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Citizens Community Bancorp, Inc. Earns $503,000 For Third Fiscal Quarter 2018; Loan Growth Continues, New Capital Raise Completed and Merger Announcement Highlight Third Fiscal Quarter 2018

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EAU CLAIRE, Wis., July 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 of $503,000, or $0.08 per diluted share in Q3 fiscal 2018, compared to $1.083 million, or $0.20 per diluted share, in the third fiscal quarter one year earlier.  The Q3 fiscal 2018 operations reflected higher professional fees associated with the announced proposed acquisition of United Bank ("United"), increased loan loss provision expense associated with $40 million in loan growth, write-downs on closed branches held for sale and reported as OREO and final settlement of the outstanding litigation matter.  For the nine months ended June 30, 2018, earnings increased 8% to $3.184 million, or $0.52 per diluted share from $2.957 million, or $0.56 per diluted share for the nine months ended June 30, 2017.

Core earnings (non-GAAP)* were $730,000, or $0.11 per diluted share for Q3 fiscal 2018 compared to $1.249 million, or $0.23 per diluted shares for Q3 fiscal 2017.  Core earnings (non-GAAP)* exclude merger and branch closure expenditures, insurance and legal settlement proceeds received, 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)*".

"We saw strong loan growth during the quarter across our commercial banking business, which reflected strong economic conditions in our markets and the expanded capacity of our banking team in northwest Wisconsin and Mankato, Minnesota," said Stephen Bianchi, President and Chief Executive Officer.  "Commercial and Industrial loans grew $17 million in the quarter with an additional $28 million growth in commercial real estate loans."

"We are also making progress on the proposed acquisition of United Bank announced in June for approximately $50.7 million in cash.  The acquisition will be funded by the $65 million in preferred stock sold in June.  We believe the in-market United Bank acquisition, expected to be completed in the fourth calendar quarter of 2018, will continue our transformation into a more efficient banking operation focused on a commercial, consumer and mortgage banking business model.  This approach will allow us to deliver value to our clients and our stakeholders," Mr. Bianchi stated.

*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)".

Q3 Fiscal 2018 Financial Highlights: (at or for the periods ended June 30, 2018, compared to June 30, 2017 and /or March 31, 2018)

  • Net income totaled $503,000 in Q3 fiscal 2018, compared to $1.08 million a year ago, and $1.34 million in Q2 fiscal 2018.  Expenses increased during the current quarter due to higher provision for loan losses related to strong organic commercial loan growth, valuation reductions to OREO branch offices that are scheduled for sale, acquisition related expenses and expenses related to resolve litigation.

  • Net interest margin (NIM) remained at 3.40% for the current quarter, compared to 3.40% for Q2 fiscal 2018 and 3.41% a year earlier. The increase in funding costs were offset by higher asset yields, primarily from loans and higher levels of equity due to the preferred stock offer.

  • Loan loss provision was $650,000 in Q3 fiscal 2018 compared to $100,000 the previous quarter as the Community Banking loan portfolio, consisting of commercial banking business and consumer lending, showed strong growth.  The allowance for loan and lease losses ("ALLL") was 0.85% of total loans at June 30, 2018, compared to 0.82% one quarter earlier.  Loans acquired, which are reported at fair market value at acquisition, are included in total loans.  Nonperforming assets ("NPA") declined as sales of OREO properties accelerated. NPA's were $12.7 million, or 1.31% of total assets at June 30, 2018, compared to $14.0 million, or 1.49% of total assets at March 31, 2018.  The decrease was primarily the result of sales of foreclosed and repossessed assets during the quarter.  Foreclosed and repossessed assets declined to $5.4 million at June 30, 2018 from $7.1 million at March 31, 2018.  Net charge offs were $79,000 for Q3 fiscal 2018 compared to $72,000 for Q2 fiscal 2018.

  • Total non-interest expense for Q3 fiscal 2018 of $7.87 million was higher compared to Q2 fiscal 2018 at $7.10 million.  The increase was largely related to increased professional fees related to both the proposed acquisition totaling $228,000 and litigation costs totaling $198,000, as well as OREO branch office write-downs totaling $449,000.  The Bank has accepted offers to sell these two facilities.

  • Net loans increased to $754.6 million at June 30, 2018, compared to $715.2 million at March 31, 2018, reflecting growth in commercial, multi-family and agricultural loans.  As a result of this loan growth, assets increased to $975.1 million at June 30, 2018 compared to $940.4 million one quarter earlier and $665.6 million one year earlier.

As a result of the issuance of preferred stock, the Company's June 30, 2018 capital ratios temporarily increased. Approximately $50.7 million of the proceeds from the preferred stock placement will be utilized to fund the United acquisition.  The Company's capital ratios will decline in the quarter the United acquisition is completed.  All capital ratios are expected to exceed regulatory guidelines for a well-capitalized financial institution.

Bank and Company capital ratios exceeded regulatory guidelines for a well-capitalized financial institution under the Basel III regulatory requirements at June 30, 2018:

    Citizens
Community
Federal N.A.
  Citizens
Community
Bancorp, Inc.
To Be Well Capitalized Under
Prompt Corrective Action
Provisions
Total capital (to risk weighted assets)   12.8%   19.6% 10.0%
Tier 1 capital (to risk weighted assets)   11.9%   16.7% 8.0%
Common equity tier 1 capital (to risk weighted assets)   11.9%   8.3% 6.5%
Tier 1 leverage ratio (to adjusted total assets)   9.3%   13.1% 5.0%

Balance Sheet and Asset Quality Review

Total assets were $975.1 million at June 30, 2018, compared to $940.4 million at March 31, 2018, and $665.6 million at June 30, 2017.  The increase in total assets from a year ago was primarily due to the acquisition of Wells Financial completed in August 2017, while the most recent increase was supported by new capital and loan growth.

Loan balances increased 5.5% from the linked quarter primarily due to an increase in commercial, multi-family and agricultural loans, offset partially by the reduction of the Legacy Loan portfolio, consisting of one to four family loans and indirect paper loans.  The timing of the loan growth was weighted to later in the quarter.  As such, the volume impact of this gain will enhance net interest income in our fourth fiscal quarter.  The current loan growth was also supported by a large single $8.2 million bridge loan which is expected to be repaid before our fiscal year-end.  At June 30, 2018, the Community Banking portfolio totaled 62% of the total loan portfolio, versus 58% for the prior quarter and 45% one year earlier.  As expected, the Legacy Loan portfolio continues to decrease, both in dollars and percentage of total loan outstandings, as the portfolio shrinks due to loan amortization and prepayments.

The allowance for loan and lease losses increased in Q3 fiscal 2018 to $6.5 million, representing 0.85% of total loans, compared to $5.9 million and 0.82% of total loans at March 31, 2018.  Net charge offs were $79,000 for Q3 fiscal 2018 compared to $72,000 for Q2 fiscal 2018.

Nonperforming assets were $12.7 million, or 1.31% of total assets at June 30, 2018 compared to $14.0 million, or 1.49% of total assets at March 31, 2018.  The decrease was primarily the result of sales of foreclosed and repossessed assets during the quarter.  Foreclosed and repossessed assets declined to $5.4 million at June 30, 2018 from $7.1 million at March 31, 2018.

Deposits totaled $744.5 million at June 30, 2018, compared to $748.6 million at March 31, 2018, and $519.1 million at June 30, 2017. Noninterest-bearing deposits increased to $82.1 million at June 30, 2018, compared to $79.9 million at March 31, 2018, and $49.6 million at June 30, 2017.

Federal Home Loan Bank ("FHLB") advances decreased to $58.0 million at June 30, 2018, compared to $85.0 million at March 31, 2018.  FHLB advances were used to fund loan growth during the quarter and then paid down with the preferred stock proceeds placed on deposit with the Bank.  The Bank utilized the increase in deposits, which are eliminated in consolidation, to temporarily reduce FHLB advances.

Book value per share was $12.50 at June 30, 2018, compared to $12.45 at March 31, 2018.  Tangible book value per share (non-GAAP) was $9.89 at June 30, 2018, compared to $9.82 at March 31, 2018.

On June 20, 2018, the Company entered into a securities purchase agreement  and a registration rights agreement with each of a limited number of institutional and other accredited investors, including certain officers and directors of the Company (collectively the "Purchasers"), pursuant to which the Company sold an aggregate of 500,000 shares of the Company's 8.00% Series A Mandatorily Convertible Non-Cumulative Non-Voting Perpetual Preferred Stock, par value $0.01 per share, (the "Series A Preferred Stock"), in a private placement (the "Private Placement") at $130 per share, for aggregate gross proceeds of $65 million.

Each share of Series A Preferred Stock will be mandatorily convertible into ten shares of common stock following receipt of stockholder approval of the issuance of the shares of common stock into which the Series A Preferred Stock is expected to be converted.  The Company has scheduled a special meeting of stockholders on September 25, 2018 for purposes of a stockholder vote regarding approval of issuance of the shares of common stock into which the Series A Preferred Stock is expected to be converted.

Review of Operations

Net interest income was $7.5 million for Q3 fiscal 2018, compared to $7.4 million for Q2 fiscal 2018 and $5.3 million one year earlier.  For the nine months ended June 30, 2018, net interest income was $22.4 million compared to $16.1 million for the nine months ended June 30, 2017.  The net interest margin ("NIM") remained at 3.40% for Q3 fiscal 2018 compared to 3.40% one quarter earlier and 3.41% for the like quarter one year earlier.

Loan yields increased to 4.87% for Q3 fiscal 2018 compared to 4.77% one quarter earlier and 4.57% for Q3 fiscal 2017.  Meanwhile, deposit costs increased to 0.86% for Q3 fiscal 2018 from 0.76% one quarter earlier and declined from 0.88% for Q3 fiscal 2017.  Costs on the FHLB and other borrowings increased to 3.01% for Q3 fiscal 2018 from 2.57% one quarter earlier and 1.34% for the quarter ended Q3 2017.  For the nine months ended June 30, 2018, the NIM increased to 3.41% from 3.36% for the nine months ended June 30, 2017.

For Q3 fiscal 2018, $650,000 of provision for loan losses was recorded, reflecting strong organic loan growth.

Total non-interest income was $1.77 million for Q3 fiscal 2018 compared to $1.68 million for Q2 fiscal 2018 and $991,000 for Q3 fiscal 2017.  The higher level of non-interest income primarily relates to higher gains on the sale of mortgage loans originated and higher loan fees and service charges.  For the nine months ended June 30, 2018, non-interest income totaled $5.38 million compared to $3.36 million for the nine months ended June 30, 2017.

Total non-interest expense was $7.9 million for Q3 fiscal 2018 compared to $7.1 million for Q2 fiscal 2018 and $4.6 million for Q3 fiscal 2017.  Total non-interest expense for the third quarter includes higher professional fees largely associated with the proposed United Bank acquisition totaling $228,000 and resolved litigation costs totaling $198,000, as well as OREO branch office write-downs totaling $449,000.  For the nine months ended June 30, 2018, total non-interest expenses totaled $22.1 million compared to $15.0 million for the nine months ended June 30, 2017.  The higher expenses for the nine-month period primarily relate to increased costs associated with the prior acquisition of Wells Financial Corp completed on August 18, 2017 and higher staffing levels to support growth, along with the third quarter items noted above.

Provisions for income taxes were $220,000 for Q3 fiscal 2018 compared to $487,000 for Q2 fiscal 2018 and $604,000 for Q3 fiscal 2017.  The effective tax rate for Q3 fiscal 2018 was 30.4% compared to 26.6% one quarter earlier and 35.8% for Q3 fiscal 2017.  The higher effective tax rate for Q3 fiscal 2018 was partially the result of non-deductible expenses related to the proposed United Bank acquisition.  For the nine months ended June 30, 2018, the effective tax rate was 33.3% compared to 34.1% for the nine months ended June 30, 2017.  The nine-month period ended June 30, 2018, was impacted by the revaluation of net deferred tax assets in the first quarter of fiscal 2018 and the tax impact of non-deductible acquisition costs in the third quarter. 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 August 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 22 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 the Company and 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; the risk that the acquisition of United Bank may be more difficult, costly or time consuming or that the expected benefits are not realized; failure to obtain applicable regulatory approvals and meet other closing conditions to the acquisition of United Bank on the expected terms and schedule; the risk that if the acquisition of United Bank were not completed it could negatively impact the stock price and the future business and financial results of the Company; difficulties and delays in integrating the acquired business operations or fully realizing cost savings and other benefits; acts of terrorism and political or military actions by the United States or other governments; legislative or regulatory changes or actions, or significant litigation, adversely affecting the Company or 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 federal or state tax laws; litigation risk; 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)

    June 30,
2018
  March 31,
2018
  September 30,
2017
  June 30,
2017
Assets                
Cash and cash equivalents   $ 27,731     $ 31,468     $ 41,677     $ 33,749  
Other interest bearing deposits   8,160     8,399     8,148     995  
Securities available for sale "AFS"   119,702     118,314     95,883     78,475  
Securities held to maturity "HTM"   4,809     5,013     5,453     5,653  
Non-marketable equity securities, at cost   6,862     7,707     7,292     4,498  
Loans receivable   761,087     721,128     732,995     519,403  
Allowance for loan losses   (6,458 )   (5,887 )   (5,942 )   (5,756 )
Loans receivable, net   754,629     715,241     727,053     513,647  
Loans held for sale   1,778     1,520     2,334     979  
Mortgage servicing rights   1,841     1,849     1,886      
Office properties and equipment, net   9,947     9,151     9,645     5,023  
Accrued interest receivable   3,306     3,251     3,291     1,950  
Intangible assets   4,966     5,126     5,449     753  
Goodwill   10,444     10,444     10,444     4,663  
Foreclosed and repossessed assets, net   5,392     7,080     6,017     622  
Bank owned life insurance   11,581     11,502     11,343     11,389  
Other assets   3,922     4,318     4,749     3,245  
TOTAL ASSETS   $ 975,070     $ 940,383     $ 940,664     $ 665,641  
Liabilities and Stockholders' Equity                
Liabilities:                
Deposits   $ 744,536     $ 748,615     $ 742,504     $ 519,133  
Federal Home Loan Bank advances   58,000     85,000     90,000     67,900  
Other borrowings   29,059     29,479     30,319     11,000  
Other liabilities   8,264     3,780     4,358     1,598  
Total liabilities   839,859     866,874     867,181     599,631  
Stockholders' equity:                
Preferred stock - $0.01 par value, $130.00 per share liquidation, 1,000,000 shares authorized, 500,000 shares issued and outstanding   61,289              
Common stock— $0.01 par value, authorized 30,000,000; 5,914,379; 5,902,481; 5,888,816 and 5,270,895 shares issued and outstanding, respectively   59     59     59     53  
Additional paid-in capital   63,850     63,575     63,383     55,089  
Retained earnings   12,904     12,401     10,764     11,221  
Unearned deferred compensation   (716 )   (515 )   (456 )   (214 )
Accumulated other comprehensive (loss) gain   (2,175 )   (2,011 )   (267 )   (139 )
Total stockholders' equity   135,211     73,509     73,483     66,010  
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY   $ 975,070     $ 940,383     $ 940,664     $ 665,641  

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   Nine Months Ended
    June 30, 2018   March 31, 2018   June 30, 2017   June 30, 2018   June 30, 2017
Interest and dividend income:                    
Interest and fees on loans   $ 8,865     $ 8,539     $ 6,030     $ 26,125     $ 18,632  
Interest on investments   905     813     591     2,409     1,476  
Total interest and dividend income   9,770     9,352     6,621     28,534     20,108  
Interest expense:                    
Interest on deposits   1,432     1,250     1,035     3,884     3,204  
Interest on FHLB borrowed funds   412     314     164     987     500  
Interest on other borrowed funds   446     432     107     1,300     308  
Total interest expense   2,290     1,996     1,306     6,171     4,012  
Net interest income before provision for loan losses   7,480     7,356     5,315     22,363     16,096  
Provision for loan losses   650     100         850      
Net interest income after provision for loan losses   6,830     7,256     5,315     21,513     16,096  
Non-interest income:                    
Service charges on deposit accounts   413     430     325     1,303     1,065  
Interchange income   338     302     203     946     575  
Loan servicing income   337     346     62     1,011     205  
Gain on sale of mortgage loans   226     189     206     709     490  
Loan fees and service charges   116     87     96     357     418  
Insurance commission income   187     187         540      
Settlement proceeds                   283  
Gains (losses) on available for sale securities   4     (21 )       (17 )   29  
Other   146     155     99     532     295  
Total non-interest income   1,767     1,675     991     5,381     3,360  
Non-interest expense:                    
Compensation and benefits   3,840     3,806     2,395     11,201     7,629  
Occupancy   733     761     565     2,199     2,196  
Office   417     426     304     1,281     897  
Data processing   720     733     476     2,157     1,402  
Amortization of intangible assets   161     161     38     484     119  
Amortization of mortgage servicing rights   84     76         250      
Advertising, marketing and public relations   185     146     75     480     243  
FDIC premium assessment   94     115     79     351     231  
Professional services   735     323     382     1,746     1,218  
Loss (gain) on repossessed assets, net   450         (11 )   464     (16 )
Other   455     556     316     1,507     1,050  
Total non-interest expense   7,874     7,103     4,619     22,120     14,969  
Income before provision for income taxes   723     1,828     1,687     4,774     4,487  
Provision for income taxes   220     487     604     1,590     1,530  
Net income attributable to common stockholders   $ 503     $ 1,341     $ 1,083     $ 3,184     $ 2,957  
Per share information:                    
Basic earnings   $ 0.09     $ 0.23     $ 0.21     $ 0.54     $ 0.56  
Diluted earnings   $ 0.08     $ 0.23     $ 0.20     $ 0.52     $ 0.56  
Cash dividends paid   $     $ 0.20     $     $ 0.20     $ 0.16  
Book value per share at end of period   $ 12.50     $ 12.45     $ 12.52     $ 12.50     $ 12.52  
Tangible book value per share at end of period (non-GAAP)   $ 9.89     $ 9.82     $ 11.50     $ 9.89     $ 11.50  

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   Nine Months Ended
    June 30, 2018   March 31, 2018   June 30, 2017   June 30, 2018   June 30, 2017
     
GAAP earnings before income taxes   $ 723     $ 1,828     $ 1,687     $ 4,774     $ 4,487  
Merger related costs (1)   228     10     147     332     343  
Branch closure costs (2)   16     1     59     24     696  
Settlement proceeds                   (283 )
Prepayment fee                   104  
Core earnings before income taxes (3)   967     1,839     1,893     5,130     5,347  
Provision for income tax on core earnings (4)   237     451     644     1,257     1,819  
Core earnings after income taxes (3)   $ 730     $ 1,388     $ 1,249     $ 3,873     $ 3,528  
GAAP diluted earnings per share, net of tax   $ 0.08     $ 0.23     $ 0.20     $ 0.52     $ 0.56  
Merger related costs, net of tax   0.03         0.02     0.05     0.04  
Branch closure costs, net of tax           0.01         0.08  
Tax Cuts and Jobs Act of 2017 tax provision (5)               0.05      
Settlement Proceeds                   (0.03 )
Prepayment fee                   0.01  
Core diluted earnings per share, net of tax   $ 0.11     $ 0.23     $ 0.23     $ 0.62     $ 0.66  
                     
Average diluted shares outstanding   6,461,760     5,932,342     5,316,726     6,082,543     5,305,460  

(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   June 30,
2018
  March 31,
 2018
  September 30,
2017
  June 30,
 2017
Total stockholders' equity   $ 135,211     $ 73,509     $ 73,483     $ 66,010  
Less:  Preferred stock   (61,289 )            
Less:  Goodwill   (10,444 )   (10,444 )   (10,444 )   (4,663 )
Less:  Intangible assets   (4,966 )   (5,126 )   (5,449 )   (753 )
Tangible common equity (non-GAAP)   $ 58,512     $ 57,939     $ 57,590     $ 60,594  
Ending common shares outstanding   5,914,379     5,902,481     5,888,816     5,270,895  
Tangible book value per share (non-GAAP)   $ 9.89     $ 9.82     $ 9.78     $ 11.50  

Nonperforming Assets:

    June 30, 2018
  and Three Months Ended
  March 31, 2018
  and Three Months Ended
  September 30, 2017
  and Twelve Months Ended
  June 30, 2017
  and Three Months Ended
Nonperforming assets:                
Nonaccrual loans   $ 6,627     $ 6,642     $ 7,452     $ 6,035  
Accruing loans past due 90 days or more   710     281     589     681  
Total nonperforming loans ("NPLs")   7,337     6,923     8,041     6,716  
Other real estate owned ("OREO")   5,328     7,015     5,962     580  
Other collateral owned   64     65     55     42  
Total nonperforming assets ("NPAs")   $ 12,729     $ 14,003     $ 14,058     $ 7,338  
Troubled Debt Restructurings ("TDRs")   $ 8,210     $ 8,699     $ 5,851     $ 3,389  
Nonaccrual TDRs   $ 2,349     $ 2,607     $ 621     $ 393  
Average outstanding loan balance   $ 735,723     $ 725,601     $ 653,717     $ 527,106  
Loans, end of period   $ 761,087     $ 721,128     $ 732,995     $ 519,403  
Total assets, end of period   $ 975,070     $ 940,383     $ 940,664     $ 665,528  
Allowance for loan losses ("ALL"), at beginning of period   $ 5,887     $ 5,859     $ 6,068     $ 5,835  
Loans charged off:                
Residential real estate   (47 )   (49 )   (233 )   (50 )
Commercial/Agricultural real estate   (65 )   (8 )        
Consumer non-real estate   (34 )   (67 )   (389 )   (54 )
Commercial/Agricultural non-real estate   (5 )       (9 )   (7 )
Total loans charged off   (151 )   (124 )   (631 )   (111 )
Recoveries of loans previously charged off:                
Residential real estate   34     4     14     4  
Commercial/Agricultural real estate                
Consumer non-real estate   26     48     171     28  
Commercial/Agricultural non-real estate   12         1      
Total recoveries of loans previously charged off:   72     52     186     32  
Net loans charged off ("NCOs")   (79 )   (72 )   (445 )   (79 )
Additions to ALL via provision for loan losses charged to operations   650     100     319      
ALL, at end of period   $ 6,458     $ 5,887     $ 5,942     $ 5,756  
Ratios:                
ALL to NCOs (annualized)   2,043.67 %   2,044.10 %   1,335.28 %   1,821.52 %
NCOs (annualized) to average loans   0.04 %   0.04 %   0.07 %   0.06 %
ALL to total loans   0.85 %   0.82 %   0.81 %   1.11 %
NPLs to total loans   0.96 %   0.96 %   1.10 %   1.29 %
NPAs to total assets   1.31 %   1.49 %   1.49 %   1.10 %

Nonaccrual Loans Rollforward:

  Quarter Ended
  June 30,
2018
  March 31,
2018
  December 31,
2017
  September 30,
2017
  June 30,
  2017
Balance, beginning of period $ 6,642     $ 6,388     $ 7,452     $ 6,035     $ 5,767  
Additions 3,225     901     $ 287     514     626  
Acquired nonaccrual loans             1,449      
Charge-offs (38 )   (34 )   (74 )   (22 )   (15 )
Transfers to OREO     (334 )   (52 )   (163 )   (159 )
Return to accrual status                  
Payments received (2,915 )   (257 )   (1,207 )   (345 )   (168 )
Other, net (287 )   (22 )   (18 )   (16 )   (16 )
Balance, end of period $ 6,627     $ 6,642     $ 6,388     $ 7,452     $ 6,035  

Other Real Estate Owned Rollforward:

  Quarter Ended
  June 30,
2018
  March 31,
2018
  December 31,
2017
  September 30,
2017
  June 30,
  2017
Balance, beginning of period $ 7,015     $ 6,996     $ 5,962     $ 580     $ 648  
Loans transferred in     334     $ 52     163     159  
Acquired OREO             5,343      
Branch properties transferred in         1,444     250      
Sales (889 )   (256 )   (394 )   (353 )   (249 )
Write-downs (498 )   (27 )   (16 )   (33 )    
Other, net (300 )   (32 )   (52 )   12     22  
Balance, end of period $ 5,328     $ 7,015     $ 6,996     $ 5,962     $ 580  

Troubled Debt Restructurings in Accrual Status

  June 30, 2018   March 31, 2018   September 30, 2017   June 30, 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 32   $ 3,580     28   $ 3,015     28   $ 3,084     40   $ 4,581  
Commercial/Agricultural real estate 14   1,662     12   2,414     8   1,890     11   602  
Consumer non-real estate 15   122     16   146     17   168     19   201  
Commercial/Agricultural non-real estate 3   496     3   517     2   88     2   50  
Total loans 64   $ 5,860     59   $ 6,092     55   $ 5,230     72   $ 5,434  

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.

    June 30, 2018   March 31, 2018   September 30, 2017   June 30, 2017
Community Banking Loan Portfolios:                
Commercial/Agricultural real estate:                
Commercial real estate   $ 208,526     $ 187,735     $ 159,962     $ 104,277  
Agricultural real estate   70,881     64,143     68,002     29,688  
Multi-family real estate   45,707     38,389     26,228     23,354  
Construction and land development   15,258     13,180     19,708     13,987  
Commercial/Agricultural non-real estate:                
Commercial non-real estate   74,763     58,200     55,251     32,557  
Agricultural non-real estate   26,366     23,529     23,873     16,406  
Residential real estate:                
Purchased HELOC loans   15,237     16,187     18,071      
Consumer non-real estate:                
Other consumer   19,063     18,402     20,668     15,260  
Total Community Banking Loan Portfolios   475,801     419,765     391,763     235,529  
                 
Legacy Loan Portfolios:                
Residential real estate:                
One to four family   202,356     209,044     229,563     156,735  
Consumer non-real estate:                
Originated indirect paper   66,791     73,599     85,732     93,887  
Purchased indirect paper   19,801     22,665     29,555     33,660  
Total Legacy Loan Portfolios   288,948     305,308     344,850     284,282  
Gross loans   $ 764,749     $ 725,073     $ 736,613     $ 519,811  

Loan Composition:

    June 30, 2018   March 31, 2018   September 30, 2017   June 30, 2017
Originated Loans:                
Residential real estate:                
One to four family   $ 122,028     $ 122,903     $ 132,380     $ 136,527  
Purchased HELOC loans   15,237     16,187     18,071      
Commercial/Agricultural real estate:                
Commercial real estate   156,760     130,795     97,155     79,450  
Agricultural real estate   23,739     12,683     10,628     8,428  
Multi-family real estate   42,360     36,713     24,486     23,354  
Construction and land development   11,212     8,990     12,399     11,951  
Consumer non-real estate:                
Originated indirect paper   66,791     73,599     85,732     93,887  
Purchased indirect paper   19,801     22,665     29,555     33,660  
Other Consumer   15,549     14,466     14,496     14,836  
Commercial/Agricultural non-real estate:                
Commercial non-real estate   58,637     41,141     35,198     22,308  
Agricultural non-real estate   16,792     13,064     12,493     12,213  
Total originated loans   $ 548,906     $ 493,206     $ 472,593     $ 436,614  
Acquired Loans:                
Residential real estate:                
One to four family   $ 80,328     $ 86,141     $ 97,183     $ 20,208  
Commercial/Agricultural real estate:                
Commercial real estate   51,766     56,940     62,807     24,827  
Agricultural real estate   47,142     51,460     57,374     21,260  
Multi-family real estate   3,347     1,676     1,742      
Construction and land development   4,046     4,190     7,309     2,036  
Consumer non-real estate:                
Other Consumer   3,514     3,936     6,172     424  
Commercial/Agricultural non-real estate:                
Commercial non-real estate   16,126     17,059     20,053     10,249  
Agricultural non-real estate   9,574     10,465     11,380     4,193  
Total acquired loans   $ 215,843     $ 231,867     $ 264,020     $ 83,197  
Total Loans:                
Residential real estate:                
One to four family   $ 202,356     $ 209,044     $ 229,563     $ 156,735  
Purchased HELOC loans   15,237     16,187     18,071      
Commercial/Agricultural real estate:                
Commercial real estate   208,526     187,735     159,962     104,277  
Agricultural real estate   70,881     64,143     68,002     29,688  
Multi-family real estate   45,707     38,389     26,228     23,354  
Construction and land development   15,258     13,180     19,708     13,987  
Consumer non-real estate:                
Originated indirect paper   66,791     73,599     85,732     93,887  
Purchased indirect paper   19,801     22,665     29,555     33,660  
Other Consumer   19,063     18,402     20,668     15,260  
Commercial/Agricultural non-real estate:                
Commercial non-real estate   74,763     58,200     55,251     32,557  
Agricultural non-real estate   26,366     23,529     23,873     16,406  
Gross loans   $ 764,749     $ 725,073     $ 736,613     $ 519,811  
Unearned net deferred fees and costs and loans in process   693     839     1,471     1,023  
Unamortized discount on acquired loans   (4,355 )   (4,784 )   (5,089 )   (1,431 )
Total loans receivable   $ 761,087     $ 721,128     $ 732,995     $ 519,403  

Deposit Composition:

    June 30,
 2018
  March 31,
2018
  September 30,
2017
  June 30,
 2017
Non-interest bearing demand deposits   $ 82,135     $ 79,945     $ 75,318     $ 49,582  
Interest bearing demand deposits   151,117     151,860     147,912     49,366  
Savings accounts   98,427     100,363     102,756     53,124  
Money market accounts   115,369     115,299     125,749     128,435  
Certificate accounts   297,488     301,148     290,769     238,626  
Total deposits   $ 744,536     $ 748,615     $ 742,504     $ 519,133  

Average balances, Interest Yields and Rates:

    Three months ended June 30, 2018   Three months ended March 31, 2018   Three months ended June 30, 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   $ 19,203     $ 61     1.27 %   $ 27,772     $ 62     0.91 %   $ 17,246     $ 27     0.66 %
Loans receivable   729,390     8,865     4.87 %   725,601     8,540     4.77 %   526,661     6,030     4.57 %
Interest bearing deposits   8,418     44     2.10 %   7,281     31     1.73 %   808     4     2.18 %
Investment securities (1)   124,715     701     2.44 %   113,943     620     2.39 %   84,845     512     2.11 %
Non-marketable equity securities, at cost   8,158     99     4.87 %   8,005     99     5.02 %   4,488     48     4.58 %
Total interest earning assets (1)   $ 889,884     $ 9,770     4.43 %   $ 882,602     $ 9,352     4.32 %   $ 634,048     $ 6,621     4.13 %
Average interest bearing liabilities:                                    
Savings accounts   $ 94,741     $ 53     0.22 %   $ 94,497     $ 28     0.12 %   $ 47,184     $ 13     0.14 %
Demand deposits   150,666     129     0.34 %   153,032     114     0.30 %   50,617     59     0.47 %
Money market accounts   115,625     196     0.68 %   118,622     161     0.55 %   122,709     126     0.41 %
CD's   271,311     959     1.42 %   265,621     863     1.32 %   226,189     767     1.33 %
IRA's   32,890     94     1.15 %   33,688     84     1.01 %   26,852     70     1.10 %
Total deposits   $ 665,233     $ 1,431     0.86 %   $ 665,460     $ 1,250     0.76 %   $ 473,551     $ 1,035     0.88 %
FHLB advances and other borrowings   114,498     859     3.01 %   117,939     746     2.57 %   74,548     271     1.34 %
Total interest bearing liabilities   $ 779,731     $ 2,290     1.18 %   $ 783,399     $ 1,996     1.03 %   $ 548,099     $ 1,306     0.94 %
Net interest income       $ 7,480             $ 7,356             $ 5,315      
Interest rate spread           3.25 %           3.29 %           3.27 %
Net interest margin (1)           3.40 %           3.40 %           3.41 %
Average interest earning assets to average interest bearing liabilities           1.14             1.13             1.16  

(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 June 30, 2018 and March 31, 2018.  The average yield on tax exempt securities is computed on a tax equivalent basis using a tax rate of 34% for the quarter ended June 30, 2017.  The FTE adjustment to net interest income included in the rate calculations totaled $55, $52 and $70 for the three months ended June 30, 2018, March 31, 2018 and June 30, 2017, respectively.

    Nine months ended June 30, 2018   Nine months ended June 30, 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   $ 24,840     $ 191     1.03 %   $ 15,007     $ 68     0.61 %
Loans receivable   729,253     26,125     4.79 %   542,600     18,632     4.59 %
Interest bearing deposits   7,837     107     1.83 %   770     11     1.91 %
Investment securities (1)   113,662     1,834     2.34 %   85,910     1,249     2.28 %
Non-marketable equity securities, at cost   7,787     277     4.76 %   4,847     148     4.08 %
Total interest earning assets (1)   $ 883,379     $ 28,534     4.34 %   $ 649,134     $ 20,108     4.19 %
Average interest bearing liabilities:                        
Savings accounts   $ 95,293     $ 103     0.14 %   $ 45,342     $ 46     0.14 %
Demand deposits   150,262     333     0.30 %   50,439     194     0.51 %
Money market accounts   118,779     524     0.59 %   126,061     387     0.41 %
CD's   267,264     2,662     1.33 %   235,341     2,352     1.34 %
IRA's   33,883     262     1.03 %   27,861     225     1.08 %
Total deposits   $ 665,481     $ 3,884     0.78 %   $ 485,044     $ 3,204     0.88 %
FHLB advances and other borrowings   115,623     2,287     2.64 %   77,914     808     1.39 %
Total interest bearing liabilities   $ 781,104     $ 6,171     1.06 %   $ 562,958     $ 4,012     0.95 %
Net interest income       $ 22,363             $ 16,096      
Interest rate spread           3.29 %           3.24 %
Net interest margin (1)           3.41 %           3.36 %
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 nine months ended June 30, 2018 and June 30, 2017, respectively.   The FTE adjustment to net interest income included in the rate calculations totaled $159 and $214 for the nine months ended June 30, 2018 and June 30, 2017, respectively.

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

    June 30, 2018   March 31, 2018   September 30, 2017   June 30, 2017   To Be Well Capitalized Under
Prompt Corrective Action
Provisions
Total capital (to risk weighted assets)   12.8%   13.2%   13.2%   15.4%   10.0%
Tier 1 capital (to risk weighted assets)   11.9%   12.4%   12.4%   14.2%   8.0%
Common equity tier 1 capital (to risk weighted assets)   11.9%   12.4%   12.4%   14.2%   6.5%
Tier 1 leverage ratio (to adjusted total assets)   9.3%   9.3%   9.2%   10.3%   5.0%

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