/Agricultural real estate: | ||||||||
| Commercial real estate | $ | 507,675 | $ | 500,673 | $ | 509,725 | $ | 514,459 |
| Agricultural real estate | 68,795 | 73,143 | 78,192 | 85,363 | ||||
| Multi-family real estate | 122,152 | 109,668 | 103,639 | 87,008 | ||||
| Construction and land development | 98,517 | 89,338 | 110,132 | 86,410 | ||||
| C&I/Agricultural operating: | ||||||||
| Commercial and industrial | 116,553 | 104,372 | 109,846 | 133,734 | ||||
| Agricultural operating | 32,785 | 33,958 | 37,937 | 37,780 | ||||
| Residential mortgage: | ||||||||
| Residential mortgage | 131,386 | 141,854 | 152,424 | 176,332 | ||||
| Purchased HELOC loans | 6,260 | 6,547 | 6,861 | 8,407 | ||||
| Consumer installment: | ||||||||
| Originated indirect paper | 25,851 | 28,535 | 32,031 | 39,585 | ||||
| Other consumer | 13,213 | 14,630 | 15,814 | 18,186 | ||||
| Gross loans before SBA PPP loans | 1,123,187 | 1,102,718 | 1,156,601 | 1,187,264 | ||||
| SBA PPP loans | 123,702 | 139,166 | 137,330 | — | ||||
| Gross loans | $ | 1,246,889 | $ | 1,241,884 | $ | 1,293,931 | $ | 1,187,264 |
| Unearned net deferred fees and costs and loans in process | (4,245) | (5,033) | (5,369) | (393) | ||||
| Unamortized discount on acquired loans | (5,063) | (6,712) | (7,387) | (9,491) | ||||
| Total loans receivable | $ | 1,237,581 | $ | 1,230,139 | $ | 1,281,175 | $ | 1,177,380 |
Nonperforming Originated and Acquired Assets
(in thousands, except ratios)
| December 31, 2020 and Three Months Ended | September 30, 2020 and Three Months Ended | June 30, 2020 and Three Months Ended | December 31, 2019 and Three Months Ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Nonperforming assets: | ||||||||||||
| Originated nonperforming assets: | ||||||||||||
| Nonaccrual loans | $ | 3,649 | $ | 3,255 | $ | 3,951 | $ | 4,285 | ||||
| Accruing loans past due 90 days or more | 415 | 698 | 1,455 | 946 | ||||||||
| Total originated nonperforming loans (“NPL”) | 4,064 | 3,953 | 5,406 | 5,231 | ||||||||
| Other real estate owned (“OREO”) | 63 | 352 | 270 | 441 | ||||||||
| Other collateral owned | 41 | 56 | 42 | 28 | ||||||||
| Total originated nonperforming assets (“NPAs”) | $ | 4,168 | $ | 4,361 | $ | 5,718 | $ | 5,700 | ||||
| Acquired nonperforming assets: | ||||||||||||
| Nonaccrual loans | $ | 7,098 | $ | 9,899 | $ | 10,836 | $ | 14,771 | ||||
| Accruing loans past due 90 days or more | 171 | 252 | 425 | 158 | ||||||||
| Total acquired nonperforming loans (“NPL”) | 7,269 | 10,151 | 11,261 | 14,929 | ||||||||
| Other real estate owned (“OREO”) | 93 | 404 | 422 | 988 | ||||||||
| Other collateral owned | — | — | — | 3 | ||||||||
| Total acquired nonperforming assets (“NPAs”) | $ | 7,362 | $ | 10,555 | $ | 11,683 | $ | 15,920 | ||||
| Total nonperforming assets (“NPAs”) | $ | 11,530 | $ | 14,916 | $ | 17,401 | $ | 21,620 | ||||
| Loans, end of period | $ | 1,237,581 | $ | 1,230,139 | $ | 1,281,175 | $ | 1,177,380 | ||||
| Total assets, end of period | $ | 1,649,095 | $ | 1,622,593 | $ | 1,607,514 | $ | 1,531,249 | ||||
| Ratios: | ||||||||||||
| Originated NPLs to total loans | 0.33 | % | 0.32 | % | 0.42 | % | 0.44 | % | ||||
| Acquired NPLs to total loans | 0.59 | % | 0.83 | % | 0.88 | % | 1.27 | % | ||||
| Originated NPAs to total assets | 0.25 | % | 0.27 | % | 0.36 | % | 0.37 | % | ||||
| Acquired NPAs to total assets | 0.45 | % | 0.65 | % | 0.73 | % | 1.04 | % |
Nonperforming Total Assets
(in thousand, except ratios)
| December 31, 2020 and Three Months Ended | September 30, 2020 and Three Months Ended | June 30, 2020 and Three Months Ended | December 31, 2019 and Three Months Ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Nonperforming assets: | ||||||||||||
| Nonaccrual loans | ||||||||||||
| Commercial real estate | $ | 827 | $ | 2,762 | $ | 3,221 | $ | 5,705 | ||||
| Agricultural real estate | 5,084 | 5,252 | 5,979 | 7,568 | ||||||||
| Commercial and industrial (“C&I”) | 357 | 853 | 1,306 | 1,850 | ||||||||
| Agricultural operating | 1,872 | 1,651 | 1,496 | 1,702 | ||||||||
| Residential mortgage | 2,451 | 2,536 | 2,666 | 2,063 | ||||||||
| Consumer installment | 156 | 100 | 119 | 168 | ||||||||
| Total nonaccrual loans | $ | 10,747 | $ | 13,154 | $ | 14,787 | $ | 19,056 | ||||
| Accruing loans past due 90 days or more | 586 | 950 | 1,880 | 1,104 | ||||||||
| Total nonperforming loans (“NPLs”) | 11,333 | 14,104 | 16,667 | 20,160 | ||||||||
| Foreclosed and repossessed assets, net | 197 | 812 | 734 | 1,460 | ||||||||
| Total nonperforming assets (“NPAs”) | $ | 11,530 | $ | 14,916 | $ | 17,401 | $ | 21,620 | ||||
| Troubled Debt Restructurings (“TDRs”) | $ | 18,477 | $ | 19,778 | $ | 13,119 | $ | 12,594 | ||||
| Nonaccrual TDRs | $ | 6,735 | $ | 7,199 | $ | 6,992 | $ | 7,198 | ||||
| Loans, end of period | $ | 1,237,581 | $ | 1,230,139 | $ | 1,281,175 | $ | 1,177,380 | ||||
| Total assets, end of period | $ | 1,649,095 | $ | 1,622,593 | $ | 1,607,514 | $ | 1,531,249 | ||||
| Ratios: | ||||||||||||
| NPLs to total loans | 0.92 | % | 1.15 | % | 1.30 | % | 1.71 | % | ||||
| NPAs to total assets | 0.70 | % | 0.92 | % | 1.08 | % | 1.41 | % |
Deposit Composition
(in thousands)
| December 31,<br>2020 | September 30,<br>2020 | June 30,<br>2020 | December 31,<br>2019 | |||||
|---|---|---|---|---|---|---|---|---|
| Non-interest bearing demand deposits | $ | 238,348 | $ | 229,217 | $ | 223,536 | $ | 168,157 |
| Interest bearing demand deposits | 301,764 | 279,648 | 270,116 | 223,102 | ||||
| Savings accounts | 196,348 | 191,511 | 185,816 | 156,599 | ||||
| Money market accounts | 245,549 | 246,651 | 242,536 | 246,430 | ||||
| Certificate accounts | 313,247 | 323,751 | 350,193 | 401,414 | ||||
| Total deposits | $ | 1,295,256 | $ | 1,270,778 | $ | 1,272,197 | $ | 1,195,702 |
Average balances, Interest Yields and Rates
(in thousands, except yields and rates)
| Three months ended December 31, 2020 | Three months ended September 30, 2020 | Three months ended December 31, 2019 | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Average<br>Balance | Interest<br>Income/<br>Expense | Average<br>Yield/<br>Rate (1) | Average<br>Balance | Interest<br>Income/<br>Expense | Average<br>Yield/<br>Rate (1) | Average<br>Balance | Interest<br>Income/<br>Expense | Average<br>Yield/<br>Rate (1) | ||||||||||
| Average interest earning assets: | ||||||||||||||||||
| Cash and cash equivalents | $ | 79,225 | $ | 21 | 0.11 | % | $ | 77,774 | $ | 18 | 0.09 | % | $ | 31,327 | $ | 122 | 1.55 | % |
| Loans receivable | 1,240,895 | 15,463 | 4.96 | % | 1,258,224 | 14,154 | 4.48 | % | 1,136,330 | 14,611 | 5.10 | % | ||||||
| Interest bearing deposits | 3,752 | 23 | 2.44 | % | 3,752 | 23 | 2.44 | % | 4,904 | 30 | 2.43 | % | ||||||
| Investment securities (1) | 176,802 | 824 | 1.85 | % | 166,622 | 846 | 2.02 | % | 185,920 | 1,222 | 2.62 | % | ||||||
| Other investments | 15,015 | 184 | 4.88 | % | 15,145 | 177 | 4.65 | % | 14,209 | 161 | 4.50 | % | ||||||
| Total interest earning assets (1) | $ | 1,515,689 | $ | 16,515 | 4.33 | % | $ | 1,521,517 | $ | 15,218 | 3.98 | % | $ | 1,372,690 | $ | 16,146 | 4.67 | % |
| Average interest bearing liabilities: | ||||||||||||||||||
| Savings accounts | $ | 187,474 | $ | 87 | 0.18 | % | $ | 183,381 | $ | 98 | 0.21 | % | $ | 152,841 | $ | 172 | 0.45 | % |
| Demand deposits | 285,001 | 200 | 0.28 | % | 285,993 | 231 | 0.32 | % | 216,021 | 389 | 0.71 | % | ||||||
| Money market accounts | 243,631 | 206 | 0.34 | % | 255,160 | 280 | 0.44 | % | 210,398 | 565 | 1.07 | % | ||||||
| CD’s | 284,728 | 1,304 | 1.82 | % | 297,691 | 1,469 | 1.96 | % | 367,278 | 1,951 | 2.11 | % | ||||||
| IRA’s | 41,493 | 161 | 1.54 | % | 41,852 | 177 | 1.68 | % | 43,809 | 207 | 1.87 | % | ||||||
| Total deposits | $ | 1,042,327 | $ | 1,958 | 0.75 | % | $ | 1,064,077 | $ | 2,255 | 0.84 | % | $ | 990,347 | $ | 3,284 | 1.32 | % |
| FHLB advances and other borrowings | 182,463 | 1,185 | 2.58 | % | 173,758 | 1,054 | 2.41 | % | 165,660 | 1,087 | 2.60 | % | ||||||
| Total interest bearing liabilities | $ | 1,224,790 | $ | 3,143 | 1.02 | % | $ | 1,237,835 | $ | 3,309 | 1.06 | % | $ | 1,156,007 | $ | 4,371 | 1.50 | % |
| Net interest income | $ | 13,372 | $ | 11,909 | $ | 11,775 | ||||||||||||
| Interest rate spread | 3.31 | % | 2.92 | % | 3.17 | % | ||||||||||||
| Net interest margin (1) | 3.51 | % | 3.11 | % | 3.41 | % | ||||||||||||
| Average interest earning assets to average interest bearing liabilities | 1.24 | 1.23 | 1.19 |
(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 December 31, 2020, September 30, 2020 and December 31, 2019. The FTE adjustment to net interest income included in the rate calculations totaled $0, $0 and $8 thousand for the three months ended December 31, 2020, September 30, 2020 and December 31, 2019, respectively.
| Twelve months ended December 31, 2020 | Twelve months ended December 31, 2019 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Average<br>Balance | Interest<br>Income/<br>Expense | Average<br>Yield/<br>Rate (1) | Average<br>Balance | Interest<br>Income/<br>Expense | Average<br>Yield/<br>Rate (1) | |||||||
| Average interest earning assets: | ||||||||||||
| Cash and cash equivalents | $ | 52,016 | $ | 162 | 0.31 | % | $ | 29,948 | $ | 672 | 2.24 | % |
| Loans receivable | 1,234,732 | 59,763 | 4.84 | % | 1,074,952 | 54,647 | 5.08 | % | ||||
| Interest bearing deposits | 3,914 | 96 | 2.45 | % | 5,841 | 137 | 2.35 | % | ||||
| Investment securities (1) | 174,396 | 3,789 | 2.17 | % | 171,747 | 4,332 | 2.60 | % | ||||
| Other investments | 15,081 | 717 | 4.75 | % | 12,442 | 635 | 5.10 | % | ||||
| Total interest earning assets (1) | $ | 1,480,139 | $ | 64,527 | 4.36 | % | $ | 1,294,930 | $ | 60,423 | 4.68 | % |
| Average interest bearing liabilities: | ||||||||||||
| Savings accounts | $ | 174,184 | $ | 435 | 0.25 | % | $ | 155,848 | $ | 651 | 0.42 | % |
| Demand deposits | 268,311 | 1,065 | 0.40 | % | 204,296 | 1,677 | 0.82 | % | ||||
| Money market accounts | 244,632 | 1,446 | 0.59 | % | 182,103 | 1,988 | 1.09 | % | ||||
| CD’s | 316,264 | 6,325 | 2.00 | % | 352,924 | 7,114 | 2.02 | % | ||||
| IRA’s | 42,039 | 729 | 1.73 | % | 42,134 | 744 | 1.77 | % | ||||
| Total deposits | $ | 1,045,430 | $ | 10,000 | 0.96 | % | $ | 937,305 | $ | 12,174 | 1.30 | % |
| FHLB advances and other borrowings | 186,724 | 4,272 | 2.29 | % | 156,885 | 4,736 | 3.02 | % | ||||
| Total interest bearing liabilities | $ | 1,232,154 | $ | 14,272 | 1.16 | % | $ | 1,094,190 | $ | 16,910 | 1.55 | % |
| Net interest income | $ | 50,255 | $ | 43,513 | ||||||||
| Interest rate spread | 3.20 | % | 3.13 | % | ||||||||
| Net interest margin (1) | 3.40 | % | 3.37 | % | ||||||||
| Average interest earning assets to average interest bearing liabilities | 1.20 | 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 twelve months ended December 31, 2020 and December 31, 2019. The FTE adjustment to net interest income included in the rate calculations totaled $1 thousand and $120 thousand for the twelve months ended December 31, 2020 and December 31, 2019, respectively.
The following table reports key financial metric ratios based on a net income and net income as adjusted basis:
| Three Months Ended | Twelve Months Ended | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| December 31, 2020 | September 30, 2020 | December 31, 2019 | December 31, 2020 | December 31, 2019 | |||||||
| Ratios based on net income: | |||||||||||
| Return on average assets (annualized) | 0.87 | % | 0.85 | % | 0.84 | % | 0.80 | % | 0.68 | % | |
| Return on average equity (annualized) | 8.93 | % | 8.93 | % | 8.41 | % | 8.29 | % | 6.59 | % | |
| Return on average tangible common equity5 (annualized) | 11.67 | % | 11.79 | % | 11.45 | % | 11.04 | % | 8.98 | % | |
| Efficiency ratio | 60 | % | 63 | % | 67 | % | 64 | % | 73 | % | |
| Net interest margin with loan purchase accretion | 3.51 | % | 3.11 | % | 3.41 | % | 3.40 | % | 3.37 | % | |
| Net interest margin without loan purchase accretion | 3.13 | % | 3.01 | % | 3.26 | % | 3.15 | % | 3.26 | % | |
| Ratios based on net income as adjusted (non-GAAP): | |||||||||||
| Return on average assets as adjusted2 (annualized) | 0.90 | % | 0.82 | % | 0.79 | % | 0.78 | % | 0.76 | % | |
| Return on average equity as adjusted3 (annualized) | 9.24 | % | 8.59 | % | 7.85 | % | 8.09 | % | 7.44 | % | |
| Return on average tangible common equity as adjusted5 (annualized) | 12.06 | % | 11.34 | % | 10.68 | % | 10.78 | % | 10.13 | % | |
| Efficiency ratio4 as adjusted (non-GAAP) | 59 | % | 64 | % | 66 | % | 64 | % | 68 | % |
Reconciliation of Return on Average Assets as Adjusted (non-GAAP)
(in thousands, except ratios)
| Three Months Ended | Twelve Months Ended | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 31, 2020 | September 30, 2020 | December 31, 2019 | December 31, 2020 | December 31, 2019 | |||||||||||
| GAAP earnings after income taxes | $ | 3,570 | $ | 3,480 | $ | 3,169 | $ | 12,725 | $ | 9,463 | |||||
| Net income as adjusted after income taxes (non-GAAP) (1) | $ | 3,691 | $ | 3,348 | $ | 2,956 | $ | 12,425 | $ | 10,675 | |||||
| Average assets | $ | 1,634,459 | $ | 1,627,497 | $ | 1,492,834 | $ | 1,594,053 | $ | 1,398,482 | |||||
| Return on average assets (annualized) | 0.87 | % | 0.85 | % | 0.84 | % | 0.80 | % | 0.68 | % | |||||
| Return on average assets as adjusted (non-GAAP) (annualized) | 0.90 | % | 0.82 | % | 0.79 | % | 0.78 | % | 0.76 | % |
(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 | Twelve Months Ended | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 31, 2020 | September 30, 2020 | December 31, 2019 | December 31, 2020 | December 31, 2019 | |||||||||||
| GAAP earnings after income taxes | $ | 3,570 | $ | 3,480 | $ | 3,169 | $ | 12,725 | $ | 9,463 | |||||
| Net income as adjusted after income taxes (non-GAAP) (1) | $ | 3,691 | $ | 3,348 | $ | 2,956 | $ | 12,425 | $ | 10,675 | |||||
| Average equity | $ | 158,968 | $ | 154,996 | $ | 149,437 | $ | 153,497 | $ | 143,523 | |||||
| Return on average equity (annualized) | 8.93 | % | 8.93 | % | 8.41 | % | 8.29 | % | 6.59 | % | |||||
| Return on average equity as adjusted (non-GAAP) (annualized) | 9.24 | % | 8.59 | % | 7.85 | % | 8.09 | % | 7.44 | % |
(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 | Twelve Months Ended | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 31, 2020 | September 30, 2020 | December 31, 2019 | December 31, 2020 | December 31, 2019 | |||||||||||
| Total stockholders’ equity | $ | 160,564 | $ | 157,323 | $ | 150,553 | $ | 160,564 | $ | 150,553 | |||||
| Less: Goodwill | (31,498) | (31,498) | (31,498) | (31,498) | (31,498) | ||||||||||
| Less: Intangible assets | (5,494) | (5,893) | (7,587) | (5,494) | (7,587) | ||||||||||
| Tangible common equity (non-GAAP) | $ | 123,572 | $ | 119,932 | $ | 111,468 | $ | 123,572 | $ | 111,468 | |||||
| Average tangible common equity (non-GAAP) | $ | 121,752 | $ | 117,466 | $ | 109,829 | $ | 115,313 | $ | 105,340 | |||||
| GAAP earnings after income taxes | $ | 3,570 | $ | 3,480 | $ | 3,169 | $ | 12,725 | $ | 9,463 | |||||
| Net income as adjusted after income taxes (non-GAAP) (1) | $ | 3,691 | $ | 3,348 | $ | 2,956 | $ | 12,425 | $ | 10,675 | |||||
| Return on average tangible common equity (annualized) | 11.67 | % | 11.79 | % | 11.45 | % | 11.04 | % | 8.98 | % | |||||
| Return on average tangible common equity as adjusted (non-GAAP) (annualized) | 12.06 | % | 11.34 | % | 10.68 | % | 10.78 | % | 10.13 | % |
(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 | Twelve Months Ended | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 31, 2020 | September 30, 2020 | December 31, 2019 | December 31, 2020 | December 31, 2019 | |||||||||||
| Non-interest expense (GAAP) | $ | 10,826 | $ | 10,724 | $ | 10,428 | $ | 43,673 | $ | 42,686 | |||||
| Merger related Costs (1) | — | — | (104) | — | (3,880) | ||||||||||
| Branch Closure Costs (1) | (165) | — | — | (165) | (15) | ||||||||||
| Audit and financial reporting (1) | — | — | — | — | (358) | ||||||||||
| Non-interest expense as adjusted (non-GAAP) | 10,661 | 10,724 | 10,324 | 43,508 | 38,433 | ||||||||||
| Non-interest income | 4,770 | 5,062 | 3,784 | 18,448 | 14,975 | ||||||||||
| Net interest margin | 13,372 | 11,909 | 11,775 | 50,255 | 43,513 | ||||||||||
| Efficiency ratio denominator (GAAP) | $ | 18,142 | $ | 16,971 | $ | 15,559 | $ | 68,703 | $ | 58,488 | |||||
| Net gain on sale of branch (1) | — | — | — | — | (2,295) | ||||||||||
| Net gain on acquired business lines (1) | — | (180) | — | (432) | — | ||||||||||
| Settlement proceeds (1) | — | — | — | (131) | — | ||||||||||
| Efficiency ratio denominator (non-GAAP) | $ | 18,142 | $ | 16,791 | $ | 15,559 | $ | 68,140 | $ | 56,193 | |||||
| Efficiency ratio (GAAP) | 60 | % | 63 | % | 67 | % | 64 | % | 73 | % | |||||
| Efficiency ratio as adjusted (non-GAAP) | 59 | % | 64 | % | 66 | % | 64 | % | 68 | % |
(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 | December 31, 2020 | September 30, 2020 | December 31, 2019 | |||
|---|---|---|---|---|---|---|
| Total stockholders’ equity | $ | 160,564 | $ | 157,323 | $ | 150,553 |
| Less: Goodwill | (31,498) | (31,498) | (31,498) | |||
| Less: Intangible assets | (5,494) | (5,893) | (7,587) | |||
| Tangible common equity (non-GAAP) | $ | 123,572 | $ | 119,932 | $ | 111,468 |
| Ending common shares outstanding | 11,056,349 | 11,154,645 | 11,266,954 | |||
| Book value per share | $ | 14.52 | $ | 14.10 | $ | 13.36 |
| Tangible book value per share (non-GAAP) | $ | 11.18 | $ | 10.75 | $ | 9.89 |
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 | December 31, 2020 | September 30, 2020 | December 31, 2019 | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Total stockholders’ equity | $ | 160,564 | $ | 157,323 | $ | 150,553 | |||
| Less: Goodwill | (31,498) | (31,498) | (31,498) | ||||||
| Less: Intangible assets | (5,494) | (5,893) | (7,587) | ||||||
| Tangible common equity (non-GAAP) | $ | 123,572 | $ | 119,932 | $ | 111,468 | |||
| Total Assets | $ | 1,649,095 | $ | 1,622,593 | $ | 1,531,249 | |||
| Less: Goodwill | (31,498) | (31,498) | (31,498) | ||||||
| Less: Intangible assets | (5,494) | (5,893) | (7,587) | ||||||
| Tangible Assets (non-GAAP) | $ | 1,612,103 | $ | 1,585,202 | $ | 1,492,164 | |||
| Less SBA PPP Loans | (123,702) | (139,166) | — | ||||||
| Tangible Assets, excluding SBA PPP Loans (non-GAAP) | $ | 1,488,401 | $ | 1,446,036 | $ | 1,492,164 | |||
| Total stockholders’ equity to total assets ratio | 9.74 | % | 9.70 | % | 9.83 | % | |||
| Tangible common equity as a percent of tangible assets (non-GAAP) | 7.67 | % | 7.57 | % | 7.47 | % | |||
| Tangible common equity as a percent of tangible assets, excluding SBA PPP Loans (non-GAAP) | 8.30 | % | 8.29 | % | 7.47 | % |
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)”.
17
ex992
EXHIBIT 99.2 Earnings Release Supplement Fourth Quarter 2020
Citizens Community Bancorp, Inc. Table of Contents Segment Profiles COVID-19 Related Loan Deferrals Non-Owner Occupied CRE Owner Occupied CRE Multi-family Commercial and Industrial Loans Construction and Development Loans Agricultural Real Estate and Operating Loans Hotel Loans Restaurant Loans Credit Quality/Risk Rating Descriptions Loans by Risk Rating as of December 31, 2020 Loans by Risk Rating as of September 30, 2020 Loans by Risk Rating as of December 31, 2019 Allowance for Loan Losses Nonaccrual Loans Roll forward Other Real Estate Owned Roll forward Troubled Debt Restructurings in Accrual Status Acquired Loans – Non-accretable difference and accretable discount tables Capital Ratios – Bank and Company Page(s) 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 16 16 17 18 1
COVID-19 Related Loan Deferrals Source: Company filings Dollars in Thousands At December 31, 2020 Balance Number of Loans Commercial Deferrals Hotel Loans 51,643$ 11 Other Commercial Loans 4,817 14 Total Commercial Deferrals 56,460 25 Residential Deferrals 3,858 87 Consumer Deferrals 644 42 Total Deferrals at December 31, 2020 60,962$ 154 Commercial Loan Deferral Expiration by Quarter Balance Number of Loans Hotel Loans Quarter Ending March 31, 2021 915$ 1 Quarter Ending June 30, 2021 48,346 9 Quarter Ending September 30, 2021 2,382 1 Total Hotel Loans 51,643 11 Other Commercial Loans Quarter Ending March 31, 2021 1,494 6 Quarter Ending June 30, 2021 2,341 5 Quarter Ending September 30, 2021 982 3 Total Other Commercial Loans 4,817 14 Total Commercial Deferral Expirations 56,460$ 25 2
Source: Internal Company Documents Portfolio Fundamentals 57% 32% 11% Wisconsin Minnesota Other By Geography As of 12/31/2020 • Typically well seasoned investors with multiple projects, track record of success and personal financial strength (net worth/Liquidity) • Maximum LTV =<80% with recourse to owners with >20% interest • Term of 5-10 years with 20 to 25-year amortizations depending on property type, markets and strength and liquidity of sponsors • Minimum DSC and/or Global DSC covenant required to monitor performance ranging from 1.15x-1.25x • Conservative underwriting approach emphasizing actual results or market data • Appropriate use of SBA 504/7a for lower cash injection or special use projects Non – Owner Occupied CRE As of 12/31/2020 As of 09/30/2020 $307 $305 785 783 $391 $387 Approximate Weighted Average LTV 56% 57% 2.4x 2.4x Weighted Average Seasoning In Months 28 29 0.00% 0.00% Approximate Weighted Average DSCR Trailing 12 Month Net Charge-Offs Loan Balance Outstanding In Millions Number of Loans Average Loan Size In Thousands Portfolio Characteristics Non - Owner Occupied CRE 32% 26% 7% 6% 5% 4% 4% 3% 2% 11% Hotel Investor Residential CRE - Warehouse/Mini Storage CRE - Retail CRE - Senior Living CRE - Industrial/Manufacturing CRE - Office CRE - Mixed Use CRE - Bar/Restaurant Other Non – Owner Occupied CRE 3
Source: Internal Company Documents 15% 12% 10% 9% 9% 7% 7% 5% 24% CRE Campground CRE Restaurant CRE Retail CRE Industrial/Manufacturing CRE Warehouse/Mini Storage CRE Senior Living CRE Mixed Use CRE Office Other Owner Occupied CRE As of 12/31/2020 Portfolio Fundamentals 76% 16% 8% Wisconsin Minnesota Other By Geography As of 12/31/2020 • Underwritten to <80% LTV based on appraised value (<75% for Restaurant) • Term of 5-10 years with 20-year amortization • Recourse to owners with greater than 20% interest • DSC covenant of 1.25x on project and/or Global DSC of 1.15x • Appropriate use of SBA 504/7a for lower cash injection or special use projects • By Geography “Other” segment includes borrowers with warm climates, no state income tax sales Owner Occupied CRE As of 12/31/2020 As of 9/30/2020 $201 $195 420 415 $478 $469 Approximate Weighted Average LTV 50% 50% 2.1x 2.0x Weighted Average Seasoning In Months 32 34 0.00% 0.00% Approximate Weighted Average DSCR Trailing 12 Month Net Charge-Offs Portfolio Characteristics Owner Occupied Loan Balance Outstanding In Millions Number of Loans Average Loan Size In Thousands 4
Portfolio Fundamentals 57% 41% 2% Wisconsin Minnesota Other By Geography As of 12/31/2020 100% Multi-family Multi-family As of 12/31/2020 Source: Internal Company Documents • Robust housing markets in Eau Claire and Mankato markets supported by student populations at state universities, technical colleges, and growing population and job markets • Multi-family sponsors experienced owners with multi-project portfolios • Typically underwritten to 75% LTV based on appraised value with recourse; metro markets and/or strong sponsors may warrant up to 80% LTV • Term of 5-10 years with 20 to 25-year amortization (varies by new versus existing, size of market and sponsor strength) • Covenant for minimum DSC/Global DSC Multi-family As of 12/31/2020 As of 09/30/2020 $122 $110 111 94 $1.10 $1.16 67% 67% Approximate Weighted Average DSCR 1.9x 1.9x 18 17 0.00% 0.00% Approximate Weighted Average LTV Weighted Average Seasoning In Months Trailing 12 Month Net Charge-Offs Portfolio Characteristics - Multi-family Loan Balance Outstanding In Millions Number of Loans Average Loan Size In Millions 5
83% 16% 1% Wisconsin Minnesota Other By Geography As of 12/31/2020 16% 12% 10% 10%8% 8% 7% 5% 4% 4% 4% 4% 3% 3% 2% Manufacturing Real Estate, Rental and Leasing Public Administration Transportation and Warehousing Wholesale Trade Educational Services Construction Retail Trade Administrative and Support Professional Services Other Agriculture Other Services Finance and Insurance Health Care Commercial & Industrial As of 12/31/2020 Portfolio Fundamentals Source: Internal Company Documents • Highly diversified, secured loan portfolio underwritten with recourse • Lines of credit reviewed annually and may have borrowing base certificates governing line usage • Fixed asset LTV’s based on age and type of equipment; <5-year amortization • Use of SBA Guaranty Program (Preferred Lender or General Processing) as appropriate • “Retail Trade” segment consists of Farm Supply, Franchised Hardware, Franchised Auto Parts, Franchised and Non-franchised Auto Dealers and Repair Shops, Convenience Stores/Gas Stations Commercial & Industrial Loans As of 12/31/2020 As of 09/30/2020 $117 $105 764 740 $153 $141 2.4x 2.3x 28 28 0.78% 0.51% Committed Line, if collateral 52 51 Approximate Weighted Average DSCR Weighted Average Seasoning In Months Trailing 12 Month Net Charge-Offs Portfolio Characteristics - Commercial & Industrial Loan Balance In Millions Number of Loans Average Loan Size In Thousands 6
Portfolio Fundamentals 23% 19% 13% 7% 7% 7% 5% 4% 3% 12% CRE Multi-family Commercial 1-4 Family Construction CRE Senior Living CRE Hospitality CRE Retail CRE Industrial/Manufacturing Other Land CRE Warehouse/Mini Storage Residential Lot Other Commercial & Development As of 12/31/2020 59%25% 16% Wisconsin Minnesota Other By Geography As of 12/31/2020 Source: Internal Company Documents • Underwritten to 75-80% LTV based on lesser of cost or appraised value with full recourse • Interest only typically up to 18 months (depending on project complexity and seasonal timing) followed by amortization of 15-25 years (terms vary by property type) • Borrower equity contribution of cash/land value =>15% injected at the beginning of project (cash/land contribution) • Construction loans require 3rd Party inspections and Title Company draws after balancing to sworn construction statement • 1-4 Residential construction centered in eastern Twin Cities and Northwest Wisconsin. Generally 80% LTC /60%-80% of AV. Spec building capped. Progress reporting monthly by individual home Construction & Development Loans As of 12/31/2020 As of 09/30/2020 Loan Balance Outstanding In Millions $99 $89 Number of Loans 125 125 Average Loan Size In Thousands $788 $712 Approximate Weighted Average LTV 51% 51% Trailing 12 Month Net Charge-Offs 0.00% 0.00% Percent Utilized of Commitments 62% 66% Portfolio Characteristics - Construction & Development 7
43% 26% 18% 13% Crop Dairy Other Farming Other Agricultural As of 12/31/2020 Portfolio Fundamentals 68% 28% 4% Wisconsin Minnesota Other By Geography As of 12/31/20 Source: Internal Company Documents • Producers required to have marketing plans to mitigate volatility of commodities • Appropriate crop/revenue insurance and/or dairy margin protection required • Maximum Ag RE LTV of less than 65%; Equipment LTV of less than 75% • Appropriate structuring to separate crop production cycles and to match length of loan with asset financed • Use of Farmer Mac, FSA, SBA or USDA programs to address DSC, collateral margins or working capital Agricultural Real Estate & Operating Loans As of 12/31/2020 As of 9/30/2020 $102 $106 645 627 $157 $169 1.7x 1.5x 35 37 -0.01% 0.12% Approximate Weighted Average DSCR Weighted Average Seasoning In Months Trailing 12 Month Net Charge-Offs Portfolio Characteristics - Agriculture Loan Balance Outstanding In Millions Number of Loans Average Loan Size In Thousands 8
68% 20% 9% 3% Flagged Historic Boutique Other Wisconsin Dells Area Hotels As of 12/31/2020 Portfolio Fundamentals 51% 32% 17% Minnesota Wisconsin Other By Geography As of 12/31/2020 Source: Internal Company Documents • Mainly experienced multi project hoteliers and guarantors with strong personal financial statements (net worth and liquidity) • Mainly flagged properties, Historic hotels, including two hotels in Minneapolis • Wisconsin Dells Area projects were acquired from F&M • One flagged project approved with the SBA 504 structure; nearing completion of construction • Underwriting consistent with management's conservative approach to Investor CRE, emphasizing actual results in underwriting Hotel Loans As of 12/31/2020 As of 09/30/2020 $94 $102 32 35 $2.8 $3.0 56% 58% 2.3x 2.2x 0.00% 0.00%Trailing 12 Month Net Charge Offs Number of Loans Approximate DSCR - Non-Construction Portfolio Characteristics - Hotels Loan Balance Outstanding In Millions Average Loan Size In Millions Approximate Weighted Average LTV 9
50% 17% 9% 11% 7% 6% Culver's - Limited Service Restaurants Other National Limited Services Micro Breweries Other Drinking Establishments Restaurants As of 12/31/2020 Portfolio Fundamentals 77% 21% 2% Wisconsin Minnesota Other By Geography As of 12/31/2020 Source: Internal Company Documents • Experienced developers/operators of national Limited /Quick Service brands (Culver’s, Subway, Dairy Queen, McDonalds, Jimmy John’s, A&W) • Underwritten to =<80% LTV with full recourse (depending on sponsor history); 20-year amortization with 5 to 10-year terms • Use of SBA Guaranty Program (Preferred Lender or General Processing) as appropriate • Drinking establishments may have other collateral pledged and tend to be in smaller communities in our footprint • Micro Breweries concentrated in Eau Claire area • Lessors of RE include investor and owner-occupied structure Restaurant Loans As of 12/31/2020 As of 9/30/2020 $37 $39 90 91 $412 $428 57% 54% 3.3x 2.8x 0.00% 0.00% Portfolio Characteristics - Restaurants Approximate Weighted Average DSCR Trailing 12 Month Net Charge-Offs Loan Balance Outstanding In Millions Number of Loans Average Loan Size In Thousands Approximate Weighted Average LTV 10
Credit Quality/Risk Ratings: Management utilizes a numeric risk rating system to identify and quantify the Bank’s risk of loss within its loan portfolio. Ratings are initially assigned prior to funding the loan, and may be changed at any time as circumstances warrant. Ratings range from the highest to lowest quality based on factors that include measurements of ability to pay, collateral type and value, borrower stability and management experience. The Bank’s loan portfolio is presented below in accordance with the risk rating framework that has been commonly adopted by the federal banking agencies. The definitions of the various risk rating categories are as follows: 1 through 4 - Pass. A “Pass” loan means that the condition of the borrower and the performance of the loan is satisfactory or better. 5 - Watch. A “Watch” loan has clearly identifiable developing weaknesses that deserve additional attention from management. Weaknesses that are not corrected or mitigated, may jeopardize the ability of the borrower to repay the loan in the future. 6 - Special Mention. A “Special Mention” loan has one or more potential weakness that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the institution’s credit position in the future. 7 - Substandard. A “Substandard” loan is inadequately protected by the current net worth and paying capacity of the obligor or the collateral pledged, if any. Assets classified as substandard must have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. 8 - Doubtful. A “Doubtful” loan has all the weaknesses inherent in a Substandard loan with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. 9 - Loss. Loans classified as “Loss” are considered uncollectible, and their continuance as bankable assets is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, and a partial recovery may occur in the future. 11
Below is a breakdown of loans by risk rating as of December 31, 2020: 1 to 5 6 7 8 9 TOTAL Originated Loans: Commercial/Agricultural real estate: Commercial real estate $ 349,482 $ 543 $ 1,088 $ — $ — $ 351,113 Agricultural real estate 30,041 446 1,254 — — 31,741 Multi-family real estate 112,423 308 — — — 112,731 Construction and land development 87,763 — 3,478 — — 91,241 C&I/Agricultural operating: Commercial and industrial 91,474 20 3,796 — — 95,290 SBA PPP loans 123,702 — — — — 123,702 Agricultural operating 22,462 934 1,061 — — 24,457 Residential mortgage: Residential mortgage 82,097 7 4,179 — — 86,283 Purchased HELOC loans 5,959 — 301 — — 6,260 Consumer installment: Originated indirect paper 25,616 — 235 — — 25,851 Other consumer 11,986 — 70 — — 12,056 Total originated loans $ 943,005 $ 2,258 $ 15,462 $ — $ — $ 960,725 Acquired Loans: Commercial/Agricultural real estate: Commercial real estate $ 148,303 $ 4,274 $ 3,985 $ — $ — $ 156,562 Agricultural real estate 31,147 — 5,907 — — 37,054 Multi-family real estate 9,273 — 148 — — 9,421 Construction and land development 7,237 — 39 — — 7,276 C&I/Agricultural operating: Commercial and industrial 20,918 9 336 — — 21,263 Agricultural operating 7,838 — 490 — — 8,328 Residential mortgage: Residential mortgage 42,805 131 2,167 — — 45,103 Consumer installment: Other consumer 1,150 — 7 — — 1,157 Total acquired loans $ 268,671 $ 4,414 $ 13,079 $ — $ — $ 286,164 Total Loans: Commercial/Agricultural real estate: Commercial real estate $ 497,785 $ 4,817 $ 5,073 $ — $ — $ 507,675 Agricultural real estate 61,188 446 7,161 — — 68,795 Multi-family real estate 121,696 308 148 — — 122,152 Construction and land development 95,000 — 3,517 — — 98,517 C&I/Agricultural operating: Commercial and industrial 112,392 29 4,132 — — 116,553 SBA PPP loans 123,702 — — — — 123,702 Agricultural operating 30,300 934 1,551 — — 32,785 Residential mortgage: Residential mortgage 124,902 138 6,346 — — 131,386 Purchased HELOC loans 5,959 — 301 — — 6,260 Consumer installment: Originated indirect paper 25,616 — 235 — — 25,851 Other consumer 13,136 — 77 — — 13,213 Gross loans $ 1,211,676 $ 6,672 $ 28,541 $ — $ — $ 1,246,889 Less: Unearned net deferred fees and costs and loans in process (4,245) Unamortized discount on acquired loans (5,063) Allowance for loan losses (17,043) Loans receivable, net $ 1,220,538 12
Below is a breakdown of loans by risk rating as of September 30, 2020: 1 to 5 6 7 8 9 TOTAL Originated Loans: Commercial/Agricultural real estate: Commercial real estate $ 318,915 $ 1,947 $ 1,166 $ — $ — $ 322,028 Agricultural real estate 30,807 454 1,269 — — 32,530 Multi-family real estate 100,148 — — — — 100,148 Construction and land development 77,514 — 3,478 — — 80,992 C&I/Agricultural operating: Commercial and industrial 75,338 802 3,819 — — 79,959 SBA PPP loans 139,166 — — — — 139,166 Agricultural operating 23,040 28 1,256 — — 24,324 Residential mortgage: Residential mortgage 85,922 7 4,171 — — 90,100 Purchased HELOC loans 6,220 — 327 — — 6,547 Consumer installment: Originated indirect paper 28,312 — 223 — — 28,535 Other consumer 13,135 — 86 — — 13,221 Total originated loans $ 898,517 $ 3,238 $ 15,795 $ — $ — $ 917,550 Acquired Loans: Commercial/Agricultural real estate: Commercial real estate $ 168,360 $ 4,237 $ 6,048 $ — $ — $ 178,645 Agricultural real estate 33,765 — 6,848 — — 40,613 Multi-family real estate 9,372 — 148 — — 9,520 Construction and land development 8,264 — 82 — — 8,346 C&I/Agricultural operating: Commercial and industrial 23,572 59 782 — — 24,413 Agricultural operating 8,688 — 946 — — 9,634 Residential mortgage: Residential mortgage 49,243 243 2,268 — — 51,754 Consumer installment: Other consumer 1,404 — 5 — — 1,409 Total acquired loans $ 302,668 $ 4,539 $ 17,127 $ — $ — $ 324,334 Total Loans: Commercial/Agricultural real estate: Commercial real estate $ 487,275 $ 6,184 $ 7,214 $ — $ — $ 500,673 Agricultural real estate 64,572 454 8,117 — — 73,143 Multi-family real estate 109,520 — 148 — — 109,668 Construction and land development 85,778 — 3,560 — — 89,338 C&I/Agricultural operating: Commercial and industrial 98,910 861 4,601 — — 104,372 SBA PPP loans 139,166 — — — — 139,166 Agricultural operating 31,728 28 2,202 — — 33,958 Residential mortgage: Residential mortgage 135,165 250 6,439 — — 141,854 Purchased HELOC loans 6,220 — 327 — — 6,547 Consumer installment: Originated indirect paper 28,312 — 223 — — 28,535 Other consumer 14,539 — 91 — — 14,630 Gross loans $ 1,201,185 $ 7,777 $ 32,922 $ — $ — $ 1,241,884 Less: Unearned net deferred fees and costs and loans in process (5,033) Unamortized discount on acquired loans (6,712) Allowance for loan losses (14,836) Loans receivable, net $ 1,215,303 13
Below is a breakdown of loans by risk rating as of December 31, 2019: 1 to 5 6 7 8 9 TOTAL Originated Loans: Commercial/Agricultural real estate: Commercial real estate $ 301,381 $ 266 $ 899 $ — $ — $ 302,546 Agricultural real estate 31,129 829 2,068 — — 34,026 Multi-family real estate 71,877 — — — — 71,877 Construction and land development 67,989 — 3,478 — — 71,467 C&I/Agricultural operating: Commercial and industrial 85,248 1,023 3,459 — — 89,730 Agricultural operating 19,545 402 770 — — 20,717 Residential mortgage: Residential mortgage 104,428 — 4,191 — — 108,619 Purchased HELOC loans 8,407 — — — — 8,407 Consumer installment: — Originated indirect paper 39,339 — 246 — — 39,585 Other consumer 15,425 — 121 — — 15,546 Total originated loans $ 744,768 $ 2,520 $ 15,232 $ — $ — $ 762,520 Acquired Loans: Commercial/Agricultural real estate: Commercial real estate $ 196,692 $ 6,084 $ 9,137 $ — $ — $ 211,913 Agricultural real estate 42,381 534 8,422 — — 51,337 Multi-family real estate 13,533 — 1,598 — — 15,131 Construction and land development 14,181 — 762 — — 14,943 C&I/Agricultural operating: Commercial and industrial 41,587 932 1,485 — — 44,004 Agricultural operating 15,621 350 1,092 — — 17,063 Residential mortgage: Residential mortgage 65,125 436 2,152 — — 67,713 Consumer installment: Other consumer 2,628 — 12 — — 2,640 Total acquired loans $ 391,748 $ 8,336 $ 24,660 $ — $ — $ 424,744 Total Loans: Commercial/Agricultural real estate: Commercial real estate $ 498,073 $ 6,350 $ 10,036 $ — $ — $ 514,459 Agricultural real estate 73,510 1,363 10,490 — — 85,363 Multi-family real estate 85,410 — 1,598 — — 87,008 Construction and land development 82,170 — 4,240 — — 86,410 C&I/Agricultural operating: Commercial and industrial 126,835 1,955 4,944 — — 133,734 Agricultural operating 35,166 752 1,862 — — 37,780 Residential mortgage: Residential mortgage 169,553 436 6,343 — — 176,332 Purchased HELOC loans 8,407 — — — — 8,407 Consumer installment: Originated indirect paper 39,339 — 246 — — 39,585 Other consumer 18,053 — 133 — — 18,186 Gross loans $ 1,136,516 $ 10,856 $ 39,892 $ — $ — $ 1,187,264 Less: Unearned net deferred fees and costs and loans in process (393) Unamortized discount on acquired loans (9,491) Allowance for loan losses (10,320) Loans receivable, net $ 1,167,060 14
Allowance for Loan Losses (in thousand, except ratios) December 31, 2020 and Three Months Ended September 30, 2020 and Three Months Ended June 30, 2020 and Three Months Ended December 31, 2019 and Three Months Ended Allowance for loan losses (“ALL”), at beginning of period $ 14,836 $ 13,373 $ 11,835 $ 9,177 Loans charged off: Commercial/Agricultural real estate — — — (156) C&I/Agricultural operating (300) (103) (246) — Residential mortgage — (51) — (16) Consumer installment (23) (10) (65) (119) Total loans charged off (323) (164) (311) (291) Recoveries of loans previously charged off: Commercial/Agricultural real estate 1 73 76 — C&I/Agricultural operating 11 33 — — Residential mortgage — 1 6 3 Consumer installment 18 20 17 31 Total recoveries of loans previously charged off: 30 127 99 34 Net loans charged off (“NCOs”) (293) (37) (212) (257) Additions to ALL via provision for loan losses charged to operations 2,500 1,500 1,750 1,400 ALL, at end of period $ 17,043 $ 14,836 $ 13,373 $ 10,320 Average outstanding loan balance $ 1,240,895 $ 1,258,224 $ 1,266,273 $ 1,136,330 Ratios: NCOs (annualized) to average loans 0.09 % 0.01 % 0.07 % 0.09 % 15
Nonaccrual Loans Roll forward (in thousands) Quarter Ended December 31, 2020 September 30, 2020 June 30, 2020 March 31, 2020 December 31, 2019 Balance, beginning of period $ 13,154 $ 14,787 $ 16,090 $ 19,056 $ 19,022 Additions 912 716 1,907 1,811 2,641 Acquired nonaccrual loans — — — — — Charge offs (2) (141) (175) (452) (198) Transfers to OREO — (172) — (1,100) (425) Return to accrual status — (165) (1,702) (120) (14) Payments received (3,317) (1,744) (1,292) (2,887) (1,957) Other, net — (127) (41) (218) (13) Balance, end of period $ 10,747 $ 13,154 $ 14,787 $ 16,090 $ 19,056 Other Real Estate Owned Roll forward (in thousands) Quarter Ended December 31, 2020 September 30, 2020 June 30, 2020 March 31, 2020 December 31, 2019 Balance, beginning of period $ 756 $ 692 $ 1,412 $ 1,429 $ 1,348 Loans transferred in — 172 — 988 495 Sales (529) (86) (681) (965) (378) Write-downs (68) (26) (151) (49) (64) Other, net (3) 4 112 9 28 Balance, end of period $ 156 $ 756 $ 692 $ 1,412 $ 1,429 Troubled Debt Restructurings in Accrual Status (in thousands, except number of modifications) December 31, 2020 September 30, 2020 June 30, 2020 December 31, 2019 Number of Modifications Recorded Investment Number of Modifications Recorded Investment Number of Modifications Recorded Investment Number of Modifications Recorded Investment Troubled debt restructurings: Accrual Status Commercial/Agricultural real estate 16 $ 4,695 19 $ 5,480 19 $ 1,885 14 $ 1,730 C&I/Agricultural Operating 4 3,836 5 3,868 5 1,199 2 366 Residential mortgage 43 3,162 42 3,178 39 2,981 40 3,233 Consumer installment 8 49 7 53 8 62 7 67 Total loans 71 $ 11,742 73 $ 12,579 71 $ 6,127 63 $ 5,396 16
Acquired loans represent much of the reduction in non-performing loans and classified loans. The table below shows the changes in the Bank’s non-accretable difference on purchased credit impaired loans. The second table below shows the changes in the Bank’s accretable loan discount which was established at each acquisition. The Bank has transferred the non-accretable difference on purchased credit impaired loans to accretable discount as collateral coverage improved sufficiently, due to a combination of principal paydowns and/or improving collateral positions. This transferred non-accretable difference to accretable discount is accreted over the remaining maturity of the loan or until payoff, whichever is shorter. Non-accretable difference: (in thousands) December 31, 2020 September 30, 2020 June 30, 2020 March 31, 2020 December 31, 2019 Non-accretable difference, beginning of period $ 1,661 $ 3,355 $ 4,327 $ 6,290 $ 6,737 Additions to non-accretable difference for acquired purchased credit impaired loans — — — — (170) Non-accretable difference realized as interest from payoffs of purchased credit impaired loans (324) (130) (196) (1,043) (271) Transfers from non-accretable difference to accretable discount. (50) (1,294) (741) (669) — Non-accretable difference used to reduce loan principal balance (200) (270) (35) — — Non-accretable difference transferred to OREO due to loan foreclosure — — — (251) (6) Non-accretable difference, end of period $ 1,087 $ 1,661 $ 3,355 $ 4,327 $ 6,290 The table below provides the changes in accretable discount for acquired loans. Accretable discount: (in thousands) December 31, 2020 September 30, 2020 June 30, 2020 March 31, 2020 December 31, 2019 Accretable discount, beginning of period $ 5,050 $ 4,032 $ 3,637 $ 3,201 $ 3,435 Additions to accretable discount for acquired performing loans — — — — — Accelerated accretion from payoff of certain PCI loans with transferred non-accretable difference (872) — (99) — — Transfers from non-accretable difference to accretable discount 50 1,294 741 669 — Scheduled accretion (252) (276) (247) (233) (234) Accretable discount, end of period $ 3,976 $ 5,050 $ 4,032 $ 3,637 $ 3,201 17
CITIZENS COMMUNITY FEDERAL N.A. Selected Capital Composition Highlights December 31, 2020 (unaudited) September 30, 2020 (unaudited) June 30, 2020 (unaudited) December 31, 2019 (audited) To Be Well Capitalized Under Prompt Corrective Action Provisions Tier 1 leverage ratio (to adjusted total assets) 9.9% 9.9% 9.9% 10.4% 5.0% Tier 1 capital (to risk weighted assets) 13.5% 13.7% 12.9% 12.2% 8.0% Common equity tier 1 capital (to risk weighted assets) 13.5% 13.7% 12.9% 12.2% 6.5% Total capital (to risk weighted assets) 14.7% 15.0% 14.0% 13.1% 10.0% CITIZENS COMMUNITY BANCORP, INC. Selected Capital Composition Highlights December 31, 2020 (unaudited) September 30, 2020 (unaudited) June 30, 2020 (unaudited) December 31, 2019 (audited) To Be Well Capitalized Under Prompt Corrective Action Provisions Tier 1 leverage ratio (to adjusted total assets) 7.7% 7.5% 7.4% 7.7% 5.0% Tier 1 capital (to risk weighted assets) 10.5% 10.5% 9.7% 9.1% 8.0% Common equity tier 1 capital (to risk weighted assets) 10.5% 10.5% 9.7% 9.1% 6.5% Total capital (to risk weighted assets) 14.3% 14.3% 12.1% 11.2% 10.0% 18