Market Overview

Citizens Community Bancorp, Inc. Earns $1.34 Million for Second Fiscal Quarter 2018; Community Banking Loan Portfolio up 2.9% From First Fiscal Quarter 2018

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EAU CLAIRE, Wis., April 27, 2018 (GLOBE NEWSWIRE) -- Citizens Community Bancorp, Inc. (the "Company") (NASDAQ:CZWI), the parent company of Citizens Community Federal N.A. (the "Bank"), today reported earnings increased 44% to $1.34 million, or $0.23 per diluted share in Q2 fiscal 2018, compared to $934,000, or $0.17 per diluted share one year earlier.  The Q2 fiscal 2018 operations reflect continued investment in our commercial lending platform, including the addition of four commercial bankers offset by seasonally lower gain on sale income from mortgage originations in the quarter.   The investment in commercial bankers resulted in approximately $210,000 recorded in both the compensation and benefits and other non-interest expense line items on the Consolidated Statement of Operations during the quarter and we expect this investment to increase net income in future periods.  For the six months ended March 31, 2018, earnings increased 43% to $2.68 million, or $0.45 per diluted share from $1.87 million, or $0.35 per diluted share for the six months ended March 31, 2017.

Core earnings (non-GAAP) matched reported GAAP earnings, on a per share basis, as there were no material revenues or expenses for Q2 fiscal 2018 that would affect core earnings.  Historically, core earnings (non-GAAP) have excluded merger and branch closure expenditures and the net impact of the Tax Cuts and Jobs Act of 2017 (the "Tax Act") which are itemized on the accompanying financial table "Reconciliation of GAAP Earnings (loss) and Core Earnings (non-GAAP)".

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 (loss) and Core Earnings (non-GAAP)".

"Our second fiscal quarter financial results were somewhat below our expectations, as prolonged winter conditions and somewhat higher interest rates impacted our mortgage business.  We continue to make progress in growing our commercial loan portfolio and invested in additional commercial bankers to support our organic growth and M&A strategy.  Community Banking loans excludes the legacy loan portfolio consisting of indirect paper and one to four family portfolio loans.  This together with the planned runoff of our legacy portfolio, have reduced our exposure to these transactional loans from 57% to 42% of total loans from the prior year period.  We added four commercial bankers to our team and expect continued loan growth in our core lending portfolio which focuses on C&I, commercial real estate, agricultural and multi-family lending," said Stephen Bianchi, President and Chief Executive Officer.  "Our commercial banking platform has been substantially updated over the past two years through technology and personnel, and we remain committed to enhancing the value of our franchise to our shareholders."

Q2 Fiscal 2018 Financial Highlights: (at or for the periods ended March 31, 2018, compared to March 31, 2017 and /or December 31, 2017)

  • Net income reflected earnings of $1.34 million in Q2 fiscal 2018, compared to $934,000 a year ago, and $1.34 million in Q1 fiscal 2018.

  • Net interest margin (NIM) remained stable at 3.40% for the current quarter, compared to 3.42% for Q1 fiscal 2018 and improved 9 basis point from 3.31% a year earlier.

  • Loan loss provision was $100,000 in Q2 fiscal 2018 relative to $100,000 the previous quarter as the core loan portfolio continues to expand.

  • Total non-interest income declined to $1.68 million in Q2 fiscal 2018, compared to $1.94 million in Q1 fiscal 2018 and increased from $1.13 million one year earlier.  The current quarter reflects lower loan fees and gains on the sale of mortgage loans relative to the prior quarter due in part to seasonally slower mortgage loan activity during the winter months.

  • Total non-interest expense for Q2 fiscal 2018 of $7.10 million compared similarly to Q1 fiscal 2018 at $7.14 million.

  • Net loans were $715.2 million at March 31, 2018, compared to $725.1 million at December 31, 2017, reflecting a decline in one-to-four family loans and indirect lending.

  • Total deposits were $748.6 million at March 31, 2018, compared to $741.1 million at December 31, 2017 and $530.9 million at March 31, 2017.

  • The allowance for loan and lease losses ("ALLL") was 0.82% of total loans at March 31, 2018, compared to 0.80% one quarter earlier.

  • Nonperforming assets ("NPA") were $14.0 million, or 1.49% of total assets at March 31, 2018, compared to $14.2 million, or 1.50% of total assets at December 31, 2017.

  • Bank capital ratios exceeded regulatory guidelines for a well-capitalized financial institution under the Basel III regulatory requirements at March 31, 2018:
         
    Citizens
Community
Federal N.A.
  To Be Well Capitalized Under
Prompt Corrective Action
Provisions
Total capital (to risk weighted assets)   13.2 %   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 $940.4 million at March 31, 2018, compared to $943.0 million at December 31, 2017, and $668.5 million at March 31, 2017.  The increase in total assets from a year ago was primarily due to the acquisition of Wells Financial completed in August 2017.

Loan balances decreased 1% from the linked quarter due to the reduction of the legacy loans portfolio.  At March 31, 2018, commercial, agricultural, multi-family and construction real estate loans totaled 42% of the total loan portfolio, versus 39% for the prior quarter and 31% one year earlier.  One-to-four family residential and home equity real estate loans represented 31% of the total loan portfolio versus 32% for the preceding quarter, while consumer related non-real estate loans totaled 16% of the total loan portfolio versus 17% the preceding quarter.

The allowance for loan and lease losses was largely unchanged at March 31, 2018 and totaled $5.9 million, representing 0.82% of total loans, compared to $5.9 million and 0.80% of total loans at December 31, 2017.  Net charged off loans totaled $72,000 for the second quarter ended March 31, 2018 compared to $183,000 for the quarter ended December 31, 2017.

Nonperforming assets were $14.0 million, or 1.49% of total assets at March 31, 2018 compared to $14.2 million, or 1.50% of total assets at December 31, 2017.  Included in nonperforming assets are approximately $6.3 million of REO properties acquired from the Wells Financial acquisition.  The Bank is actively working to resolve non-performing loans as well as selling owned real estate properties.

Deposits totaled $748.6 million at March 31, 2018, compared to $741.1 million at December 31, 2017, and $530.9 million at March 31, 2017.  Noninterest-bearing deposits increased to $79.9 million at March 31, 2018, compared to $78.7 million at December 31, 2017, and $45.7 million at March 31, 2017.

Federal Home Loan Bank ("FHLB") advances decreased to $85.0 million at March 31, 2018, compared to $94.0 million at December 31, 2017.  Other borrowings decreased slightly to $29.5 million at March 31, 2018, compared to $29.9 million at December 31, 2017.  The Bank has used borrowings and equity capital to fund acquisitions of other financial institutions, branch closings and FHLB advances to support organic loan growth.

Tangible book value per share (non-GAAP) was $9.82 at March 31, 2018, compared to $9.98 at December 31, 2017.  The slight decrease in tangible book value per share was due to the payment of dividends, additional unearned deferred compensation and accumulated other comprehensive losses on available for sale securities due to the higher interest rate environment.

As noted above, capital ratios for the Bank continued to remain well above regulatory requirements.

Review of Operations

Net interest income was $7.4 million for Q2 fiscal 2018, compared to $7.5 million for Q1 fiscal 2018 and $5.2 million one year earlier.  For the six months ended March 31, 2018, net interest income was $14.9 million compared to $10.8 million for the six months ended March 31, 2017.  The net interest margin ("NIM") was 3.40% for Q2 fiscal 2018, compared to 3.42% one quarter earlier and 3.31% for the like quarter one year earlier.   The increase in the NIM relative to the prior year was supported by higher yields on loans and lower cost of funds.

Loan yields increased to 4.77% for Q2 fiscal 2018 compared to 4.72% one quarter earlier and 4.57% for Q2 fiscal 2017.  Meanwhile, deposit costs increased slightly to 0.76% for Q2 fiscal 2018 from 0.72% one quarter earlier and declined from 0.88% for Q2 fiscal 2017.  Costs on the FHLB and other borrowings increased to 2.57% for Q2 fiscal 2018 from 2.33% one quarter earlier and 1.34% for the quarter ended Q2 2017.  For the six months ended March 31, 2018, the NIM increased to 3.42% from 3.34% for the six months ended March 31, 2017.

For Q2 fiscal 2018, provision for loan losses totaling $100,000 was recorded equal to the provision taken in Q1 fiscal 2018, both of which are responsive to organic loan growth.  Net charge offs were down to $72,000 for Q2 fiscal 2018, compared to $183,000 for Q1 fiscal 2018.  Allowance for loan and lease losses to total loans was 0.82%, at March 31, 2018, compared to 0.80% at December 31, 2017.

Total non-interest income was $1.68 million for Q2 fiscal 2018 compared to $1.94 million for Q1 fiscal 2018 and $1.13 million for Q2 fiscal 2017.  The lower level of non-interest income primarily relates to lower gains on the sale of mortgage loans originated and lower loan fees and service charges.  The lower level of mortgage origination relates to the seasonality of home sales with fewer sales during the winter months and the slight increase in mortgage lending rates due to the higher interest rate environment.  For the six months ended March 31, 2018, non-interest income totaled $3.61 million compared to $2.37 million for the six months ended March 31, 2017.

Total non-interest expense was $7.1 million for Q2 fiscal 2018 compared to $7.1 million for Q1 fiscal 2018 and $5.0 million for Q2 fiscal 2017.  Total non-interest expense for the second quarter includes increased compensation and benefit expenses and other expenses resulting from the addition of new commercial bankers partially offset by lower professional fees.  For the six months ended March 31, 2018, total non-interest expenses totaled $14.2 million compared to $10.4 million for the six months ended March 31, 2017.  The higher expenses for the six-month period primarily relate to increased costs associated with the acquisition of Wells Financial Corp.

Provisions for income taxes were $487,000 for Q2 fiscal 2018 compared to $883,000 for Q1 fiscal 2018 and $459,000 for Q2 fiscal 2017.  The effective tax rate for Q2 fiscal 2018 was 26.6% compared to 39.7% one quarter earlier and 33.0% for Q2 fiscal 2017.  For the six months ended March 31, 2018, the effective tax rate was 33.8% compared to 33.1% for the six months ended March 31, 2017.  The six-month period ended March 31, 2018 was impacted by the revaluation of its net deferred tax assets. The Tax Cuts and Jobs Act of 2017 ("the Tax Act"), enacted on December 22, 2017, reduces the corporate Federal income tax rate for the Company from 34% to 24.5% in fiscal 2018 and 21% in fiscal 2019.  Additionally, the Tax Act made other changes to U.S. corporate income tax laws.

These financial results are preliminary until the Form 10-Q is filed in May 2018.

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 21 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 added seven branch locations along with expanded services through Wells Insurance Agency.

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 conditions in the financial markets and economic conditions generally; 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 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 CCFBank; increases in FDIC insurance premiums or special assessments by the FDIC; disintermediation risk; our inability to obtain needed liquidity; 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; risks posed by acquisitions and other expansion opportunities; 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.  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, 2017 filed with the Securities and Exchange Commission ("SEC") on December 13, 2017 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 and the net impact of the Tax Cuts and Jobs Act of 2017.  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.  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)

                 
    March 31,
2018
  December 31,
2017
  September 30,
2017
  March 31,
2017
Assets                
Cash and cash equivalents   $ 31,468     $ 47,215     $ 41,677     $ 19,850  
Other interest bearing deposits   8,399     7,155     8,148     745  
Securities available for sale "AFS"   118,314     96,548     95,883     79,369  
Securities held to maturity "HTM"   5,013     5,227     5,453     5,984  
Non-marketable equity securities, at cost   7,707     8,151     7,292     4,412  
Loans receivable   721,128     730,918     732,995     534,808  
Allowance for loan losses   (5,887 )   (5,859 )   (5,942 )   (5,835 )
Loans receivable, net   715,241     725,059     727,053     528,973  
Loans held for sale   1,520     2,179     2,334      
Mortgage servicing rights   1,849     1,866     1,886      
Office properties and equipment, net   9,151     8,517     9,645     5,163  
Accrued interest receivable   3,251     3,189     3,291     1,982  
Intangible assets   5,126     5,287     5,449     791  
Goodwill   10,444     10,444     10,444     4,663  
Foreclosed and repossessed assets, net   7,080     7,031     6,017     692  
Bank owned life insurance   11,502     11,424     11,343     11,307  
Other assets   4,318     3,740     4,749     4,522  
TOTAL ASSETS   $ 940,383     $ 943,032     $ 940,664     $ 668,453  
Liabilities and Stockholders' Equity                
Liabilities:                
Deposits   $ 748,615     $ 741,069     $ 742,504     $ 530,929  
Federal Home Loan Bank advances   85,000     94,000     90,000     60,491  
Other borrowings   29,479     29,899     30,319     11,000  
Other liabilities   3,780     3,610     4,358     1,653  
Total liabilities   866,874     868,578     867,181     604,073  
Stockholders' equity:                
Common stock— $0.01 par value, authorized 30,000,000; 5,902,481; 5,883,603; 5,888,816 and 5,266,895 shares issued and outstanding, respectively   59     59     59     53  
Additional paid-in capital   63,575     63,348     63,383     55,032  
Retained earnings   12,401     12,104     10,764     10,138  
Unearned deferred compensation   (515 )   (391 )   (456 )   (190 )
Accumulated other comprehensive (loss) gain   (2,011 )   (666 )   (267 )   (653 )
Total stockholders' equity   73,509     74,454     73,483     64,380  
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY   $ 940,383     $ 943,032     $ 940,664     $ 668,453  
                                 

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

CITIZENS COMMUNITY BANCORP, INC.
Consolidated Statements of Operations (unaudited)
(in thousands, except per share data)

         
    Three Months Ended   Six Months Ended
    March 31,
2018
  December 31,
2017
  March 31,
2017
  March 31,
2018
  March 31,
2017
Interest and dividend income:                    
Interest and fees on loans   $ 8,539     $ 8,721     $ 6,072     $ 17,260     $ 12,602  
Interest on investments   813     691     467     1,504     885  
Total interest and dividend income   9,352     9,412     6,539     18,764     13,487  
Interest expense:                    
Interest on deposits   1,250     1,202     1,050     2,452     2,169  
Interest on FHLB borrowed funds   314     261     163     575     336  
Interest on other borrowed funds   432     422     102     854     201  
Total interest expense   1,996     1,885     1,315     3,881     2,706  
Net interest income before provision for loan losses   7,356     7,527     5,224     14,883     10,781  
Provision for loan losses   100     100         200      
Net interest income after provision for loan losses   7,256     7,427     5,224     14,683     10,781  
Non-interest income:                    
Service charges on deposit accounts   430     460     342     890     740  
Interchange income   302     306     183     608     372  
Loan servicing income   346     328     88     674     143  
Gain on sale of mortgage loans   189     294     88     483     284  
Loan fees and service charges   87     154     40     241     322  
Insurance commission income   187     166         353      
Settlement proceeds           283         283  
(Losses) gains on available for sale securities   (21 )           (21 )   29  
Other   155     231     102     386     196  
Total non-interest income   1,675     1,939     1,126     3,614     2,369  
Non-interest expense:                    
Compensation and benefits   3,806     3,555     2,630     7,361     5,234  
Occupancy   761     705     563     1,466     1,631  
Office   426     438     312     864     593  
Data processing   733     704     454     1,437     926  
Amortization of intangible assets   161     162     38     323     81  
Amortization of mortgage servicing rights   76     90         166      
Advertising, marketing and public relations   146     149     105     295     168  
FDIC premium assessment   115     142     69     257     152  
Professional services   323     688     435     1,011     836  
Other   556     510     351     1,066     729  
Total non-interest expense   7,103     7,143     4,957     14,246     10,350  
Income before provision for income taxes   1,828     2,223     1,393     4,051     2,800  
Provision for income taxes   487     883     459     1,370     926  
Net income attributable to common stockholders   $ 1,341     $ 1,340     $ 934     $ 2,681     $ 1,874  
Per share information:                    
Basic earnings   $ 0.23     $ 0.23     $ 0.18     $ 0.46     $ 0.36  
Diluted earnings   $ 0.23     $ 0.23     $ 0.17     $ 0.45     $ 0.35  
Cash dividends paid   $ 0.20     $     $ 0.16     $ 0.20     $ 0.16  
Book value per share at end of period   $ 12.45     $ 12.65     $ 12.22     $ 12.45     $ 12.22  
Tangible book value per share at end of period (non-GAAP)   $ 9.82     $ 9.98     $ 11.19     $ 9.82     $ 11.19  
                                         

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   Six Months Ended
    March 31,
2018
  December 31,
2017
  March 31,
2017
  March 31,
2018
  March 31,
2017
                                         
GAAP earnings before income taxes   $ 1,828     $ 2,223     $ 1,393     $ 4,051     $ 2,800  
Merger related costs (1)   10     94     196     104     196  
Branch closure costs (2)   1     7     4     8     637  
Settlement proceeds           (283 )       (283 )
Prepayment fee           104         104  
Core earnings before income taxes (3)   1,839     2,324     1,414     4,163     3,454  
Provision for income tax on core earnings (4)   451     569     481     1,020     1,175  
Core earnings after income taxes (3)   $ 1,388     $ 1,755     $ 933     $ 3,143     $ 2,279  
GAAP diluted earnings per share, net of tax   $ 0.23     $ 0.23     $ 0.17     $ 0.45     $ 0.35  
Merger related costs, net of tax       0.02     0.02     0.02     0.02  
Branch closure costs, net of tax                   0.08  
Tax Cuts and Jobs Act of 2017 tax provision (5)       0.05         0.05      
Settlement Proceeds           (0.03 )       (0.03 )
Prepayment fee           0.01         0.01  
Core diluted earnings per share, net of tax   $ 0.23     $ 0.30     $ 0.17     $ 0.52     $ 0.43  
                     
Average diluted shares outstanding   5,932,342     5,920,899     5,306,463     5,926,912     5,299,595  
                               

(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 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.  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) 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.
(4)  Provision for income tax on core earnings is calculated at 24.5% for all quarters in fiscal 2018 and at 34% for all quarters in the prior fiscal year, which represents our federal statutory tax rate for each respective period presented.
(5) As a result of the Tax Cuts and Jobs Act of 2017, we recorded a one-time net tax provision of $275 in December 2017, which is included in provision for income taxes expense in the consolidated statement of operations.
(6)  Reconciliation of tangible book value:

                 
Tangible book value per share at end of period   March 31,
2018
  December 31,
2017
  September 30,
2017
  March 31,
2017
Total stockholders' equity   $ 73,509     $ 74,454     $ 73,483     $ 64,380  
Less:  Goodwill   (10,444 )   (10,444 )   (10,444 )   (4,663 )
Less:  Intangible assets   (5,126 )   (5,287 )   (5,449 )   (791 )
Tangible common equity (non-GAAP)   $ 57,939     $ 58,723     $ 57,590     $ 58,926  
Ending common shares outstanding   5,902,481     5,883,603     5,888,816     5,266,895  
Tangible book value per share (non-GAAP)   $ 9.82     $ 9.98     $ 9.78     $ 11.19  
                                 

Nonperforming Assets:

                 
    March 31,
2018
and Three
Months
Ended
  December
31, 2017
and Three
Months
Ended
  September
30, 2017
and Twelve
Months
Ended
  March 31,
2017
and Three
Months
Ended
Nonperforming assets:                
Nonaccrual loans   $ 6,642     $ 6,388     $ 7,452     $ 5,767  
Accruing loans past due 90 days or more   281     739     589     576  
Total nonperforming loans ("NPLs")   6,923     7,127     8,041     6,343  
Other real estate owned ("OREO")   7,015     6,996     5,962     647  
Other collateral owned   65     35     55     45  
Total nonperforming assets ("NPAs")   $ 14,003     $ 14,158     $ 14,058     $ 7,035  
Troubled Debt Restructurings ("TDRs")   $ 8,699     $ 7,263     $ 5,851     $ 3,471  
Nonaccrual TDRs   $ 2,607     $ 1,327     $ 621     $ 404  
Average outstanding loan balance   $ 725,601     $ 733,203     $ 653,717     $ 554,624  
Loans, end of period   $ 721,128     $ 730,918     $ 732,995     $ 534,808  
Total assets, end of period   $ 940,383     $ 943,032     $ 940,664     $ 668,453  
Allowance for loan losses ("ALL"), at beginning of period   $ 5,859     $ 5,942     $ 6,068     $ 5,917  
Loans charged off:                
Residential real estate   (49 )   (24 )   (233 )   (67 )
Commercial/Agricultural real estate   (8 )   (1 )        
Consumer non-real estate   (67 )   (194 )   (389 )   (67 )
Commercial/Agricultural non-real estate           (9 )   (2 )
Total loans charged off   (124 )   (219 )   (631 )   (136 )
Recoveries of loans previously charged off:                
Residential real estate   4     13     14     1  
Commercial/Agricultural real estate                
Consumer non-real estate   48     22     171     52  
Commercial/Agricultural non-real estate       1     1     1  
Total recoveries of loans previously charged off:   52     36     186     54  
Net loans charged off ("NCOs")   (72 )   (183 )   (445 )   (82 )
Additions to ALL via provision for loan losses charged to operations   100     100     319      
ALL, at end of period   $ 5,887     $ 5,859     $ 5,942     $ 5,835  
Ratios:                
ALL to NCOs (annualized)   2,044.10 %   800.41 %   1,335.28 %   1,778.96 %
NCOs (annualized) to average loans   0.04 %   0.10 %   0.07 %   0.06 %
ALL to total loans   0.82 %   0.80 %   0.81 %   1.09 %
NPLs to total loans   0.96 %   0.98 %   1.10 %   1.19 %
NPAs to total assets   1.49 %   1.50 %   1.49 %   1.05 %
                         

Nonaccrual Loans Rollforward:

   
  Quarter Ended
  March 31,
2018
  December 31,
2017
  September 30,
2017
  June 30,
2017
  March 31,
2017
Balance, beginning of period $ 6,388     $ 7,452     $ 6,035     $ 5,767     $ 5,750  
Additions 901     287       514     626     308  
Acquired nonaccrual loans         1,449          
Charge-offs (34 )   (74 )   (22 )   (15 )   (68 )
Transfers to OREO (334 )   (52 )   (163 )   (159 )    
Return to accrual status                  
Payments received (257 )   (1,207 )   (345 )   (168 )   (209 )
Other, net (22 )   (18 )   (16 )   (16 )   (14 )
Balance, end of period $ 6,642     $ 6,388     $ 7,452     $ 6,035     $ 5,767  
                                       

Other Real Estate Owned Rollforward:

   
  Quarter Ended
  March 31,
2018
  December 31,
2017
  September 30,
2017
  June 30,
2017
  March 31,
2017
Balance, beginning of period $ 6,996     $ 5,962     $ 580     $ 648     $ 655  
Loans transferred in 334     52       163     159      
Acquired OREO         5,343          
Branch properties transferred in     1,444     250          
Sales (256 )   (394 )   (353 )   (249 )    
Writedowns (27 )   (16 )   (33 )       (7 )
Other, net (32 )   (52 )   12     22      
Balance, end of period $ 7,015     $ 6,996     $ 5,962     $ 580     $ 648  
                                       

Troubled Debt Restructurings in Accrual Status

               
  March 31, 2018   December 31, 2017   September 30, 2017   March 31, 2017
  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                              
Residential real estate 28     $ 3,015     29     $ 3,076     28     $ 3,084     25     $ 2,741  
Commercial/Agricultural real estate 12     2,414     10     2,143     8     1,890          
Consumer non-real estate 16     146     17     156     17     168     19     283  
Commercial/Agricultural non-real estate 3     517     4     561     2     88     1     43  
Total loans 59     $ 6,092     60     $ 5,936     55     $ 5,230     45     $ 3,067  
                                                       

Loan Composition - Detail

To better help understand the Bank's loan trends, we have added the below table.  The loan categories and amounts shown are the same as on the following page and are presented in a different format.  The Community Banking loan portfolios reflect the Bank's strategy to grow its commercial banking business and consumer lending.  The Legacy loan portfolios reflect the Bank's strategy to sell substantially all newly originated one to four family loans in the secondary market and the discontinuation of originated and purchased indirect paper loans, effective in the first quarter of fiscal 2017.

                 
    March 31, 2018   December 31, 2017   September 30, 2017   March 31, 2017
Community Banking Loan Portfolios:                
Commercial/Agricultural real estate:                
Commercial real estate   $ 187,735     $ 171,643     $ 159,962     $ 102,753  
Agricultural real estate   64,143     65,027     68,002     28,142  
Multi-family real estate   38,389     32,576     26,228     17,538  
Construction and land development   13,180     19,838     19,708     15,414  
Commercial/Agricultural non-real estate:                
Commercial non-real estate   58,200     58,823     55,251     32,166  
Agricultural non-real estate   23,529     23,710     23,873     14,948  
Residential real estate:                
Purchased HELOC loans   16,187     16,968     18,071      
Consumer non-real estate:                
Other consumer   18,402     19,242     20,668     16,536  
Total Community Banking Loan Portfolios   419,765     407,827     391,763     227,497  
                 
Legacy Loan Portfolios:                
Residential real estate:                
One to four family   209,044     221,077     229,563     166,158  
Consumer non-real estate:                
Originated indirect paper   73,599     79,492     85,732     103,021  
Purchased indirect paper   22,665     26,210     29,555     38,201  
Total Legacy Loan Portfolios   305,308     326,779     344,850     307,380  
Gross loans   $ 725,073     $ 734,606     $ 736,613     $ 534,877  
                                 

Loan Composition:

                 
    March 31, 2018   December 31, 2017   September 30, 2017   March 31, 2017
Originated Loans:                
Residential real estate:                
One to four family   $ 122,903     $ 128,396     $ 132,380     $ 143,859  
Purchased HELOC loans   16,187     16,968     18,071      
Commercial/Agricultural real estate:                
Commercial real estate   130,795     110,815     97,155     75,510  
Agricultural real estate   12,683     11,580     10,628     6,817  
Multi-family real estate   36,713     30,868     24,486     17,538  
Construction and land development   8,990     12,682     12,399     13,166  
Consumer non-real estate:                
Originated indirect paper   73,599     79,492     85,732     103,021  
Purchased indirect paper   22,665     26,210     29,555     38,201  
Other Consumer   14,466     14,465     14,496     16,035  
Commercial/Agricultural non-real estate:                
Commercial non-real estate   41,141     39,594     35,198     20,236  
Agricultural non-real estate   13,064     12,649     12,493     10,727  
Total originated loans   $ 493,206     $ 483,719     $ 472,593     $ 445,110  
Acquired Loans:                
Residential real estate:                
One to four family   $ 86,141     $ 92,681     $ 97,183     $ 22,299  
Commercial/Agricultural real estate:                
Commercial real estate   56,940     60,828     62,807     27,243  
Agricultural real estate   51,460     53,447     57,374     21,325  
Multi-family real estate   1,676     1,708     1,742      
Construction and land development   4,190     7,156     7,309     2,248  
Consumer non-real estate:                
Other Consumer   3,936     4,777     6,172     501  
Commercial/Agricultural non-real estate:                
Commercial non-real estate   17,059     19,229     20,053     11,930  
Agricultural non-real estate   10,465     11,061     11,380     4,221  
Total acquired loans   $ 231,867     $ 250,887     $ 264,020     $ 89,767  
Total Loans:                
Residential real estate:                
One to four family   $ 209,044     $ 221,077     $ 229,563     $ 166,158  
Purchased HELOC loans   16,187     16,968     18,071      
Commercial/Agricultural real estate:                
Commercial real estate   187,735     171,643     159,962     102,753  
Agricultural real estate   64,143     65,027     68,002     28,142  
Multi-family real estate   38,389     32,576     26,228     17,538  
Construction and land development   13,180     19,838     19,708     15,414  
Consumer non-real estate:                
Originated indirect paper   73,599     79,492     85,732     103,021  
Purchased indirect paper   22,665     26,210     29,555     38,201  
Other Consumer   18,402     19,242     20,668     16,536  
Commercial/Agricultural non-real estate:                
Commercial non-real estate   58,200     58,823     55,251     32,166  
Agricultural non-real estate   23,529     23,710     23,873     14,948  
Gross loans   $ 725,073     $ 734,606     $ 736,613     $ 534,877  
Unearned net deferred fees and costs and loans in process   839     1,252     1,471     1,371  
Unamortized discount on acquired loans   (4,784 )   (4,940 )   (5,089 )   (1,440 )
Total loans receivable   $ 721,128     $ 730,918     $ 732,995     $ 534,808  
                                 

Deposit Composition:

                 
    March 31,
2018
  December 31,
2017
  September 30,
2017
  March 31,
2017
Non-interest bearing demand deposits   $ 79,945     $ 78,685     $ 75,318     $ 45,661  
Interest bearing demand deposits   151,860     149,058     147,912     53,848  
Savings accounts   100,363     98,941     102,756     53,865  
Money market accounts   115,299     125,831     125,749     122,080  
Certificate accounts   301,148     288,554     290,769     255,475  
Total deposits   $ 748,615     $ 741,069     $ 742,504     $ 530,929  
                                 

Average balances, Interest Yields and Rates:

             
    Three months ended March 31,
2018
  Three months ended December
31, 2017
  Three months ended March 31,
2017
    Average
Balance
  Interest
Income/
Expense
  Average
Yield/
Rate (1)
  Average
Balance
  Interest
Income/
Expense
  Average
Yield/
Rate (1)
  Average
Balance
  Interest
Income/
Expense
  Average
Yield/
Rate (1)
Average interest earning assets:                                    
Cash and cash equivalents   $ 27,772     $ 62     0.91 %   $ 30,848     $ 67     0.86 %   $ 17,695     $ 29     0.66 %
Loans receivable   725,601     8,540     4.77 %   733,203     8,721     4.72 %   539,276     6,072     4.57 %
Interest bearing deposits   7,281     31     1.73 %   7,714     32     1.65 %   745     4     2.18 %
Investment securities (1)   113,943     620     2.39 %   100,737     513     2.23 %   86,494     379     2.11 %
Non-marketable equity securities, at cost   8,005     99     5.02 %   7,336     79     4.27 %   4,874     55     4.58 %
Total interest earning assets (1)   $ 882,602     $ 9,352     4.32 %   $ 879,838     $ 9,412     4.27 %   $ 649,084     $ 6,539     4.13 %
Average interest bearing liabilities:                                    
Savings accounts   $ 94,497     $ 28     0.12 %   $ 96,230     $ 22     0.09 %   $ 45,199     $ 16     0.14 %
Demand deposits   153,032     114     0.30 %   146,838     90     0.24 %   52,647     61     0.47 %
Money market accounts   118,622     161     0.55 %   123,459     167     0.54 %   124,389     127     0.41 %
CD's   265,621     863     1.32 %   263,429     839     1.26 %   234,842     771     1.33 %
IRA's   33,688     84     1.01 %   34,992     84     0.95 %   27,777     75     1.10 %
Total deposits   $ 665,460     $ 1,250     0.76 %   $ 664,948     $ 1,202     0.72 %   $ 484,854     $ 1,050     0.88 %
FHLB advances and other borrowings   117,939     746     2.57 %   116,359     683     2.33 %   80,391     265     1.34 %
Total interest bearing liabilities   $ 783,399     $ 1,996     1.03 %   $ 781,307     $ 1,885     0.96 %   $ 565,245     $ 1,315     0.94 %
Net interest income       $ 7,356             $ 7,527             $ 5,224      
Interest rate spread           3.29 %           3.31 %           3.19 %
Net interest margin (1)           3.40 %           3.42 %           3.31 %
Average interest earning assets to average interest bearing liabilities           1.13             1.13             1.15  
                                           

(1) Fully taxable equivalent (FTE).  The average yield on tax exempt securities is computed on a tax equivalent basis using a tax rate of 24.5% for the quarters ended March 31, 2018 and December 31, 2017.  The average yield on tax exempt securities is computed on a tax equivalent basis using a tax rate of 34% for the quarter ended March 31, 2017.  The FTE adjustment to net interest income included in the rate calculations totaled $52, $53 and $72 for the three months ended March 31, 2018, December 31, 2017 and March 31, 2017, respectively.

         
    Six months ended March 31, 2018   Six months ended March 31, 2017
    Average
Balance
  Interest
Income/
Expense
  Average
Yield/
Rate (1)
  Average
Balance
  Interest
Income/
Expense
  Average
Yield/
Rate (1)
Average interest earning assets:                        
Cash and cash equivalents   $ 27,659     $ 130     0.94 %   $ 13,724     $ 41     0.60 %
Loans receivable   729,185     17,260     4.75 %   550,611     12,602     4.59 %
Interest bearing deposits   7,546     63     1.67 %   745     7     1.88 %
Investment securities (1)   108,135     1,133     2.30 %   86,439     737     2.04 %
Non-marketable equity securities, at cost   7,602     178     4.70 %   4,990     100     4.02 %
Total interest earning assets (1)   $ 880,127     $ 18,764     4.30 %   $ 656,509     $ 13,487     4.16 %
Average interest bearing liabilities:                        
Savings accounts   $ 95,570     $ 50     0.10 %   $ 44,559     $ 33     0.15 %
Demand deposits   150,060     203     0.27 %   50,824     135     0.53 %
Money market accounts   120,356     328     0.55 %   127,408     261     0.41 %
CD's   265,240     1,703     1.29 %   240,433     1,585     1.32 %
IRA's   34,380     168     0.98 %   28,419     155     1.09 %
Total deposits   $ 665,606     $ 2,452     0.74 %   $ 491,643     $ 2,169     0.88 %
FHLB advances and other borrowings   116,185     1,429     2.47 %   78,920     537     1.36 %
Total interest bearing liabilities   $ 781,791     $ 3,881     1.00 %   $ 570,563     $ 2,706     0.95 %
Net interest income       $ 14,883             $ 10,781      
Interest rate spread           3.30 %           3.21 %
Net interest margin (1)           3.42 %           3.34 %
Average interest earning assets to average interest bearing liabilities           1.13             1.15  
                             

(1) Fully taxable equivalent (FTE).  The average yield on tax exempt securities is computed on a tax equivalent basis using a tax rate of 24.5% and 34% for the six months ended March 31, 2018 and March 31, 2017, respectively.   The FTE adjustment to net interest income included in the rate calculations totaled $105 and $144 for the six months ended March 31, 2018 and March 31, 2017, respectively.

CITIZENS COMMUNITY FEDERAL N.A.
Selected Capital Composition Highlights (unaudited)

                     
    March 31,
2018
  December 31,
2017
  September 30,
2017
  March 31,
2017
  To Be Well Capitalized Under
Prompt Corrective Action
Provisions
Total capital (to risk weighted assets)   13.2 %   13.4 %   13.2 %   14.8 %   10.0 %
Tier 1 capital (to risk weighted assets)   12.4 %   12.5 %   12.4 %   13.6 %   8.0 %
Common equity tier 1 capital (to risk weighted assets)   12.4 %   12.5 %   12.4 %   13.6 %   6.5 %
Tier 1 leverage ratio (to adjusted total assets)   9.3 %   9.3 %   9.2 %   9.8 %   5.0 %
                               

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