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Citizens Community Bancorp, Inc. Earns $2.5 Million For Fiscal 2017

EAU CLAIRE, Wis., Nov. 06, 2017 (GLOBE NEWSWIRE) -- Citizens Community Bancorp, Inc. (the "Company") (Nasdaq:CZWI), the parent company of Citizens Community Federal N.A. (the “Bank”), today reported GAAP earnings decreased to $2.50 million, or $0.46 per diluted share in fiscal 2017, compared to $2.57 million, or $0.49 per diluted share for the prior fiscal year. For the fourth quarter ended September 30, 2017, GAAP earnings showed a loss of $458,000, or $0.08 per diluted share compared to earnings of $1.08 million, or $0.20 per diluted share in the linked quarter and earnings of $176,000, or $0.04 per diluted share for the fourth quarter one year earlier. The 2017 fiscal fourth quarter and year to date operations were negatively impacted by merger expenses including data system conversion expenses, severance costs, higher professional fees, interest expense from acquisition debt, increased loan loss provision associated with organic loan growth and higher compensation costs due to production incentive increases, partially offset by settlement proceeds and the positive impact of the Wells merger.

Core earnings (non-GAAP) increased 20.0% year-over-year to $4.3 million, or $0.79 per diluted share for fiscal 2017, compared to $3.6 million, or $0.67 per diluted share for fiscal 2016. For the fourth quarter of fiscal 2017, core earnings (non-GAAP) were $731,000, or $0.13 per diluted share, compared to $785,000, or $0.15 per diluted share (non-GAAP) for the fourth quarter of fiscal 2016. Fiscal 2017 core earnings exclude merger expenditures and the cost of closing six branches during the year, as well as other costs and proceeds itemized on the accompanying financial table "Reconciliation of GAAP Earnings and Core Earnings (non-GAAP)". Fiscal 2016 core earnings exclude merger expenditures related to the merger with Community Bank of Northern Wisconsin ("CBN") and the cost of closing four branch offices.

Core earnings is a non-GAAP measure that management believes enhances investors' ability to better understand the underlying business performance and trends related to core business activities. For a detailed reconciliation of GAAP to non-GAAP results, see the accompanying financial table "Reconciliation of GAAP Earnings and Core Earnings (non-GAAP)".

“We have made considerable progress during the year improving our balance sheet, core operations and transforming our profile from our credit union heritage during the past year. We will continue to focus on streamlining operations and demonstrating we can grow organically as well as through acquisitions.” said Stephen Bianchi, President and Chief Executive Officer. “Our commercial lending platform continues to expand through the addition of new lending teams and improved performance of our existing lending teams. With solid fourth quarter growth in the commercial loan portfolio, we recorded a loan loss provision for the first time since the quarter ended December 31, 2015.”

Acquisition of Wells Financial Corp.

“We closed the acquisition of Wells Financial Corp. on August 18, 2017, and issued 592,218 Citizens Community Bancorp, Inc. shares to Wells Financial shareholders. The acquisition substantially diversified our loan and deposit portfolios, and expanded our southern Minnesota markets coverage. Within days of closing the acquisition, we were able to convert their core data system to our platform,” said Bianchi.

Fourth Quarter Fiscal 2017 Financial Highlights: (at or for the periods ended September 30, 2017, compared to June 30, 2017 and /or September 30, 2016)

  • GAAP net income reflected a loss of $458,000 in Q4 fiscal 2017, compared to earnings of $176,000 from a year ago, and $1.08 million in Q3 fiscal 2017. Fiscal 2017 net income decreased 2.9% to $2.50 million, or $0.46 per diluted share, from $2.57 million, or $0.49 per diluted share for fiscal 2016.

  • Expenses for acquisitions and other non-core items totaled $1.8 million pretax, or $0.22 per diluted share, after-tax, in the 4Q fiscal 2017 compared to $1.1 million pretax, or $0.11 per diluted share after-tax in the 4Q 2016. For fiscal 2017, non-core expenses were $2.9 million pretax, or $0.36 per diluted share after-tax, compared to $1.5 million pretax, or $0.18 per diluted share after tax for fiscal 2016.

  • Net interest income increased 7.9% to $6.17 million in Q4 fiscal 2017, from $5.72 million in Q4 fiscal 2016. For fiscal 2017, net interest income grew 10.9% to $22.27 million from $20.08 million for fiscal 2016.

  • Net interest margin (NIM) was 3.29% for the current quarter, compared to 3.32% for Q4 fiscal 2016. For fiscal 2017, the NIM expanded 4 basis points to 3.31% from 3.27% in fiscal 2016. Incremental interest expense on acquisition debt of approximately $180,000, or 11 basis points, was recorded in the current quarter.

  • Loan loss provision increased to $319,000 in Q4 fiscal 2017 compared to no provisions one year earlier and the previous quarter. Provisions were increased primarily related to the organic growth of portfolio loans by approximately $36 million in the quarter.

  • Total non-interest income increased 22% to $1.4 million in Q4 fiscal 2017, compared to $1.1 million in Q4 fiscal 2016. For fiscal 2017, total non-interest income grew 21% to $4.8 million from $3.9 million for the like period in 2016. Growth in non-interest income is being driven primarily by settlement proceeds and fee income generated due to the Wells acquisition.

  • Net loans were $727.1 million at September 30, 2017, compared to $568.4 million at September 30, 2016 and $513.6 million at June 30, 2017. The larger balance of loans, in the quarter, reflects organic loan growth plus loans acquired in the Wells Financial acquisition.

  • Total deposits were $742.5 million at September 30, 2017, compared to $557.7 million at September 30, 2016 and $519.1 million at June 30, 2017. The deposit growth is due to the Wells Financial acquisition, partially offset by deposit runoff in closed branches.

  • The allowance for loan and lease losses was 0.81% of total loans at September 30, 2017, compared to 1.06% one year earlier and 1.11% the previous quarter. The lower ratio for Q4 2017 was a result of the larger balance of loans related to the acquisition of Wells Financial that were recorded at fair values and therefore without provisions for losses.

  • Nonperforming assets were $14.7 million, or 1.56% of total assets at September 30, 2017, compared to $4.3 million, or 0.62% of total assets at September 30, 2016, and $7.3 million, or 1.10% of total assets at June 30, 2017. Included in nonperforming assets are approximately, $6.2 million of foreclosed properties acquired in the Wells Financial acquisition, including $3.1 million that have loan contracts on which the borrowers are paying according to their contractual terms, but the deed remains in the name of the Bank. The weighted average FICO score for these 24 contracts is 652 and the average loan-to-value is 64%. Additionally, other real estate owned increased $3.4 million due to contract for deed loans classified as other real estate loans, acquired in the Wells merger.

  • Bank capital ratios exceeded regulatory guidelines for a well-capitalized financial institution under the Basel III regulatory requirements at September 30, 2017:

Citizens
Community
Federal N.A.
To Be Well Capitalized Under
Prompt Corrective Action
Provisions
Total capital (to risk weighted assets) 13.3% 10.0%
Tier 1 capital (to risk weighted assets) 12.4% 8.0%
Common equity tier 1 capital (to risk weighted assets) 12.4% 6.5%
Tier 1 leverage ratio (to adjusted total assets) 9.3% 5.0%

Balance Sheet and Asset Quality Review

Total assets were $940.7 million at September 30, 2017, compared to $695.9 million at September 30, 2016, and $665.6 million at June 30, 2017. The increase in total assets from a year ago, and on a linked quarter basis, was primarily due to the acquisition of Wells Financial.

Loan balances increased from the immediate prior quarter and the previous fiscal year period due to loans acquired through the Wells Financial acquisition plus organic growth through the existing commercial lenders. The organic growth outpaced the roll-off of indirect loans and lower levels of 1-4 family loans. At September 30, 2017, commercial and agricultural loans for both operating purpose and real estate secured totaled 47.9% of the total loan portfolio versus 42.4% the prior quarter. One to four family residential and home equity real estate loans represented 33.6% of the total loan portfolio versus 30.1% the prior quarter, while consumer related non-real estate loans totaled 18.5% of the total loan portfolio versus 27.5% the prior quarter.

Deposits totaled $742.5 million at September 30, 2017, compared to $557.7 million at September 30, 2016, and $519.1 million at June 30, 2017. Noninterest-bearing deposits increased to $75.3 million at September 30, 2017, compared to $49.6 million at June 30 and $45.4 million at September 30, 2016. Core deposits, excluding time deposits, increased to $451.7 million, or 60.8% of total deposits compared to $280.5 million at June 30, 2017, or 54.0% of total deposits.

“The acquisition of Wells Financial, combined with the closing of several branches over the past year has substantially changed the composition of our loan and deposit portfolios, which we believe will result in a stronger core earnings stream and better net interest margins,” added Bianchi.

Federal Home Loan Bank ("FHLB") advances totaled $90.0 million at September 30, 2017, compared to $67.9 million at June 30, 2017. Other borrowings increased to $30.3 million at September 30, 2017 compared to $11.0 million at June 30, 2017. The Bank has used borrowings and equity capital to fund branch closings, as well as acquisition of other financial institutions, and FHLB advances to support organic loan growth.

The allowance for loan and lease losses at September 30, 2017, totaled $5.9 million and represented 0.81% of total loans, compared to $6.1 million and 1.06% of total loans at September 30, 2016. Net charged off loans totaled $445,000 and represented 0.07% of average loans for fiscal 2017. One year earlier, net charge offs totaled $503,000 and represented 0.10% of average loans in fiscal 2016.

Tangible book value per share (non-GAAP) was $9.85 at September 30, 2017, compared to $11.22 at September 30, 2016, and $11.50 at June 30, 2017. The acquisition of Wells Financial resulted in the addition of $5.4 million in goodwill and $4.8 million in other intangible assets.

Capital ratios for the Bank continued to remain well above regulatory requirements with Tier 1 capital to risk weighted assets of 12.4% at September 30, 2017, compared to 12.9% at September 30, 2016. Tier 1 leverage capital to adjusted total assets was 9.3% at September 30, 2017 compared to 9.3% at September 30, 2016. These regulatory ratios were higher than the required minimum levels to be considered "Well Capitalized" of 8.00% for Tier 1 capital to risk weighted assets and 5.00% for Tier 1 leverage capital to adjusted total assets.

Review of Operations

Net interest income increased to $6.2 million for the fourth quarter of fiscal 2017, compared to $5.7 million for the fourth quarter of fiscal 2016 and $5.3 million on a linked quarter basis. For fiscal 2017, net interest income grew to $22.3 million, compared to $20.1 million for fiscal 2016. The NIM declined slightly to 3.29% for the fiscal fourth quarter of 2017, compared to 3.32% for the same quarter one year earlier, primarily due to acquisition debt, which reduced NIM 72 bp in the current quarter. The borrowings costs for the quarter were partially offset by the lower costing deposit base. For the fiscal fourth quarter 2017, deposit costs declined to 0.77% compared to 0.90% one year earlier and 0.88% for the preceding quarter. For fiscal 2017, the NIM increased to 3.31%, compared to 3.27% for fiscal 2016. The cost on the FHLB and other borrowings increased to 1.58% in fiscal 2017 compared to 1.23% in fiscal 2016.

For the quarter ended September 30, 2017, provision for loan losses totaling $319,000 was recorded, responsive to organic loan growth. This provision was the first recorded in the past seven quarters. Net charge offs were $133,000 for the fourth quarter of fiscal 2017, compared to $79,000 for the third quarter of fiscal 2017. Allowance for loan and lease losses totaled 0.81%, at September 30, 2017, compared to 1.06% at September 30, 2016 and 1.11%, at June 30, 2017.

Total noninterest expense was $7.9 million for the fourth quarter of fiscal 2017 compared to $6.7 million for the quarter ended September 30, 2016 and $4.7 million for the quarter ended June 30, 2017. Total non-interest expense for the fourth quarter includes merger related costs of $1.5 million and branch closure costs of $255,000. For fiscal 2017, noninterest expense increased to $22.9 million compared to $20.1 million for fiscal 2016, primarily due to professional fees associated with the merger, higher compensation and benefits expense due to severance payments associated with the Wells Financial acquisition and data conversion cost associated with terminating their service provider.

These financial results are preliminary until the Form 10-K is filed in December 2017.

About the Company

Citizens Community Bancorp, Inc. (NASDAQ: “CZWI”) is the holding company of Citizens Community Federal N.A., a national bank based in Altoona, Wisconsin, serving customers in Wisconsin, Minnesota and Michigan through 23 branch locations. Its primary markets include the Chippewa Valley Region in Wisconsin, the Twin Cities and Mankato, MN, and various rural communities around these areas. The company offers traditional community banking services to businesses, Ag operators and consumers, including one-to-four family mortgages. The company’s recently completed merger with Wells Federal Bank of Wells, MN expands its market share in Mankato and southern Minnesota, and adds nine branch locations (seven branch locations after mid-December) along with expanded services through Wells Insurance Agency, Investment Advisory Services and Mortgage Loan Servicing.

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 by the use of forward-looking words or phrases such as “anticipate,” “believe,” “could,” “expect,” “intend,” “may,” “planned,” “potential,” “should,” “will,” “would” or the negative of those terms or other words of similar meaning. Such forward-looking statements in this release are inherently subject to many uncertainties arising in the operations and business environment of Citizens Community Federal N.A. (“CCFBank”). These uncertainties include the combined company’s ability to achieve the synergies and value creation contemplated by the transaction with Wells Financial; management’s ability to promptly and effectively integrate the businesses of the two companies; the diversion of management time on transaction-related issues; the effects of governmental regulation of the financial services industry; industry consolidation; technological developments and major world news events; general economic conditions, in particular, relating to consumer demand for CCFBank’s products and services; CCFBank’s ability to maintain current deposit and loan levels at current interest rates; competitive and technological developments; deteriorating credit quality, including changes in the interest rate environment reducing interest margins; prepayment speeds, loan origination and sale volumes, charge-offs and loan loss provisions; CCFBank’s ability to maintain required capital levels and adequate sources of funding and liquidity; maintaining capital requirements may limit CCFBank’s operations and potential growth; changes and trends in capital markets; competitive pressures among depository institutions; effects of critical accounting estimates and judgments; changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board (FASB) or other regulatory agencies overseeing CCFBank; CCFBank’s ability to implement its cost-savings and revenue enhancement initiatives, including costs associated with its branch consolidation and new market branch growth initiatives; legislative or regulatory changes or actions or significant litigation adversely affecting CCFBank; fluctuation of the Company’s stock price; CCFBank's ability to attract and retain key personnel; CCFBank's ability to secure confidential information through the use of computer systems and telecommunications networks; and the impact of reputational risk created by these developments on such matters as business generation and retention, funding and liquidity. Shareholders, potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. Such uncertainties and other risks that may affect the Company’s performance are discussed further in Part I, Item 1A, “Risk Factors,” in the Company’s Form 10-K, for the year ended September 30, 2016 filed with the Securities and Exchange Commission ("SEC") on December 29, 2016 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, which management believes may be helpful in understanding the Company's results of operations or financial position and comparing results over different periods. Non-GAAP measures eliminate the impact of certain one-time expenses such as acquisition and branch closure costs and related data processing termination fees, legal costs, severance pay, accelerated depreciation expense and lease termination fees. 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. In addition, non-GAAP financial measures exclude settlement proceeds and the FHLB prepayment fee. 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 (unaudited)
(in thousands)
September 30,
2017
June 30, 2017 September 30,
2016
Assets
Cash and cash equivalents $41,677 $33,749 $10,046
Other interest bearing deposits 8,148 995 745
Securities available for sale "AFS" 95,883 78,475 80,123
Securities held to maturity "HTM" 5,453 5,653 6,669
Non-marketable equity securities, at cost 7,292 4,498 5,034
Loans receivable 732,995 519,403 574,439
Allowance for loan losses (5,942) (5,756) (6,068)
Loans receivable, net 727,053 513,647 568,371
Loans held for sale 2,334
Mortgage servicing rights 1,886
Office properties and equipment, net 9,645 5,023 5,338
Accrued interest receivable 3,291 1,950 2,032
Intangible assets 5,449 753 872
Goodwill 10,052 4,663 4,663
Foreclosed and repossessed assets, net 6,664 622 776
Other assets 15,837 15,613 11,196
TOTAL ASSETS $940,664 $665,641 $695,865
Liabilities and Stockholders’ Equity
Liabilities:
Deposits $742,504 $519,133 $557,677
Federal Home Loan Bank advances 90,000 67,900 59,291
Other borrowings 30,319 11,000 11,000
Other liabilities 4,358 1,598 3,353
Total liabilities 867,181 599,631 631,321
Stockholders’ equity:
Common stock— $0.01 par value, authorized 30,000,000; 5,888,816; 5,270,895 and 5,260,098 shares issued and outstanding, respectively 59 53 53
Additional paid-in capital 63,383 55,089 54,963
Retained earnings 10,764 11,221 9,107
Unearned deferred compensation (456) (214) (193)
Accumulated other comprehensive (loss) gain (267) (139) 614
Total stockholders’ equity 73,483 66,010 64,544
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $940,664 $665,641 $695,865


CITIZENS COMMUNITY BANCORP, INC.
Consolidated Statements of Operations (unaudited)
(in thousands, except per share data)
Three Months Ended
Twelve Months Ended
September 30,
2017
June 30, 2017 September 30,
2016
September 30,
2017
September 30,
2016
Interest and dividend income:
Interest and fees on loans $7,194 $6,030 $6,784 $25,826 $23,407
Interest on investments 576 591 410 2,052 1,677
Total interest and dividend income 7,770 6,621 7,194 27,878 25,084
Interest expense:
Interest on deposits 1,095 1,035 1,212 4,299 4,200
Interest on FHLB borrowed funds 217 164 168 717 664
Interest on other borrowed funds 286 107 96 594 143
Total interest expense 1,598 1,306 1,476 5,610 5,007
Net interest income before provision for loan losses 6,172 5,315 5,718 22,268 20,077
Provision for loan losses 319 319 75
Net interest income after provision for loan losses 5,853 5,315 5,718 21,949 20,002
Non-interest income:
Net gains on available for sale securities 82 16 111 63
Service charges on deposit accounts 368 325 463 1,433 1,627
Loan fees and service charges 453 313 410 1,540 1,296
Settlement proceeds 283
Other 488 353 253 1,384 929
Total non-interest income 1,391 991 1,142 4,751 3,915
Non-interest expense:
Compensation and benefits 3,233 2,395 3,082 10,862 9,866
Occupancy 584 565 991 2,780 2,826
Office 443 304 361 1,340 1,225
Data processing 650 476 528 2,052 1,802
Amortization of intangible assets 100 38 45 219 111
Amortization of mortgage servicing rights 39 39
Advertising, marketing and public relations 302 75 245 545 701
FDIC premium assessment 69 79 139 300 394
Professional services 860 382 579 2,078 1,368
Other 1,629 305 759 2,663 1,765
Total non-interest expense 7,909 4,619 6,729 22,878 20,058
(Loss) income before (benefit) provision for income taxes (665) 1,687 131 3,822 3,859
(Benefit) provision for income taxes (207) 604 (45) 1,323 1,286
Net (loss) income attributable to common stockholders $(458) $1,083 $176 $2,499 $2,573
Per share information:
Basic earnings (loss) $(0.08) $0.21 $0.04 $0.47 $0.49
Diluted earnings (loss) $(0.08) $0.20 $0.04 $0.46 $0.49
Cash dividends paid $ $ $ $0.16 $0.12
Book value per share at end of period $12.48 $12.52 $12.27 $12.48 $12.27
Tangible book value per share at end of period (non-GAAP) $9.85 $11.50 $11.22 $9.83 $11.22

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

Reconciliation of GAAP Earnings (loss) and Core Earnings (non-GAAP):

Three Months Ended Twelve Months Ended
September 30,
2017
June 30, 2017 September 30,
2016
September 30,
2017
September 30,
2016
(Dollars in Thousands, except share data)
GAAP earnings (loss) before income taxes $(665) $1,687 $131 $3,822 $3,859
Merger related costs (1) 1,517 147 444 1,860 701
Branch closure costs (2) 255 59 614 951 839
Settlement proceeds (3) (283)
Prepayment fee (4) 104
Core earnings before income taxes (5) 1,107 1,893 1,189 6,454 5,399
Provision for income tax on core earnings at 34% 376 644 404 2,194 1,836
Core earnings after income taxes (5) $731 $1,249 $785 $4,260 $3,563
GAAP diluted earnings (loss) per share, net of tax $(0.08) $0.20 $0.04 $0.46 $0.49
Merger related costs, net of tax 0.19 0.02 0.05 0.23 0.09
Branch closure costs, net of tax 0.03 0.01 0.06 0.12 0.09
Settlement proceeds $ $ $ $(0.03) $
Prepayment fee $ $ $ $0.01 $
Core diluted earnings per share, net of tax $0.14 $0.23 $0.15 $0.79 $0.67
Average diluted shares outstanding 5,629,363 5,316,726 5,274,505 5,378,548 5,257,304

(1) Costs incurred are included as data processing, advertising, marketing and public relations, professional fees and other non-interest expense in the consolidated statement of operations.

(2) Branch closure costs include severance pay recorded in salaries and other benefits, accelerated depreciation expense and lease termination fees included in occupancy and other costs included in other non-interest expense in the consolidated statement of operations. In addition, other non-interest expense includes costs related to the valuation reduction of the Ridgeland branch office in the fourth quarter of fiscal 2017.

(3) Settlement proceeds includes litigation income from a JP Morgan Residential Mortgage Backed Security (RMBS) claim. This JP Morgan RMBS was previously owned by the Bank and sold in 2011.

(4) The prepayment fee, includes the cost to restructure our FHLB borrowings and is included in other non-interest expense in the consolidated statement of operations.

(5) Core earnings is a non-GAAP measure that management believes enhances investors' ability to better understand the underlying business performance and trends related to core business activities.

(6) Reconciliation of tangible book value:

Tangible book value per share at end of period September 30,
2017
June 30, 2017 September 30,
2016
Total stockholders' equity $73,483 $66,010 $64,544
Less: Goodwill (10,052) (4,663) (4,663)
Less: Intangible assets (5,449) (753) (872)
Tangible common equity (non-GAAP) $57,982 $60,594 $59,009
Ending common shares outstanding 5,888,816 5,270,895 5,260,098
Tangible book value per share (non-GAAP) $9.85 $11.50 $11.22

Nonperforming Assets:

September 30,
2017
and Three
Months
Ended
June 30,
2017
and Three
Months
Ended
September 30,
2017
and Twelve
Months
Ended
September 30,
2016
and Twelve
Months
Ended
Nonperforming assets:
Nonaccrual loans $7,452 $6,035 $7,452 $3,191
Accruing loans past due 90 days or more 589 681 589 380
Total nonperforming loans (“NPLs”) (1) 8,041 6,716 8,041 3,571
Other real estate owned (1) 6,609 580 6,609 725
Other collateral owned 55 42 55 52
Total nonperforming assets (“NPAs”) (1) $14,705 $7,338 $14,705 $4,348
Troubled Debt Restructurings (“TDRs”) $3,423 $3,389 $3,423 $3,733
Nonaccrual TDRs $621 $393 $621 $515
Average outstanding loan balance $626,199 $527,106 $653,717 $512,475
Loans, end of period 732,995 519,403 732,995 574,439
Total assets, end of period 940,664 665,641 940,664 695,865
ALL, at beginning of period 5,756 5,835 6,068 6,496
Loans charged off:
Residential real estate (74) (50) (233) (140)
Commercial/agriculture real estate
Consumer non-real estate (95) (54) (389) (460)
Commercial agriculture non-real estate (7) (9) (118)
Total loans charged off (169) (111) (631) (718)
Recoveries of loans previously charged off:
Residential real estate 6 4 14 11
Commercial/agriculture real estate
Consumer non-real estate 30 28 171 204
Commercial agriculture non-real estate 1
Total recoveries of loans previously charged off: 36 32 186 215
Net loans charged off (“NCOs”) (133) (79) (445) (503)
Additions to ALL via provision for loan losses charged to operations 319 319 75
ALL, at end of period $5,942 $5,756 $5,942 $6,068
Ratios:
ALL to NCOs (annualized) 1,116.92% 1,821.52% 1,335.28% 1,206.36%
NCOs (annualized) to average loans 0.08% 0.06% 0.07% 0.10%
ALL to total loans 0.81% 1.11% 0.81% 1.06%
NPLs to total loans 1.10% 1.29% 1.10% 0.62%
NPAs to total assets 1.56% 1.10% 1.56% 0.62%

(1) Total Nonperforming assets increased primarily due to REO loan balances acquired with the Wells acquisition in August 2017. Acquired nonperforming loans were $5,794, $4,289 and $1,778 at September 30, 2017, June 30, 2017 and September 30, 2016, respectively. Acquired real estate owned property balances were $6,221, $138 and $212 at September 30, 2017, June 30, 2017 and September 30, 2016, respectively. At September 30, 2017, acquired real estate owned property includes $3,094 contract for deed loans paying according to contract terms.

Troubled Debt Restructurings:

September 30, 2017 June 30, 2017 September 30, 2016
Number of
Modifications
Recorded
Investment
Number of
Modifications
Recorded
Investment
Number of
Modifications
Recorded
Investment
Troubled debt restructurings:
Residential real estate29 $3,072 28 $3,125 32 $3,414
Commercial/Agricultural real estate1 68
Consumer non-real estate20 195 20 223 25 384
Commercial/Agricultural non-real estate2 88 1 41
Total loans52 $3,423 49 $3,389 57 $3,798

Loan Composition:

September 30, 2017 June 30, 2017 September 30, 2016
Originated Loans:
Residential real estate:
One to four family $132,380 $136,527 $160,961
Purchased HELOC loans 18,071
Commercial/Agricultural real estate:
Commercial real estate 97,155 79,450 58,768
Agricultural real estate 10,628 8,428 3,418
Multi-family real estate 24,486 23,354 18,935
Construction and land development 12,399 11,951 12,977
Consumer non-real estate:
Originated indirect paper 85,732 93,887 119,073
Purchased indirect paper 29,555 33,660 49,221
Other Consumer 14,496 14,771 18,926
Commercial/Agricultural non-real estate:
Commercial non-real estate 35,198 22,308 17,969
Agricultural non-real estate 12,493 12,213 9,994
Total originated loans $472,593 $436,549 $470,242
Acquired Loans:
Residential real estate:
One to four family $97,183 $20,208 $26,777
Commercial/Agricultural real estate:
Commercial real estate 62,807 24,827 30,172
Agricultural real estate 57,374 21,260 24,780
Multi-family real estate 1,742 200
Construction and land development 7,309 2,036 3,603
Consumer non-real estate:
Other Consumer 6,172 415 789
Commercial/Agricultural non-real estate:
Commercial non-real estate 20,053 10,249 13,032
Agricultural non-real estate 11,380 4,193 4,653
Total acquired loans $264,020 $83,188 $104,006
Total Loans:
Residential real estate:
One to four family $229,563 $156,735 $187,738
Purchased HELOC loans 18,071
Commercial/Agricultural real estate:
Commercial real estate 159,962 104,277 88,940
Agricultural real estate 68,002 29,688 28,198
Multi-family real estate 26,228 23,354 19,135
Construction and land development 19,708 13,987 16,580
Consumer non-real estate:
Originated indirect paper 85,732 93,887 119,073
Purchased indirect paper 29,555 33,660 49,221
Other Consumer 20,668 15,186 19,715
Commercial/Agricultural non-real estate:
Commercial non-real estate 55,251 32,557 31,001
Agricultural non-real estate 23,873 16,406 14,647
Gross loans $736,613 $519,737 $574,248
Net deferred loan costs (fees) (3,618) (334) 191
Total loans receivable $732,995 $519,403 $574,439

Deposit Composition:

September 30,
2017
June 30, 2017 September 30,
2016
Non-interest bearing demand deposits $75,318 $49,582 $45,408
Interest bearing demand deposits 147,912 49,366 48,934
Savings accounts 102,756 53,124 52,153
Money market accounts 125,749 128,435 137,234
Certificate accounts 290,769 238,626 273,948
Total deposits $742,504 $519,133 $557,677

Average balances, Interest Yields and Rates:

Three months ended September
30, 2017
Three months ended June 30,
2017
Three months ended September
30, 2016
Average
Balance
Interest
Income/
Expense
Average
Yield/
Rate
Average
Balance
Interest
Income/
Expense
Average
Yield/
Rate
Average
Balance
Interest
Income/
Expense
Average
Yield/
Rate
Average interest earning assets:
Cash and cash equivalents $32,692 $71 0.86% $17,246 $27 0.63% $19,088 $19 0.40%
Loans receivable 621,530 7,194 4.59% 526,661 6,030 4.59% 580,151 6,784 4.65%
Interest bearing deposits 4,571 18 1.56% 808 4 1.99% 745 4 2.14%
Investment securities (1) 90,467 511 2.24% 84,845 582 2.75% 88,705 405 1.82%
Non-marketable equity securities, at cost 5,701 57 3.97% 4,488 48 4.29% 5,034 54 4.27%
Total interest earning assets $754,961 $7,851 4.13% $634,048 $6,691 4.23% $693,723 $7,266 4.17%
Average interest bearing liabilities:
Savings accounts $72,476 $21 0.11% $47,184 $13 0.11% $42,368 $17 0.16%
Demand deposits 98,416 79 0.32% 50,617 59 0.47% 52,868 85 0.64%
Money market accounts 128,039 168 0.52% 122,709 126 0.41% 143,493 149 0.41%
CD’s 235,076 752 1.27% 226,189 767 1.36% 265,357 878 1.32%
IRA’s 31,302 75 0.95% 26,852 70 1.05% 30,237 83 1.09%
Total deposits $565,309 $1,095 0.77% $473,551 $1,035 0.88% $534,323 $1,212 0.90%
FHLB advances and other borrowings 93,978 503 2.12% 74,548 271 1.46% 73,426 264 1.43%
Total interest bearing liabilities $659,287 $1,598 0.96% $548,099 $1,306 0.96% $607,749 $1,476 0.97%
Net interest income $6,253 $5,385 $5,790
Interest rate spread 3.17% 3.27% 3.20%
Net interest margin 3.29% 3.41% 3.32%
Average interest earning assets to average interest bearing liabilities 1.15 1.16 1.14

(1) For the 3 months ended September 30, 2017, June 30, 2017 and September 30, 2016, the average balance of the tax exempt investment securities, included in investment securities, were $32,540, $31,204 and $31,819 respectively. The interest income on tax exempt securities is computed on a tax-equivalent basis using a tax rate of 34% for all periods presented.

Year ended September 30, 2017 Year ended September 30, 2016
Average
Balance
Interest
Income/
Expense
Average
Yield/
Rate
Average
Balance
Interest
Income/
Expense
Average
Yield/
Rate
Average interest earning assets:
Cash and cash equivalents $19,368 $139 0.72% $18,873 $70 0.37%
Loans receivable 568,670 25,826 4.54% 504,972 23,407 4.64%
Interest bearing deposits 1,922 29 1.51% 2,378 47 1.98%
Investment securities (1) 87,449 1,974 2.26% 90,565 1,655 1.83%
Non-marketable equity securities, at cost 5,136 205 3.99% 4,783 172 3.60%
Total interest earning assets $682,545 $28,173 4.13% $621,571 $25,351 4.08%
Average interest bearing liabilities:
Savings accounts $53,530 $67 0.13% $33,538 $43 0.13%
Demand deposits 65,283 273 0.42% 36,878 240 0.65%
Money market accounts 126,487 555 0.44% 141,938 585 0.41%
CD’s 236,590 3,104 1.31% 239,363 3,037 1.27%
IRA’s 29,042 300 1.03% 25,854 295 1.14%
Total deposits $510,932 $4,299 0.84% $477,571 $4,200 0.88%
FHLB advances and other borrowings 82,781 1,311 1.58% 65,857 807 1.23%
Total interest bearing liabilities $593,713 $5,610 0.94% $543,428 $5,007 0.92%
Net interest income $22,563 $20,344
Interest rate spread 3.19% 3.16%
Net interest margin 3.31% 3.27%
Average interest earning assets to average interest bearing liabilities 1.15 1.14

(1) For the 12 months ended September 30, 2017 and September 30, 2016, the average balance of the tax exempt investment securities, included in investment securities, were $31,883 and $29,232 respectively. The interest income on tax exempt securities is computed on a tax-equivalent basis using a tax rate of 34% for all periods presented.

CITIZENS COMMUNITY FEDERAL N.A.
Selected Capital Composition Highlights (unaudited)
September 30,
2017
June 30, 2017 September 30,
2016
To Be Well Capitalized Under
Prompt Corrective Action
Provisions
Total capital (to risk weighted assets) 13.3% 15.4% 14.1% 10.0%
Tier 1 capital (to risk weighted assets) 12.4% 14.2% 12.9% 8.0%
Common equity tier 1 capital (to risk weighted assets) 12.4% 14.2% 12.9% 6.5%
Tier 1 leverage ratio (to adjusted total assets) 9.3% 10.3% 9.3% 5.0%

Source:Citizens Community Bancorp, Inc.