Market Overview

Citizens Community Bancorp, Inc. Achieved Record Profits for First Nine Months of Fiscal 2017 Increasing 23% from Fiscal YTD 2016

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EAU CLAIRE, Wis., July 31, 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 increased 24% to $1.1 million, or $0.20 per diluted share, in its fiscal third quarter of 2017, ended June 30, 2017, compared to $875,000, or $0.16 per diluted share, for its third fiscal quarter one year ago.  GAAP Earnings increased 16% from $934,000, or $0.17 per diluted share, on a linked quarter basis.   For the first nine months of fiscal 2017, GAAP earnings increased 23% to $3.0 million, or $0.56 per diluted share, from $2.4 million, or $0.45 per diluted share, for the first nine months of fiscal 2016.

Core earnings (non-GAAP) increased 18% year-over-year to $1.2 million, or $0.23 per diluted share (non-GAAP), for Q3 fiscal 2017, compared to $1.1 million, or $0.20 per diluted share for Q3 fiscal 2016, and grew 34% from $933,000, or $0.17 per diluted share in the preceding quarter.  For the first nine months of fiscal 2017, core earnings (non-GAAP) grew 27% to $3.5 million, or $0.66 per diluted share (non-GAAP), up from $2.8 million, or $0.52 per diluted share (non-GAAP) for the first nine months of fiscal 2016.  Fiscal 2017 core earnings exclude continued merger expenditures related to the previously announced merger with Wells Financial Corp. ("Wells") (OTCQB:WEFP), and the cost of closing two branches finalized at the end of June and four branches closed last November, 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 three 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)".

"The momentum we have built continued into the reporting quarter.  We again attained record fiscal year-to-date earnings along with strong fiscal third quarter profits, fueled by growth in loan fees and service charges," said Stephen Bianchi, President and Chief Executive Officer.  "We continue to implement our strategic plan of expanding our franchise through acquisitions of quality banks in attractive new markets.  Meanwhile, we are building our commercial lending business and service capabilities to replace the discontinued bank originated indirect consumer and one-to-four family loan portfolios.  We are also making progress upgrading our mortgage lending systems to support future originations while working to improve operating efficiencies to boost core earnings (non-GAAP) and enhance our franchise and shareholder value."

Acquisition of Wells Financial Corp Update

"As announced on June 29, 2017, we received approval from the Office of the Comptroller of the Currency to acquire Minnesota-based Wells Federal Bank.  On Thursday, July 27, 2017, we received approval from the Minnesota Department of Commerce.  The cash-and-stock deal previously announced on March 17, 2017, and valued at $39.8 million is part of the pending merger between our banks' parent companies, Citizens Community Bancorp Inc. and Wells Financial Corp.  The transaction remains subject to shareholder approval from Wells.  We expect this approval to be completed during our fiscal fourth quarter," said Bianchi. The expected combined company will have approximately $934 million in total assets.

"This strategic combination is an exciting step forward as we expand our footprint in Mankato and southern Minnesota.  We expect the combined franchise, with the addition of seven branch locations, to strengthen the presence and capacity of Citizens in these new markets, providing significant benefits to our clients, communities, shareholders and employees," added Bianchi.

Third Quarter Fiscal 2017 Financial Highlights: (at or for the periods ended June 30, 2017, compared to June 30, 2016 and /or March 31, 2017)

  • GAAP net income increased 24% to $1.1 million in Q3 fiscal 2017, compared to $875,000 from a year ago, and increased 16% compared to $934,000 in Q2 fiscal 2017.  Fiscal year-to-date, net income grew 23% to $3.0 million, or $0.56 per diluted share, from $2.4 million, or $0.45 per diluted share for the first nine months of fiscal 2016.

  • Expenses for acquisitions and other non-core items totaled $206,000 pretax, or $0.03 per diluted share, after-tax, in the third fiscal quarter of 2017 compared to $222,000, or $0.04 per diluted share in the third fiscal quarter of 2016.  For the first nine months of fiscal 2017, non-core expenses were $860,000 pretax, or $0.10 per diluted share, after-tax, compared to $482,000, pretax, or $0.07 per diluted share after tax for the first nine months of fiscal 2016.

  • Net interest income increased 3% to $5.3 million in Q3 fiscal 2017, from $5.2 million in Q3 fiscal 2016.  For the first nine months of fiscal 2017, net interest income grew 12.1% to $16.1 million compared to $14.4 million for the first nine months of fiscal 2016.

  • Total non-interest income increased 9% to $1.1 million in Q3 fiscal 2017, compared to $1.0 million in Q3 fiscal 2016.  For the first nine months of fiscal 2017, total non-interest income grew 31% to $3.6 million from $2.8 million for the like period in 2016.  Growth in non-interest income is being driven primarily by growth in loan fees and service charges.

  • Net interest margin (NIM) expanded 14 basis points to 3.41% for the current quarter, compared to 3.27% for Q3 fiscal 2016.  For the first nine months of fiscal 2017, the NIM expanded 12 basis points from 3.24% for the nine months ended June 30, 2016 to 3.36% for the nine months ended June 30, 2017.

  • Loan fees and service charges increased 57% to $475,000 for Q3 fiscal 2017, from $302,000 for Q3 fiscal 2016.  Fiscal year-to-date, loan fees and service charges grew 55% to $1.4 million, compared to $886,000 for the first nine months of fiscal 2016.  The growth in loan fees and service charges is primarily due to an increase in secondary market fee income generated from customer mortgage activity and an increase in commercial loan origination and servicing fee income.

  • Interest on investments increased 47% to $591,000 for Q3 fiscal 2017, compared to $402,000 for Q3 fiscal 2016.  Fiscal year-to-date 2017, interest on investments grew 17% to $1.5 million.  Interest income on investments benefited from an additional $118,000 accretion receivable due to the call of the Trust Preferred bond.

  • There was no provision for loan losses; no provision for loan losses has been taken since Q1 fiscal 2016.

  • Net loans were $513.6 million at June 30, 2017, compared to $577.8 million at June 30, 2016 and $529.0 at March 31, 2017.

  • Total deposits were $519.1 million at June 30, 2017, compared to $585.2 million at June 30, 2016 and $530.9 million at March 31, 2017.  Noninterest-bearing deposits increased 9% year-over-year to $49.6 million.

  • The allowance for loan and lease losses was 1.11% of total loans at June 30, 2017, compared to 1.07% one year earlier.

  • Nonperforming assets were $7.3 million, or 1.10% of total assets, at June 30, 2017, compared to $5.1 million, or 0.71% of total assets, at June 30, 2016, and $7.0 million, or 1.05% of total assets at March 31, 2017.

  • On May 25, 2017, President and CEO Stephen Bianchi was named to the Company's board of directors.

  • The Company closed two branch offices in Lake Orion, Michigan and Ridgeland, WI, at the end of June 2017, to streamline operating efficiencies.

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

    Citizens
Community
Federal N.A.
  To Be Well Capitalized Under
Prompt Corrective Action
Provisions
Total capital (to risk weighted assets)   15.4 %   10.0 %
Tier 1 capital (to risk weighted assets)   14.2 %   8.0 %
Common equity tier 1 capital (to risk weighted assets)   14.2 %   6.5 %
Tier 1 leverage ratio (to adjusted total assets)   10.3 %   5.0 %
             
  • Tangible book value was $11.50 per share at June 30, 2017, compared to $11.37 per share a year ago.

Balance Sheet and Asset Quality Review

Total assets were $665.6 million at June 30, 2017, compared to $723.0 million at June 30, 2016, and $668.5 million at March 31, 2017.  The decline in total assets from a year ago, and on a linked quarter basis, was primarily due to management's strategic decision to discontinue originating indirect lending and to reduce concentration on one-to-four family residential loans.

The decline in the loan balances from the immediate prior quarter was also mainly due to decreased levels of one-to-four family loans and a decreased investment in indirect consumer loans.  Commercial and agricultural loan balances increased over the past quarter reflecting increased focus on internally underwritten loans. Total commercial real estate loans, agricultural real estate loans and multi-family real estate loans grew 6.0% from the immediate prior quarter.  Commercial and agricultural real estate loan balances have increased $16.9 million to $134.0 million, at June 30, 2017, compared to $117.1 million at September 30, 2016.

At June 30, 2017, commercial and agricultural real estate and non-real estate loans totaled 42.4% of the total loan portfolio.  One-to-four family residential real estate loans represented 30.1% of the total loan portfolio, while consumer related non-real estate loans totaled 27.5% of the total loan portfolio.

Deposits totaled $519.1 million at June 30, 2017, compared to $585.2 million at June 30, 2016, and $530.9 million at March 31, 2017.  Noninterest-bearing deposits increased $3.9 million, or 8.6%, to $49.6 million at June 30, 2017, compared to $45.7 million at March 31, 2017, and grew $4.2 million, or 9.2%, from $45.4 million at September 30, 2016.  Core deposits, excluding time deposits, increased $5.1 million, or 1.8% to $280.5 million, compared to $275.5 million at March 31, 2017.  "We have 14 full-service branch offices strategically located within Wisconsin, Minnesota and Michigan. The run-off in certificates of deposit are in markets we are exiting," added Bianchi.

Federal Home Loan Bank ("FHLB") advances totaled $67.9 million at June 30, 2017, compared to $58.9 million at June 30, 2016.  "We continue to use wholesale funding opportunistically to manage the reduction in deposits from the markets we have exited and to manage our cost of funds," said Bianchi.  FHLB advances and other borrowings were 13.2% of total liabilities at the end of the June 30, 2017 quarter compared to 10.6% for the quarter ended June 30, 2016.

Nonperforming assets ("NPAs") totaled $7.3 million, or 1.10% of total assets, at June 30, 2017, compared to $5.1 million, or 0.71% of total assets at June 30, 2016, and $7.0 million, or 1.05% of total assets three months earlier.  The increase in NPAs at June 30, 2017, was primarily due to the deterioration of certain loans in the agricultural loan portfolio, due to concerns in the agricultural industry.  "Our team is dedicated to improving our credit quality metrics," added Bianchi.  "We will continue to monitor credit trends and maintain our allowance for loan losses at the appropriate level.  With low net charge-offs and an adequately funded allowance for loan losses, we have not needed to add a provision for loan losses since the first quarter of 2016."

The allowance for loan and lease losses at June 30, 2017, totaled $5.8 million and represented 1.11% of total loans, compared to $6.2 million and 1.07% of total loans at June 30, 2016.  Charged off loans totaled $111,000 and represented 0.06% of average loans on an annualized basis, at June 30, 2017.   One year earlier, net charge offs totaled $142,000 and represented 0.05% of average loans on an annualized basis.

Tangible book value per share was $11.50 at June 30, 2017, compared to $11.37 at June 30, 2016, and $11.19 at March 31, 2017.

Capital ratios for the Bank continued to remain well above regulatory requirements with Tier 1 capital to risk weighted assets of 14.2% at June 30, 2017, up from 12.9% at September 30, 2016.  Tier 1 leverage capital to adjusted total assets improved to 10.3% at June 30, 2017 compared to 9.3% at September 30, 2016.  These regulatory ratios were higher than the required minimum levels 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 2.6% to $5.3 million for the third quarter of fiscal 2017, compared to $5.2 million for the third quarter of fiscal 2016, and grew 1.7% from $5.2 million on a linked quarter basis.  "When our Trust Preferred Security, acquired as part of the CBN acquisition, was called, we recorded an additional discount accretion interest receivable of $118,000.  This additional interest income improved the average three-month yield on the investment securities portfolio to 2.75% for the fiscal third quarter of 2017 from 1.73% in the same quarter one year earlier.  The fiscal year-to-date yield, without the accretion entry, would have been 2.09%, up from 1.83% in the same period, one year earlier," said Mark Oldenberg, EVP and Chief Financial Officer.

For the first nine months of fiscal 2017, net interest income grew 12.1% to $16.1 million, compared to $14.4 million for the first nine months of fiscal 2016.

The NIM expanded 14 basis point to 3.41% for the fiscal third quarter of 2017, compared to 3.27% for the same quarter one year earlier, primarily due to higher earning asset yields.  For the first nine months of fiscal 2017, the NIM was 3.36%, compared to 3.24% for the first nine months of fiscal 2016. The yield on the FHLB and other borrowings increased 19 basis points for the quarter ended June 30, 2017 compared to June 30, 2016 due to increased short-term rates.

No provision for loan losses was recorded during the first nine months of fiscal 2017.  "We continue to be adequately reserved for potential loan losses and have not booked a provision for loan losses in more than a year," said Oldenberg.   "The balance of the allowance for loan and lease losses was $5.8 million, or 1.11% of our loan portfolio at June 30, 2017.  We continue to review the adequacy of our allowance as we expand our commercial footprint and monitor credit trends in the agricultural portfolio."

Net charge offs were $111,000 for the third quarter of fiscal 2017, compared to $142,000 a year ago and $136,000 for the second quarter of fiscal 2017.  Allowance for loan and lease losses totaled 1.11%, at June 30, 2017, compared to 1.07% at June 30, 2016 and 1.09%, at March 31, 2017.

Noninterest income was $1.1 million for the third quarter of fiscal 2017, compared to $1.0 million one year ago, and $1.2 million for the immediate prior quarter.  For the first nine months of fiscal 2017, noninterest income increased 30.5% to $3.6 million, compared to $2.8 million for the first nine months of fiscal 2016.  The increase in noninterest income was primarily due to the substantial increase in loan fees and service charges from secondary market fee income generated by customer mortgage activity and an increase in commercial loan origination and servicing fee income.

Total noninterest expense was $4.7 million for the third quarter of fiscal 2017 compared to $4.8 million for the quarter ended June 30, 2016.  Noninterest expense declined 6% from the preceding quarter, primarily due to lower compensation and benefits expenses.  The FHLB borrowings prepayment fee totaled $104,000 and is included in other non-interest expense for the second quarter of fiscal 2017 and first nine months of fiscal 2017.  For the first nine months of fiscal 2017, noninterest expense increased 14% to $15.2 million compared to $13.3 million for the first nine months of fiscal 2016, primarily due to professional fees associated with the merger, higher compensation and benefits expense due to the CBN acquisition and increased occupancy expense from branch closures.

These financial results are preliminary until the Form 10-Q is filed in August 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 more than 14,000 customers in Wisconsin, Minnesota and Michigan through 14 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 1‐4 family mortgages. The company's recently announced merger with the $269 million Wells Federal Bank of Wells, MN would expand its market share in Mankato and southern Minnesota, and would add nine branch locations (seven branch locations 95 days after closing) along with expanded services through Wells Insurance Agency, Investment Advisory Services and Mortgage Loan Servicing.

No Offer or Solicitation

This communication is for informational purposes only and is neither an offer to purchase, nor a solicitation of an offer to sell, any securities in any jurisdiction pursuant to the proposed transaction or otherwise, nor shall there be any sale, issuance or transfer of securities in any jurisdiction in contravention of any applicable law. No offer of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended.

Additional Information About The Proposed Transaction and Where To Find It

Investors are urged to read the Merger Agreement for a more complete understanding of the terms of the transactions discussed herein.

This release does not constitute a solicitation of any vote or approval. In connection with the merger, the Company filed with the Securities and Exchange Commission ("SEC") a Registration Statement on Form S-4 and other relevant documents. STOCKHOLDERS ARE URGED TO READ THE REGISTRATION STATEMENT ON FORM S-4 TO BE FILED BY THE COMPANY WHEN IT BECOMES AVAILABLE AND ANY OTHER RELEVANT DOCUMENTS FILED BY THE COMPANY WITH THE SEC, AS WELL AS ANY AMENDMENTS OR SUPPLEMENTS TO THOSE DOCUMENTS, BECAUSE THEY CONTAIN IMPORTANT INFORMATION.

The Registration Statement, including the proxy statement/prospectus, other relevant materials, and any other documents filed by the Company with the SEC, may be obtained free of charge at the SEC's website at www.sec.gov. Documents filed by the Company with the SEC, including the registration statement, may also be obtained free of charge from the Company's website http://www.snl.com/IRWebLinkX/corporateprofile.aspx?iid=4091023 by clicking the "SEC Filings" heading, or by directing a request to the Company's CEO, Stephen Bianchi at sbianchi@ccf.us.
The directors, executive officers and certain other members of management and employees of Wells may be deemed to be "participants" in the solicitation of proxies for stockholder approval. Information regarding the persons who may, under the rules of the SEC, be considered participants in the solicitation of stockholder approval are set forth in the proxy statement/prospectus and the other relevant documents to be filed with the SEC.

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 timing to consummate the proposed transaction; the risk that a condition to closing of the proposed transaction may not be satisfied and the transaction may not close; the risk that a regulatory approval that may be required for the proposed transaction is delayed, is not obtained or is obtained subject to conditions that are not anticipated; the combined company's ability to achieve the synergies and value creation contemplated by the proposed transaction; 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 on December 29, 2016. 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.


CITIZENS COMMUNITY BANCORP, INC.
Consolidated Balance Sheets (unaudited)
(in thousands)
 
    June 30, 2017   March 31, 2017   September 30,
2016
  June 30, 2016
(As Restated)
Assets                
Cash and cash equivalents   $ 33,749     $ 19,850     $ 10,046     $ 21,345  
Other interest bearing deposits   995     745     745     745  
Securities available for sale "AFS"   78,475     79,369     80,123     84,508  
Securities held to maturity "HTM"   5,653     5,984     6,669     7,163  
Non-marketable equity securities, at cost   4,498     4,412     5,034     5,034  
Loans receivable   519,403     534,808     574,439     584,046  
Allowance for loan losses   (5,756 )   (5,835 )   (6,068 )   (6,236 )
Loans receivable, net   513,647     528,973     568,371     577,810  
Office properties and equipment, net   5,023     5,163     5,338     5,576  
Accrued interest receivable   1,950     1,982     2,032     1,971  
Intangible assets   753     791     872     917  
Goodwill   4,663     4,663     4,663     4,003  
Foreclosed and repossessed assets, net   622     692     776     911  
Other assets   15,613     15,829     11,196     13,026  
TOTAL ASSETS   $ 665,641     $ 668,453     $ 695,865     $ 723,009  
Liabilities and Stockholders' Equity                
Liabilities:                
Deposits   $ 519,133     $ 530,929     $ 557,677     $ 585,224  
Federal Home Loan Bank advances   67,900     60,491     59,291     58,874  
Other borrowings   11,000     11,000     11,000     11,000  
Other liabilities   1,598     1,653     3,353     3,529  
Total liabilities   599,631     604,073     631,321     658,627  
Stockholders' equity:                
Common stock— $0.01 par value, authorized 30,000,000, 5,270,895, 5,266,895 and 5,260,098 shares issued and outstanding, respectively   53     53     53     52  
Additional paid-in capital   55,089     55,032     54,963     54,793  
Retained earnings   11,221     10,138     9,107     8,931  
Unearned deferred compensation   (214 )   (190 )   (193 )   (179 )
Accumulated other comprehensive (loss) gain   (139 )   (653 )   614     785  
Total stockholders' equity   66,010     64,380     64,544     64,382  
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY   $ 665,641     $ 668,453     $ 695,865     $ 723,009  


CITIZENS COMMUNITY BANCORP, INC.
Consolidated Statements of Operations (unaudited)
(in thousands, except per share data)
 
    Three Months Ended   Nine Months Ended
    June 30, 2017   March 31, 2017   June 30, 2016
(As Restated)
  June 30, 2017   June 30, 2016
(As Restated)
Interest and dividend income:                    
Interest and fees on loans   $ 6,030     $ 6,072     $ 6,072     $ 18,632     $ 16,623  
Interest on investments   591     467     402     1,476     1,267  
Total interest and dividend income   6,621     6,539     6,474     20,108     17,890  
Interest expense:                    
Interest on deposits   1,035     1,050     1,081     3,204     2,988  
Interest on FHLB borrowed funds   164     163     167     500     496  
Interest on other borrowed funds   107     102     47     308     47  
Total interest expense   1,306     1,315     1,295     4,012     3,531  
Net interest income before provision for loan losses   5,315     5,224     5,179     16,096     14,359  
Provision for loan losses                   75  
Net interest income after provision for loan losses   5,315     5,224     5,179     16,096     14,284  
Non-interest income:                    
Net gains on available for sale securities           43     29     47  
Service charges on deposit accounts   325     342     410     1,065     1,164  
Loan fees and service charges   475     294     302     1,372     886  
Settlement proceeds       283         283      
Other   302     285     258     870     676  
Total non-interest income   1,102     1,204     1,013     3,619     2,773  
Non-interest expense:                    
Compensation and benefits   2,506     2,708     2,378     7,888     6,784  
Occupancy   565     563     554     2,196     1,835  
Office   304     312     350     897     864  
Data processing   476     454     445     1,402     1,274  
Amortization of core deposit intangible   38     38     31     119     66  
Advertising, marketing and public relations   75     105     174     243     456  
FDIC premium assessment   79     69     86     231     255  
Professional services   382     435     333     1,218     789  
Other   305     351     453     1,034     1,006  
Total non-interest expense   4,730     5,035     4,804     15,228     13,329  
Income before provision for income taxes   1,687     1,393     1,388     4,487     3,728  
Provision for income taxes   604     459     513     1,530     1,331  
Net income attributable to common stockholders   $ 1,083     $ 934     $ 875     $ 2,957     $ 2,397  
Per share information:                    
Basic earnings   $ 0.21     $ 0.18     $ 0.16     $ 0.56     $ 0.45  
Diluted earnings   $ 0.20     $ 0.17     $ 0.16     $ 0.56     $ 0.45  
Cash dividends paid   $     $ 0.16     $     $ 0.16     $ 0.12  
Book value per share at end of period   $ 12.52     $ 12.22     $ 12.30     $ 12.52     $ 12.30  
Tangible book value per share at end of period   $ 11.50     $ 11.19     $ 11.37     $ 11.50     $ 11.37  


Reconciliation of GAAP Earnings and Core Earnings (non-GAAP):
 
    Three Months Ended   Nine Months Ended
    June 30, 2017   March 31, 2017   June 30, 2016
(As Restated)
  June 30, 2017   June 30, 2016
(As Restated)
                                       
  (Dollars in Thousands, except share data)
GAAP earnings before income taxes   $ 1,687     $ 1,393     $ 1,388     $ 4,487     $ 3,728  
Merger related costs (1)   147     196     222     343     257  
Branch closure costs (2)   59     4         696     225  
Settlement proceeds (3)       (283 )       (283 )    
Prepayment fee (4)       104         104      
Core earnings before income taxes (5)   1,893     1,414     1,610     5,347     4,210  
Provision for income tax on core earnings at 34%   644     481     547     1,819     1,431  
Core earnings after income taxes (5)   $ 1,249     $ 933     $ 1,063     $ 3,528     $ 2,779  
GAAP diluted earnings per share, net of tax   $ 0.20     $ 0.17     $ 0.16     $ 0.56     $ 0.45  
Merger related costs, net of tax   0.02     0.02     0.04     0.04     0.04  
Branch closure costs, net of tax   0.01             0.08     0.03  
Settlement proceeds   $     $ (0.03 )   $     $ (0.03 )   $  
Prepayment fee   $     $ 0.01     $     $ 0.01     $  
Core diluted earnings per share, net of tax   $ 0.23     $ 0.17     $ 0.20     $ 0.66     $ 0.52  
                     
Average diluted shares outstanding   5,316,726     5,306,463     5,262,188     5,305,460     5,253,766  

(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 non-interest expense in the consolidated statement of operations.
(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.


Nonperforming Assets:
 
    June 30,
2017
and Three
Months
Ended
  March 31,
2017
and Three
Months
Ended
  September
30, 2016
and Twelve
Months
Ended
  June 30,
2016
and Three
Months
Ended
Nonperforming assets:                
Nonaccrual loans   6,035     $ 5,767     $ 3,191     $ 3,226  
Accruing loans past due 90 days or more   681     576     380     979  
Total nonperforming loans ("NPLs") (1)   6,716     6,343     3,571     4,205  
Other real estate owned (1)   580     647     725     835  
Other collateral owned   42     45     52     76  
Total nonperforming assets ("NPAs") (1)   $ 7,338     $ 7,035     $ 4,348     $ 5,116  
Troubled Debt Restructurings ("TDRs")   $ 3,389     $ 3,471     $ 3,733     $ 5,446  
Nonaccrual TDRs   $ 393     $ 404     $ 515     $ 1,026  
Average outstanding loan balance   $ 527,106     $ 554,624     $ 512,475     $ 517,278  
Loans, end of period   519,403     534,808     574,439     584,046  
Total assets, end of period   665,528     668,453     695,865     723,009  
ALL, at beginning of period   5,835     5,917     6,496     6,303  
Loans charged off:                
Residential real estate   (50 )   (67 )   (140 )   (56 )
Commercial/agriculture real estate                
Consumer non-real estate   (54 )   (67 )   (460 )   (86 )
Commercial agriculture non-real estate   (7 )   (2 )   (118 )    
Total loans charged off   (111 )   (136 )   (718 )   (142 )
Recoveries of loans previously charged off:                
Residential real estate   4     1     11     3  
Commercial/agriculture real estate                
Consumer non-real estate   28     52     204     72  
Commercial agriculture non-real estate       1          
Total recoveries of loans previously charged off:   32     54     215     75  
Net loans charged off ("NCOs")   (79 )   (82 )   (503 )   (67 )
Additions to ALL via provision for loan losses charged to operations           75      
ALL, at end of period   $ 5,756     $ 5,835     $ 6,068     $ 6,236  
Ratios:                
ALL to NCOs (annualized)   1,821.52 %   1,778.96 %   1,206.36 %   2,326.87 %
NCOs (annualized) to average loans   0.06 %   0.06 %   0.10 %   0.05 %
ALL to total loans   1.11 %   1.09 %   1.06 %   1.07 %
NPLs to total loans   1.29 %   1.19 %   0.62 %   0.72 %
NPAs to total assets   1.10 %   1.05 %   0.62 %   0.71 %

(1)  Total Nonperforming assets increased due to the CBN acquisition in Fiscal 2016.  Acquired nonperforming loans were $4,289, $4,322 and $1,778 at June 30, 2017, March 31, 2017 and September 30, 2016, respectively.  Acquired real estate owned property balances were $138, $160 and $212 at June 30, 2017, March 31, 2017 and September 30, 2016, respectively.


Troubled Debt Restructurings:
 
  June 30, 2017   March 31, 2017   September 30, 2016   June 30, 2016
 
  Number of
Modifications
  Recorded
Investment
  Number of
Modifications
  Recorded
Investment
  Number of
Modifications
  Recorded
Investment
  Number of
Modifications
  Recorded
Investment
Troubled debt restructurings:                              
Residential real estate 28     $ 3,125     29     $ 3,110     32     $ 3,413     32     $ 3,414  
Commercial/Agricultural real estate                              
Consumer non-real estate 20     223     23     318     21     320     25     384  
Commercial/Agricultural non-real estate 1     41     1     43                  
Total loans 49     $ 3,389     53     $ 3,471     53     $ 3,733     57     $ 3,798  


Loan Composition:
 
    June 30, 2017   March 31, 2017   September 30, 2016
Originated Loans:            
Residential real estate:            
One to four family   $ 136,527     $ 143,859     $ 160,961  
Commercial/Agricultural real estate:            
Commercial real estate   79,450     75,510     58,768  
Agricultural real estate   8,428     6,817     3,418  
Multi-family real estate   23,354     17,538     18,935  
Construction and land development   11,951     13,166     12,977  
Consumer non-real estate:            
Originated indirect paper   93,887     103,021     119,073  
Purchased indirect paper   33,660     38,201     49,221  
Other Consumer   14,771     16,035     18,926  
Commercial/Agricultural non-real estate:            
Commercial non-real estate   22,308     20,236     17,969  
Agricultural non-real estate   12,213     10,727     9,994  
Total originated loans   $ 436,549     $ 445,110     $ 470,242  
Acquired Loans:            
Residential real estate:            
One to four family   $ 20,208     $ 22,299     $ 26,777  
Commercial/Agricultural real estate:            
Commercial real estate   24,827     27,243     30,172  
Agricultural real estate   21,260     21,325     24,780  
Multi-family real estate           200  
Construction and land development   2,036     2,248     3,603  
Consumer non-real estate:            
Other Consumer   415     501     789  
Commercial/Agricultural non-real estate:            
Commercial non-real estate   10,249     11,930     13,032  
Agricultural non-real estate   4,193     4,221     4,653  
Total acquired loans   $ 83,188     $ 89,767     $ 104,006  
Total Loans:            
Residential real estate:            
One to four family   $ 156,735     $ 166,158     $ 187,738  
Commercial/Agricultural real estate:            
Commercial real estate   104,277     102,753     88,940  
Agricultural real estate   29,688     28,142     28,198  
Multi-family real estate   23,354     17,538     19,135  
Construction and land development   13,987     15,414     16,580  
Consumer non-real estate:            
Originated indirect paper   93,887     103,021     119,073  
Purchased indirect paper   33,660     38,201     49,221  
Other Consumer   15,186     16,536     19,715  
Commercial/Agricultural non-real estate:            
Commercial non-real estate   32,557     32,166     31,001  
Agricultural non-real estate   16,406     14,948     14,647  
Gross loans   $ 519,737     $ 534,877     $ 574,248  
Net deferred loan costs (fees)   (334 )   (69 )   191  
Total loans receivable   $ 519,403     $ 534,808     $ 574,439  


Deposit Composition:
 
    June 30, 2017   March 31, 2017   September 30,
 2016
Non-interest bearing demand deposits   $ 49,582     $ 45,661     $ 45,408  
Interest bearing demand deposits   49,366     53,848     48,934  
Savings accounts   53,124     53,865     52,153  
Money market accounts   128,435     122,080     137,234  
Certificate accounts   238,626     255,475     273,948  
Total deposits   $ 519,133     $ 530,929     $ 557,677  


Average balances, Interest Yields and Rates:
 
    Three months ended June 30,
2017
  Three months ended March 31,
2017
  Three months ended June 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   $ 17,246     $ 27     0.63 %   $ 17,695     $ 29     0.66 %   $ 21,118     $ 18     0.34 %
Loans receivable   526,661     6,030     4.59 %   539,276     6,072     4.57 %   525,780     6,072     4.64 %
Interest bearing deposits   808     4     1.99 %   745     4     2.18 %   2,557     10     1.57 %
Investment securities (1)   84,845     582     2.75 %   86,494     451     2.11 %   92,102     397     1.73 %
Non-marketable equity securities, at cost   4,488     48     4.29 %   4,874     55     4.58 %   4,831     46     3.83 %
Total interest earning assets   $ 634,048     $ 6,691     4.23 %   $ 649,084     $ 6,611     4.13 %   $ 646,388     $ 6,543     4.07 %
Average interest bearing liabilities:                                    
Savings accounts   $ 47,184     $ 13     0.11 %   $ 45,199     $ 16     0.14 %   $ 35,825     $ 11     0.12 %
Demand deposits   50,617     59     0.47 %   52,647     61     0.47 %   42,898     65     0.61 %
Money market accounts   122,709     126     0.41 %   124,389     127     0.41 %   141,162     141     0.40 %
CD's   226,189     767     1.36 %   234,842     771     1.33 %   251,534     787     1.26 %
IRA's   26,852     70     1.05 %   27,777     75     1.10 %   27,332     77     1.13 %
Total deposits   $ 473,551     $ 1,035     0.88 %   $ 484,854     $ 1,050     0.88 %   $ 498,751     $ 1,081     0.87 %
FHLB advances and other borrowings   74,548     271     1.46 %   80,391     264     1.33 %   67,824     214     1.27 %
Total interest bearing liabilities   $ 548,099     $ 1,306     0.96 %   $ 565,245     $ 1,314     0.94 %   $ 566,575     $ 1,295     0.92 %
Net interest income       $ 5,385             $ 5,297             $ 5,248      
Interest rate spread           3.27 %           3.19 %           3.15 %
Net interest margin           3.41 %           3.31 %           3.27 %
Average interest earning assets to average interest bearing liabilities           1.16             1.15             1.14  

(1)  For the 3 months ended June 30, 2017, December 31, 2016 and June 30, 2016, the average balance of the tax exempt investment securities, included in investment securities, were $31,204, $31,445 and $30,190 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.


    Nine months ended June 30, 2017   Nine months ended June 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   $ 15,007     $ 68     0.61 %   $ 18,630     $ 51     0.37 %  
Loans receivable   542,600     18,632     4.59 %   482,808     16,623     4.60 %  
Interest bearing deposits   770     11     1.91 %   2,868     43     2.00 %  
Investment securities (1)   85,910     1,463     2.28 %   91,420     1,250     1.83 %  
Non-marketable equity securities, at cost   4,847     148     4.08 %   4,708     118     3.35 %  
Total interest earning assets   $ 649,134     $ 20,322     4.19 %   $ 600,434     $ 18,085     4.02 %  
Average interest bearing liabilities:                          
Savings accounts   $ 45,342     $ 46     0.14 %   $ 30,755     $ 26     0.11 %  
Demand deposits   50,439     194     0.51 %   32,008     155     0.65 %  
Money market accounts   126,061     387     0.41 %   142,003     436     0.41 %  
CD's   235,341     2,352     1.34 %   232,558     2,159     1.24 %  
IRA's   27,861     225     1.08 %   24,584     212     1.15 %  
Total deposits   $ 485,044     $ 3,204     0.88 %   $ 461,908     $ 2,988     0.86 %  
FHLB advances and other borrowings   77,914     808     1.39 %   63,231     543     1.15 %  
Total interest bearing liabilities   $ 562,958     $ 4,012     0.95 %   $ 525,139     $ 3,531     0.90 %  
Net interest income       $ 16,310             $ 14,554        
Interest rate spread           3.24 %           3.12 %  
Net interest margin           3.36 %           3.24 %  
Average interest earning assets to average interest bearing liabilities           1.15             1.14    

(1)  For the 9 months ended June 30, 2017 and June 30, 2016, the average balance of the tax exempt investment securities, included in investment securities, were $31,582 and $28,433 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)
 
    June 30, 2017   March 31, 2017   September 30,
2016
  To Be Well Capitalized Under
Prompt Corrective Action
Provisions
Total capital (to risk weighted assets)   15.4 %   14.8 %   14.1 %   10.0 %
Tier 1 capital (to risk weighted assets)   14.2 %   13.6 %   12.9 %   8.0 %
Common equity tier 1 capital (to risk weighted assets)   14.2 %   13.6 %   12.9 %   6.5 %
Tier 1 leverage ratio (to adjusted total assets)   10.3 %   9.8 %   9.3 %   5.0 %


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

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