• Citizens Community Bancorp, Inc. Reports Earnings Of $0.41 Per Share in 2Q22; Net Interest Margin Expands to 3.46%; Originated Loans Up 6.0% From Prior Quarter

    Source: Nasdaq GlobeNewswire / 25 Jul 2022 16:05:01   America/New_York

    EAU CLAIRE, Wisc., July 25, 2022 (GLOBE NEWSWIRE) -- Citizens Community Bancorp, Inc. (the “Company”) (Nasdaq: CZWI), the parent company of Citizens Community Federal N.A. (the “Bank” or “CCFBank”), today reported earnings of $4.4 million and earnings per diluted share of $0.41 for the quarter ended June 30, 2022, compared to $4.7 million and $0.45 per diluted share for the quarter ended March 31, 2022, and $4.7 million and $0.44 per diluted share for the quarter ended June 30, 2021, respectively. For the first six months of 2022, earnings were $9.1 million, or $0.86 per diluted share, compared to earnings of $10.2 million, or $0.94 per diluted share for the first six months of 2021.

    The Company’s second quarter 2022 operating results reflected the following changes from the first quarter of 2022: (1) net interest income increased $1.1 million; (2) an increase in provision for loan losses of $0.4 million due to loan growth; (3) lower gain on sale of loans of $0.3 million; (4) a decrease in the MSR impairment reversals of $0.5 million as a result of no MSR impairment at March 31, 2022 or June 30, 2022; and (5) modestly higher compensation resulting from the annual merit increases effective in late March.

    “We experienced strong annualized loan growth of 18% on a linked quarter basis and annualized loan growth through six months of 7%. At the end of the quarter, loan demand and pipeline activity showed some softening due to the effect of higher interest rates, inflation and supply chain delays on new construction projects, and our adjusted credit standards to prudently manage risk. Economic activity in our markets, however, remains strong with unemployment rates remaining below national averages and solid business activity across most industries. I am pleased by our work to closely manage expenses as evidenced by the efficiency ratio of 60% in the quarter,” said Stephen Bianchi, Chairman, President and Chief Executive Officer.

    Book value per share was $15.64 at June 30, 2022, compared to $15.72 at March 31, 2022, and $15.33 at June 30, 2021. Tangible book value per share (non-GAAP)1 was $12.36 at June 30, 2022, compared to $12.40 at March 31, 2022, and $11.95 at June 30, 2021. The increase in unrealized losses in the available for sale portfolio lowered both book and tangible book value in the first and second quarters, with the amount of the unrealized loss moderating in the second quarter. Net income and CDI amortization partially offset this unrealized loss impact.

    June 30, 2022 Highlights: (as of or for the 3-month period ended June 30, 2022 compared to March 31, 2022 and June 30, 2021.)

    • Quarterly earnings of $4.4 million, or $0.41 per diluted share for the quarter ended June 30, 2022, decreased from the quarter ended March 31, 2022, earnings of $4.7 million or $0.45 per diluted share, and decreased from the quarter ended June 30, 2021, earnings of $4.7 million or $0.44 per diluted share.

    • Earnings for the six months ended June 30, 2022 were $9.1 million, or $0.86 per share, which is a decrease from $10.2 million, or $0.94 per share, for the same period in the prior year. The Company grew net interest income despite lower SBA PPP net loan fee accretion. The decrease in earnings is largely due to lower gain on sale of loans and second quarter 2022 provision for loan losses.

    • Net interest income increased $1.1 million from the first quarter of 2022 and $1.4 million from the second quarter of 2021 to $14.3 million for the six months ended June 30, 2022.

    • The net interest margin without SBA PPP net loan fee accretion and loan purchase accretion has increased each quarter over the past five quarters. For the quarter ended June 30, 2022, the net interest margin without SBA PPP net loan fee accretion and loan purchase accretion was 3.29% compared to 2.81% for the year earlier quarter and 3.11% versus the linked quarter. The net interest margin benefited from: 1) the positive impact of nonaccrual loan payoffs and purchased loan credit impairment accretion; 2) increases in loan and investment yields due to both contractual repricing and higher coupons on new loans in excess of portfolio yield; and 3) lower deposit costs. These benefits were partially offset by lower SBA PPP net loan fee accretion and the full quarter impact of subordinated debt issued in early March 2022.

    • Interest expense on subordinated debt increased approximately $0.3 million in the second quarter from first quarter levels as the first full quarter of interest expense was realized. In the upcoming third quarter of 2022, the write-off of unamortized issuance costs, net of lower interest expense due to the call of the subordinated debt in August, will increase interest expense by approximately $50 thousand. Subordinated debt interest expense will decrease by approximately $250 thousand in the fourth quarter from second quarter levels as the existing subordinated debt is called and repaid in August.

    • The provision for loan losses for the quarter ended June 30, 2022 was $0.4 million due to loan growth. No loan loss provision was realized during the quarters ended March 31, 2022, June 30, 2021 and March 31, 2021, due to lower CARES Act Section 4013 deferrals, low net charge-off or low net recoveries, decreases in criticized assets and improving economic conditions in our markets.

    • Originated loans, net of SBA PPP loans, increased by $68.4 million during the second quarter of 2022, with strong originations in commercial real estate, commercial operating loans and strong construction loan growth due to loan fundings in our warmer weather construction season. As a result of current market conditions, some residential 10/1 ARM loans were added to the portfolio. The acquired loan portfolio declined $10.2 million. At June 30, 2022 there were no outstanding SBA PPP loans, as the remaining $2.1 million portfolio was repaid during the current quarter.

    • The allowance for loan losses on originated loans decreased to 1.37% at June 30, 2022, from 1.45% at March 31, 2022. Additionally, loans resulting from Bank acquisitions were effectively marked to market value at the time of their acquisition and were also excluded from this reserve calculation.

    • Nonperforming assets decreased $1.0 million to $12.6 million at June 30, 2022, compared to $13.6 million one quarter earlier primarily due to net reductions in nonperforming agricultural loans.

    • Substandard loans decreased modestly by $4.1 million to $20.7 million at June 30, 2022, compared to $24.8 million at March 31, 2022. The decrease was largely due to nonaccrual loan payoffs of $2.8 million and the upgrade of agricultural loans due to an increase in collateral underlying the loans.

    • In June 2022, the bank issued the required notice to call $15 million of 6.75% subordinated debt on August 10, 2022.

    • Stockholders’ equity as a percent of total assets was 9.34% at June 30, 2022, compared to 9.32% at March 31, 2022. Tangible common equity (“TCE”) as a percent of tangible assets (non-GAAP)1 was 7.53% at June 30, 2022, compared to 7.50% at March 31, 2022. The impact of an increase in unrealized losses in the available for sale portfolio was partially offset by net income and a modestly lower asset size.

    • In June 2022, the Company notified customers of the St. James, MN branch, with approximately $18.7 million in deposits, that the branch would close in September. To the extent possible, the deposit accounts will be consolidated into various nearby branches.

    Balance Sheet and Asset Quality
    Total assets decreased modestly by $11.9 million during the quarter to $1.76 billion at June 30, 2022, compared to $1.78 billion at March 31, 2022. This decrease was largely due to a reduction in cash and cash equivalents which shrank $52.6 million and supported loan growth of $56.7 million.

    Securities available for sale decreased $10.8 million during the quarter ended June 30, 2022, to $177.1 million from $187.9 million at March 31, 2022. This decrease was primarily due to a reduced market value of the portfolio of $7.3 million associated with higher interest rates. The remaining decrease was due to the net reduction of the portfolio due to principal repayments.

    Securities held to maturity decreased $5.6 million to $99.2 million during the quarter ended June 30, 2022, from $104.9 million at March 31, 2022, largely due to principal repayments.

    Total loans receivable increased to $1.347 billion at June 30, 2022, from $1.290 billion as of March 31, 2022. The originated loan portfolio, before SBA PPP loans, increased $68.4 million in the quarter. The growth was due to strong net new loan fundings and growth in the construction portfolio of $27.0 million due to strong building activity and related fundings. Acquired loans decreased by $10.2 million. SBA PPP loans decreased $2.1 million during the current quarter to $0 at June 30, 2022, as all SBA PPP loans were repaid.

    The allowance for loan losses remained at $16.8 million at June 30, 2022, representing 1.25% of total loans receivable compared to 1.30% of total loans receivable at March 31, 2022. The allowance for loan losses allocated to originated loans as a percentage of originated loans, net of deferred fees and costs, was 1.37% at June 30, 2022, compared to 1.45% at March 31, 2022. For the quarter ended June 30, 2022, the Bank had net charge offs of $393 thousand, the majority of which had a specific reserve at March 31, 2022 and did not impact the allowance for loan loss provision. Approximately 12.9% of the loan portfolio, at June 30, 2022, consists of loans purchased through whole bank acquisitions, resulting in these loans being recorded at fair market value at acquisition.

    Allowance for Loan Losses Percentages
    (in thousands, except ratios)

      June 30, 2022 March 31, 2022 December 31, 2021 June 30, 2021
    Originated loans, net of deferred fees and costs $1,174,701  $1,106,409  $1,107,555  $877,534 
    SBA PPP loans, net of deferred fees  —   2,032   8,457   71,508 
    Acquired loans, net of unamortized discount  172,154   181,734   194,951   232,516 
    Loans, end of period $1,346,855  $1,290,175  $1,310,963  $1,181,558 
    SBA PPP loans, net of deferred fees  —   (2,032)  (8,457)  (71,508)
    Loans, net of SBA PPP loans and deferred fees $1,346,855  $1,288,143  $1,302,506  $1,110,050 
    Allowance for loan losses allocated to originated loans $16,053  $16,001  $15,830  $15,059 
    Allowance for loan losses allocated to other loans  772   817   1,083   1,786 
    Allowance for loan losses $16,825  $16,818  $16,913  $16,845 
    ALL as a percentage of loans, end of period  1.25%  1.30%  1.29%  1.43%
    ALL as a percentage of loans, net of SBA PPP loans and deferred fees  1.25%  1.31%  1.30%  1.52%
    ALL allocated to originated loans as a percentage of originated loans, net of deferred fees and costs  1.37%  1.45%  1.43%  1.72%


    Nonperforming assets decreased to $12.6 million or 0.71% of total assets at June 30, 2022, compared to $13.6 million or 0.77% of total assets at March 31, 2022. This decrease was primarily due to the payoff of acquired non-accruing loans. Acquired nonaccrual loans decreased to $2.7 million at June 30, 2022 from $5.3 million at March 31, 2022. Originated nonperforming assets were $8.5 million, or 0.48% of total assets for the most recent quarter.

      (in thousands)
      June 30, 2022 March 31, 2022 December 31, 2021 September 30, 2021 June 30, 2021
    Special mention loan balances $17,274  $1,849  $4,536  $2,548  $12,308 
    Substandard loan balances  20,680   24,822   22,817   27,137   25,890 
    Criticized loans, end of period $37,954  $26,671  $27,353  $29,685  $38,198 


    Special mention loans increased $15.4 million, primarily due to the addition of two loans in the second quarter of 2022. One is a commercial real estate loan for $5.4 million secured by a hotel and has rebounded more slowly from the pandemic due to reliance on seasonal events and company meetings. Performance year to date and current bookings show good progress. The second special mention loan is a $10.4 million C&I fully secured working capital loan. Negotiations are ongoing with the borrower to improve the loan structure and performance of the business.

    Substandard loans decreased modestly by $4.1 million to $20.7 million at June 30, 2022, compared to $24.8 million at March 31, 2022. The decrease in the second quarter was largely due to nonaccrual loan payoffs of $2.8 million and the upgrade of agricultural loans due to an increase in collateral underlying the loans.

    Deposits decreased $28.0 million to $1.40 billion at June 30, 2022, from $1.43 billion at March 31, 2022. The decrease was largely due to a decline in certificate of deposit accounts and, to a lesser extent, expected decreases and reductions due to seasonal fluctuations in deposits. Certificate of deposit account balances decreased $19.5 million in the second quarter with some of those maturing deposits moving to money market accounts. The decrease in certificate of deposit account balances was due to the Company choosing not to match higher rate local retail certificate competition.

    The Company did not repurchase any shares in the second quarter. As of June 30, 2022, approximately 354 thousand shares remain available for repurchase under the current share repurchase authorization.

    Review of Operations
    Net interest income was $14.3 million for the second quarter ended June 30, 2022, compared to $13.2 million for the first quarter ended March 31, 2022, and $12.8 million for the quarter ended June 30, 2021. Compared to the first quarter of 2022 and second quarter of 2021, net interest income increased due to the growth in the loan and investment portfolios. “Net interest income was positively impacted by the contractual increase in loan and investment yields, the reduction in deposit yields, and interest income realized on nonaccrual loan payoffs of $0.40 million. Second quarter’s net interest income, exclusive of accelerated accretion from non-accrual loan payoffs and interest income on non-accrual loans, was approximately $13.5 million. We expect the net interest income in the 3rd and 4th quarters to increase from the adjusted $13.5 million net interest income level due to the combination of larger loan volume and, in the 4th quarter, savings on sub-debt repayments,” said Jim Broucek, Executive Vice President and Chief Financial Officer.

    The net interest margin (“NIM”) increased to 3.46% in the second quarter ended June 30, 2022, compared to 3.25% for the first quarter ended March 31, 2022, and increased from 3.22% for the quarter ended June 30, 2021.

    The table below shows the impact of accretion related to purchased credit impaired loans and SBA PPP net loan fees on interest income and NIM.

    Net interest income and net interest margin analysis:
    (in thousands, except yields and rates)

      Three months ended
      June 30, 2022 March 31, 2022 December 31, 2021 September 30, 2021 June 30, 2021
      Net
    Interest
    Income    		 Net
    Interest
    Margin    		 Net
    Interest
    Income    		 Net
    Interest
    Margin    		 Net
    Interest
    Income    		 Net
    Interest
    Margin    		 Net
    Interest
    Income    		 Net
    Interest
    Margin    		 Net
    Interest
    Income    		 Net
    Interest
    Margin
    As reported $14,267  3.46% $13,167  3.25% $14,384  3.50% $13,688  3.34% $12,831  3.22%
    Less non-accretable difference realized as interest from payoff of purchased credit impaired (“PCI”) loans $(70) (0.02)% $(26) (0.01)% $(2) —% $(8) —% $(37) (0.01)%
    Less accelerated accretion from payoff of certain PCI loans with transferred non-accretable differences $(308) (0.08)% $(11) —% $(200) (0.05)% $(12) —% $—  —%
    Less scheduled accretion interest $(255) (0.06)% $(264) (0.07)% $(264) (0.06)% $(261) (0.06)% $(265) (0.07)%
    Without loan purchase accretion $13,634  3.30% $12,866  3.17% $13,918  3.39% $13,407  3.28% $12,529  3.14%
    Less SBA PPP net loan fee accretion $(39) (0.01)% $(259) (0.06)% $(1,251) (0.30)% $(1,878) (0.46)% $(1,309) (0.33)%
    Without SBA PPP net loan fee accretion and loan purchase accretion $13,595  3.29% $12,607  3.11% $12,667  3.09% $11,529  2.82% $11,220  2.81%


    The Bank continued to manage deposit interest rates, primarily as maturing certificate of deposit accounts were rolled into lower-costing money market accounts. In the second quarter, the Company’s overall CD portfolio cost of funds decreased 50 basis points from the first quarter of 2022 and 78 basis points from the second quarter of 2021. At June 30, 2022, the Bank had approximately $39.5 million of certificate of deposit accounts (“CD’s”) maturing in the third quarter of 2022 with a weighted average cost of approximately 0.91%.

    Loan loss provisions for the quarter ended June 30, 2022, were $0.4 million. Based on loan growth alone, the provision would have been $0.950 million. However, upgrades in the classification of substandard loans, due to improving collateral positions and loan payoffs with $0.55 million of specific reserves at March 31, 2022, partially offset the provision due to growth. In addition, the majority of the second quarter charge-offs of $0.4 million had been provided for in previous quarters, and the charge-offs reduced specific reserves. There were no loan loss provisions for the quarters ended March 31, 2022, June 30, 2021 or March 31, 2021. Continued improving economic conditions in our markets, as evidenced by unemployment rates below the national average in our two largest population centers, have resulted in improving overall economic trends for businesses.

    Non-interest income decreased to $2.4 million in the quarter ended June 30, 2022, compared to $2.7 million in the quarter ended March 31, 2022 and $3.8 million in the quarter ended June 30, 2021. The decrease in the second quarter of 2022 compared to the first quarter of 2022 was largely due to a decrease in gain on sale of loans of $0.3 million largely due to lower mortgage originations. Loan servicing income and loan fees and service charges were also lower. Relative to the comparable quarter one year earlier, non-interest income was lower as a result of the following factors: (1) lower gain on sale of loans; (2) lower loan servicing income; and (3) lower loan fees and service charges.

    Total non-interest expense increased $0.8 million in the second quarter of 2022 to $10.5 million, compared to $9.7 million for the quarter ended March 31, 2022, and increased from $10.2 million for the quarter ended June 30, 2021. The increase from the first quarter of 2022 was largely due to an increase in MSR expenses of $0.52 million and an increase in compensation of $0.2 million largely due to the impact of annual merit increases in late March. Expenses in the first quarter of 2022 reflected an MSR impairment reversal of $0.57 million. The increase from the second quarter of 2021 of $0.3 million was largely due to the 2022 merit increases and new market tax credit depletion of $0.2 million. In the first quarter of 2022, the Company purchased new market tax credits for $4.1 million. These tax credits, which are included in other assets, are being expensed in lock step with the related tax credit realization and will result in a lower tax rate.

    Provision for income taxes decreased to $1.4 million in the second quarter of 2022 from $1.5 million in the first quarter of 2022. The provision for income taxes also decreased to $2.9 million for the first six months of 2022 from $3.7 million for the first six months of 2021. Both decreases are due to lower pre-tax income and a lower tax rate due to the impact of the tax credits noted above. The tax credits are expected to be realized over the next seven years. The effective tax rate was 24.4% in the second quarter of 2022, compared to 24.2% the previous quarter and 26.8% for the comparable prior year quarter. The effective tax rate for the first half of 2022 was 24.3% compared to 26.4% for the same period in the prior year.

    These financial results are preliminary until the Form 10-Q is filed in August 2022.

    About the Company
    Citizens Community Bancorp, Inc. (NASDAQ: “CZWI”) is the holding company of the Bank, a national bank based in Altoona, Wisconsin, currently serving customers primarily in Wisconsin and Minnesota through 25 branch locations. Its primary markets include the Chippewa Valley Region in Wisconsin, the Twin Cities and Mankato markets in Minnesota, and various rural communities around these areas. The Bank offers traditional community banking services to businesses, ag operators and consumers, including residential mortgage loans.

    Cautionary Statement Regarding Forward-Looking Statements
    Certain statements contained in this release are considered “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may be identified using forward-looking words or phrases such as “anticipate,” “believe,” “could,” “expect,” “estimates,” “intend,” “may,” “on pace,” “preliminary,” “planned,” “potential,” “should,” “will,” “would” or the negative of those terms or other words of similar meaning. Such forward-looking statements in this release are inherently subject to many uncertainties arising in the operations and business environment of the Company and the Bank. These uncertainties include conditions in the financial markets and economic conditions generally; adverse impacts to the Company or Bank arising from the COVID-19 pandemic; acts of terrorism and political or military actions by the United States or other governments; the possibility of a deterioration in the residential real estate markets; interest rate risk; lending risk; higher lending risks associated with our commercial and agricultural banking activities; the sufficiency of loan allowances; changes in the fair value or ratings downgrades of our securities; competitive pressures among depository and other financial institutions; disintermediation risk; our ability to maintain our reputation; our ability to maintain or increase our market share; our ability to realize the benefits of net deferred tax assets; our inability to obtain needed liquidity; our ability to raise capital needed to fund growth or meet regulatory requirements; our ability to attract and retain key personnel; our ability to keep pace with technological change; prevalence of fraud and other financial crimes; cybersecurity risks; the possibility that our internal controls and procedures could fail or be circumvented; our ability to successfully execute our acquisition growth strategy; risks posed by acquisitions and other expansion opportunities, including difficulties and delays in integrating the acquired business operations or fully realizing the cost savings and other benefits; restrictions on our ability to pay dividends; the potential volatility of our stock price; accounting standards for loan losses; legislative or regulatory changes or actions, or significant litigation, adversely affecting the Company or Bank; public company reporting obligations; changes in federal or state tax laws; and changes in accounting principles, policies or guidelines and their impact on financial performance. Stockholders, potential investors, and other readers are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. Such uncertainties and other risks that may affect the Company’s performance are discussed further in Part I, Item 1A, “Risk Factors,” in the Company’s Form 10-K, for the year ended December 31, 2021, filed with the Securities and Exchange Commission (“SEC”) on March 2, 2022 and the Company’s subsequent filings with the SEC. The Company undertakes no obligation to make any revisions to the forward-looking statements contained in this news release or to update them to reflect events or circumstances occurring after the date of this release.

    Non-GAAP Financial Measures
    This press release contains non-GAAP financial measures, such as tangible book value, tangible book value per share, tangible common equity as a percent of tangible assets and return on average tangible common equity which management believes may be helpful in understanding the Company’s results of operations or financial position and comparing results over different periods.

    Tangible book value, tangible book value per share, tangible common equity as a percent of tangible assets and return on average tangible common equity are non-GAAP measures that eliminate the impact of goodwill, and intangible assets on our financial position. Management believes these measures are useful in assessing the strength of our financial position.

    Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as the reconciliation to the comparable GAAP financial measure, can be found in this press release. These disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other banks and financial institutions.

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

    (CZWI-ER)


    CITIZENS COMMUNITY BANCORP, INC.
    Consolidated Balance Sheets
    (in thousands, except shares and per share data)

      June 30, 2022
    (unaudited)    		 March 31, 2022
    (unaudited)    		 December 31, 2021
    (audited)    		 June 30, 2021
    (unaudited)
    Assets        
    Cash and cash equivalents $31,743  $84,364  $47,691  $128,440 
    Other interest-bearing deposits  1,505   1,511   1,511   1,512 
    Securities available for sale “AFS”  177,068   187,905   203,068   243,746 
    Securities held to maturity “HTM”  99,249   104,894   71,141   59,582 
    Equity investments  1,365   1,291   1,328   297 
    Other investments  14,899   15,084   15,305   14,966 
    Loans receivable  1,346,855   1,290,176   1,310,963   1,181,558 
    Allowance for loan losses  (16,825)  (16,818)  (16,913)  (16,845)
    Loans receivable, net  1,330,030   1,273,358   1,294,050   1,164,713 
    Loans held for sale  1,172   2,528   6,670   3,109 
    Mortgage servicing rights, net  4,520   4,614   4,161   3,862 
    Office properties and equipment, net  21,589   21,393   21,169   21,121 
    Accrued interest receivable  4,243   4,179   3,916   4,898 
    Intangible assets  3,100   3,499   3,898   4,696 
    Goodwill  31,498   31,498   31,498   31,498 
    Foreclosed and repossessed assets, net  1,437   1,368   1,408   145 
    Bank owned life insurance (“BOLI”)  24,622   24,464   24,312   23,991 
    Other assets  15,567   13,519   8,502   7,896 
    TOTAL ASSETS $1,763,607  $1,775,469  $1,739,628  $1,714,472 
    Liabilities and Stockholders’ Equity        
    Liabilities:        
    Deposits $1,400,210  $1,428,223  $1,387,535  $1,371,226 
    Federal Home Loan Bank (“FHLB”) advances  102,030   85,530   111,527   111,496 
    Other borrowings  87,124   87,062   58,426   58,380 
    Other liabilities  9,500   9,160   11,274   9,354 
    Total liabilities  1,598,864   1,609,975   1,568,762   1,550,456 
    Stockholders’ equity:        
    Common stock— $0.01 par value, authorized 30,000,000; 10,530,415, 10,526,781 10,502,442, and 10,696,075 shares issued and outstanding, respectively  105   105   105   107 
    Additional paid-in capital  119,987   119,789   119,925   121,732 
    Retained earnings  56,928   52,562   50,675   40,117 
    Accumulated other comprehensive (loss) income  (12,277)  (6,962)  161   2,060 
    Total stockholders’ equity  164,743   165,494   170,866   164,016 
    TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $1,763,607  $1,775,469  $1,739,628  $1,714,472 


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



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

      Three Months Ended Six Months Ended
      June 30, 2022
    (unaudited)    		 March 31, 2022
    (unaudited)    		 June 30, 2021
    (unaudited)    		 June 30, 2022
    (unaudited)    		 June 30, 2021
    (unaudited)
    Interest and dividend income:          
    Interest and fees on loans $14,893  $13,767  $13,960  $28,660  $28,477 
    Interest on investments  1,810   1,609   1,518   3,419   2,621 
    Total interest and dividend income  16,703   15,376   15,478   32,079   31,098 
    Interest expense:          
    Interest on deposits  985   1,068   1,521   2,053   3,235 
    Interest on FHLB borrowed funds  297   311   384   608   795 
    Interest on other borrowed funds  1,154   830   742   1,984   1,473 
    Total interest expense  2,436   2,209   2,647   4,645   5,503 
    Net interest income before provision for loan losses  14,267   13,167   12,831   27,434   25,595 
    Provision for loan losses  400   —   —   400   — 
    Net interest income after provision for loan losses  13,867   13,167   12,831   27,034   25,595 
    Non-interest income:          
    Service charges on deposit accounts  482   488   395   970   793 
    Interchange income  614   549   647   1,163   1,177 
    Loan servicing income  600   701   825   1,301   1,718 
    Gain on sale of loans  414   722   1,522   1,136   3,117 
    Loan fees and service charges  141   92   151   233   429 
    Net (losses) gains on investment securities  (75)  (37)  37   (112)  272 
    Other  196   198   216   394   463 
    Total non-interest income  2,372   2,713   3,793   5,085   7,969 
    Non-interest expense:          
    Compensation and related benefits  5,589   5,398   5,449   10,987   11,018 
    Occupancy  1,343   1,365   1,314   2,708   2,630 
    Data processing  1,415   1,301   1,422   2,716   2,792 
    Amortization of intangible assets  399   399   399   798   798 
    Mortgage servicing rights expense, net  195   (327)  441   (132)  (9)
    Advertising, marketing and public relations  250   212   194   462   357 
    FDIC premium assessment  118   115   82   233   247 
    Professional services  368   402   362   770   864 
    Gains on repossessed assets, net  (2)  (7)  (29)  (9)  (146)
    New market tax credit depletion  162   163   —   325   — 
    Other  625   647   564   1,272   1,136 
    Total non-interest expense  10,462   9,668   10,198   20,130   19,687 
    Income before provision for income taxes  5,777   6,212   6,426   11,989   13,877 
    Provision for income taxes  1,411   1,506   1,720   2,917   3,665 
    Net income attributable to common stockholders $4,366  $4,706  $4,706  $9,072  $10,212 
    Per share information:          
    Basic earnings $0.41  $0.45  $0.44  $0.86  $0.94 
    Diluted earnings $0.41  $0.45  $0.44  $0.86  $0.94 
    Cash dividends paid $—  $0.26  $—  $0.26  $0.23 
    Book value per share at end of period $15.64  $15.72  $15.33  $15.64  $15.33 
    Tangible book value per share at end of period (non-GAAP) $12.36  $12.40  $11.95  $12.36  $11.95 


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



    Loan Composition (in thousands) June 30, 2022 March 31, 2022 December 31, 2021 June 30, 2021
    Originated Loans:        
    Commercial/Agricultural real estate:        
    Commercial real estate $596,001  $575,289  $578,395  $420,565 
    Agricultural real estate  57,323   52,683   52,372   42,925 
    Multi-family real estate  175,964   175,471   174,050   113,790 
    Construction and land development  114,017   86,997   78,613   89,586 
    C&I/Agricultural operating:        
    Commercial and industrial  124,113   108,422   107,937   80,783 
    Agricultural operating  20,287   24,020   26,202   23,014 
    Residential mortgage:        
    Residential mortgage  65,707   59,875   63,855   72,965 
    Purchased HELOC loans  3,419   3,487   3,871   4,949 
    Consumer installment:        
    Originated indirect paper  12,736   14,508   15,971   20,377 
    Other consumer  7,472   7,842   8,473   10,296 
    Originated loans before SBA PPP loans  1,177,039   1,108,594   1,109,739   879,250 
    SBA PPP loans  —   2,071   8,755   74,925 
    Total originated loans $1,177,039  $1,110,665  $1,118,494  $954,175 
    Acquired Loans:        
    Commercial/Agricultural real estate:        
    Commercial real estate $106,916  $114,485  $120,070  $139,497 
    Agricultural real estate  20,484   23,033   26,123   29,740 
    Multi-family real estate  3,965   4,016   4,299   7,401 
    Construction and land development  1,171   883   907   1,202 
    C&I/Agricultural operating:        
    Commercial and industrial  14,889   12,600   14,230   19,701 
    Agricultural operating  4,182   4,737   5,386   4,893 
    Residential mortgage:        
    Residential mortgage  22,868   24,898   27,135   33,781 
    Consumer installment:        
    Other consumer  313   349   401   648 
    Total acquired loans $174,788  $185,001  $198,551  $236,863 
    Total Loans:        
    Commercial/Agricultural real estate:        
    Commercial real estate $702,917  $689,774  $698,465  $560,062 
    Agricultural real estate  77,807   75,716   78,495   72,665 
    Multi-family real estate  179,929   179,487   178,349   121,191 
    Construction and land development  115,188   87,880   79,520   90,788 
    C&I/Agricultural operating:        
    Commercial and industrial  139,002   121,022   122,167   100,484 
    Agricultural operating  24,469   28,757   31,588   27,907 
    Residential mortgage:        
    Residential mortgage  88,575   84,773   90,990   106,746 
    Purchased HELOC loans  3,419   3,487   3,871   4,949 
    Consumer installment:        
    Originated indirect paper  12,736   14,508   15,971   20,377 
    Other consumer  7,785   8,191   8,874   10,944 
    Gross loans before SBA PPP loans  1,351,827   1,293,595   1,308,290   1,116,113 
    SBA PPP loans  —   2,071   8,755   74,925 
    Gross loans $1,351,827  $1,295,666  $1,317,045  $1,191,038 
    Unearned net deferred fees and costs and loans in process  (2,338)  (2,223)  (2,482)  (5,133)
    Unamortized discount on acquired loans  (2,634)  (3,267)  (3,600)  (4,347)
    Total loans receivable $1,346,855  $1,290,176  $1,310,963  $1,181,558 



    Nonperforming Originated and Acquired Assets
    (in thousands, except ratios)

      June 30, 2022 March 31, 2022 December 31, 2021 June 30, 2021
    Nonperforming assets:        
    Originated nonperforming assets:        
    Nonaccrual loans $7,770  $6,602  $6,448  $2,420 
    Accruing loans past due 90 days or more  700   398   63   88 
    Total originated nonperforming loans (“NPL”)  8,470   7,000   6,511   2,508 
    Other real estate owned (“OREO”)  —   —   —   — 
    Other collateral owned  10   8   2   16 
    Total originated nonperforming assets (“NPAs”) $8,480  $7,008  $6,513  $2,524 
    Acquired nonperforming assets:        
    Nonaccrual loans $2,664  $5,256  $5,217  $5,655 
    Accruing loans past due 90 days or more  14   —   97   454 
    Total acquired nonperforming loans (“NPL”)  2,678   5,256   5,314   6,109 
    Other real estate owned (“OREO”)  1,427   1,360   1,406   129 
    Other collateral owned  —   —   —   — 
    Total acquired nonperforming assets (“NPAs”) $4,105  $6,616  $6,720  $6,238 
    Total nonperforming assets (“NPAs”) $12,585  $13,624  $13,233  $8,762 
    Loans, end of period $1,346,855  $1,290,176  $1,310,963  $1,181,558 
    Total assets, end of period $1,763,607  $1,775,469  $1,739,628  $1,714,472 
    Ratios:        
    Originated NPLs to total loans  0.63%  0.54%  0.50%  0.21%
    Acquired NPLs to total loans  0.20%  0.41%  0.41%  0.52%
    Originated NPAs to total assets  0.48%  0.40%  0.37%  0.15%
    Acquired NPAs to total assets  0.23%  0.37%  0.39%  0.36%



    Nonperforming Assets
    (in thousand, except ratios)

      June 30, 2022 March 31, 2022 December 31, 2021 June 30, 2021
    Nonperforming assets:        
    Nonaccrual loans        
    Commercial real estate $5,275  $5,503  $5,374  $1,027 
    Agricultural real estate  3,169   3,454   3,490   3,716 
    Construction and land development  43   129   —   — 
    Commercial and industrial (“C&I”)  211   284   298   313 
    Agricultural operating  555   1,064   993   1,163 
    Residential mortgage  1,122   1,334   1,433   1,768 
    Consumer installment  59   90   77   88 
    Total nonaccrual loans $10,434  $11,858  $11,665  $8,075 
    Accruing loans past due 90 days or more  714   398   160   542 
    Total nonperforming loans (“NPLs”)  11,148   12,256   11,825   8,617 
    Foreclosed and repossessed assets, net  1,437   1,368   1,408   145 
    Total nonperforming assets (“NPAs”) $12,585  $13,624  $13,233  $8,762 
    Troubled Debt Restructurings (“TDRs”) $8,712  $10,231  $12,523  $16,597 
    Nonaccrual TDRs $2,549  $4,586  $4,539  $4,861 
    Loans, end of period $1,346,855  $1,290,176  $1,310,963  $1,181,558 
    Total assets, end of period $1,763,607  $1,775,469  $1,739,628  $1,714,472 
    Ratios:        
    NPLs to total loans  0.83%  0.95%  0.90%  0.73%
    NPAs to total assets  0.71%  0.77%  0.76%  0.51%



    Deposit Composition
    (in thousands)

      June 30, 2022 March 31, 2022 December 31, 2021 June 30, 2021
    Non-interest bearing demand deposits $276,815  $269,481  $276,631  $253,097 
    Interest bearing demand deposits  401,857   423,251   396,231   375,005 
    Savings accounts  239,322   241,072   222,674   220,698 
    Money market accounts  328,718   321,409   288,985   263,390 
    Certificate accounts  153,498   173,010   203,014   259,036 
    Total deposits $1,400,210  $1,428,223  $1,387,535  $1,371,226 



    Average Balances, Interest Yields and Rates
    (in thousands, except yields and rates)

      Three months ended
    June 30, 2022    		 Three months ended
    March 31, 2022    		 Three months ended
    June 30, 2021
      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 $25,195 $43 0.68% $35,208 $13 0.15% $113,561 $28 0.10%
    Loans receivable  1,328,661  14,893 4.50%  1,304,141  13,767 4.28%  1,186,439  13,960 4.72%
    Interest bearing deposits  1,509  8 2.13%  1,511  8 2.15%  1,754  9 2.06%
    Investment securities (1)  285,332  1,593 2.23%  288,261  1,416 1.99%  283,557  1,308 1.85%
    Other investments  14,969  166 4.45%  15,258  172 4.57%  15,020  173 4.62%
    Total interest earning assets (1) $1,655,666 $16,703 4.05% $1,644,379 $15,376 3.79% $1,600,331 $15,478 3.88%
    Average interest bearing liabilities:                  
    Savings accounts $230,784 $125 0.22% $224,557 $94 0.17% $219,804 $99 0.18%
    Demand deposits  410,468  300 0.29%  410,890  217 0.21%  360,314  257 0.29%
    Money market accounts  323,907  287 0.36%  299,004  216 0.29%  258,638  182 0.28%
    CD’s  134,338  223 0.67%  161,203  464 1.17%  240,224  868 1.45%
    IRA’s  35,701  50 0.56%  37,067  77 0.84%  39,970  115 1.15%
    Total deposits $1,135,198 $985 0.35% $1,132,721 $1,068 0.38% $1,118,950 $1,521 0.55%
    FHLB advances and other borrowings  186,050  1,451 3.13%  166,118  1,141 2.79%  171,261  1,126 2.64%
    Total interest bearing liabilities $1,321,248 $2,436 0.74% $1,298,839 $2,209 0.69% $1,290,211 $2,647 0.82%
    Net interest income   $14,267     $13,167     $12,831  
    Interest rate spread     3.31%     3.10%     3.06%
    Net interest margin (1)     3.46%     3.25%     3.22%
    Average interest earning assets to average interest bearing liabilities     1.25      1.27      1.24 


    (1) Fully taxable equivalent (FTE). The average yield on tax exempt securities is computed on a tax equivalent basis using a tax rate of 21% for the quarters ended June 30, 2022, March 31, 2022 and June 30, 2021. The FTE adjustment to net interest income included in the rate calculations totaled $0, $1 and $1 thousand for the three months ended June 30, 2022, March 31, 2022 and June 30, 2021, respectively.



      Six months ended June 30, 2022 Six months ended June 30, 2021
      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 $30,174 $56 0.37% $121,557 $57 0.09%
    Loans receivable  1,316,469  28,660 4.39%  1,199,925  28,477 4.79%
    Interest bearing deposits  1,510  15 2.00%  2,591  29 2.26%
    Investment securities (1)  286,789  3,009 2.10%  243,492  2,193 1.82%
    Other investments  15,112  339 4.52%  15,029  342 4.59%
    Total interest earning assets (1) $1,650,054 $32,079 3.92% $1,582,594 $31,098 3.96%
    Average interest bearing liabilities:            
    Savings accounts $227,687 $219 0.19% $208,787 $182 0.18%
    Demand deposits  410,678  517 0.25%  345,576  507 0.30%
    Money market accounts  311,524  503 0.33%  256,391  384 0.30%
    CD’s  147,696  687 0.94%  253,063  1,911 1.52%
    IRA’s  36,381  127 0.70%  40,421  251 1.25%
    Total deposits $1,133,966 $2,053 0.37% $1,104,238 $3,235 0.59%
    FHLB advances and other borrowings  176,139  2,592 2.97%  175,922  2,268 2.60%
    Total interest bearing liabilities $1,310,105 $4,645 0.71% $1,280,160 $5,503 0.87%
    Net interest income   $27,434     $25,595  
    Interest rate spread     3.21%     3.09%
    Net interest margin (1)     3.35%     3.26%
    Average interest earning assets to average interest bearing liabilities     1.26      1.24 


    (1) Fully taxable equivalent (FTE). The average yield on tax exempt securities is computed on a tax equivalent basis using a tax rate of 21% for the six months ended June 30, 2022 and June 30, 2021. The FTE adjustment to net interest income included in the rate calculations totaled $1 and $2 thousand for the six months ended June 30, 2022 and June 30, 2021, respectively.



    The following table reports key financial metric ratios based on a net income basis:

      Three Months Ended Six Months Ended
      June 30, 2022 March 31, 2022 June 30, 2021 June 30, 2022 June 30, 2021
    Ratios based on net income:          
    Return on average assets (annualized) 0.99% 1.09% 1.10% 1.04% 1.22%
    Return on average equity (annualized) 10.63% 11.38% 11.63% 11.00% 12.78%
    Return on average tangible common equity1 (annualized) 14.41% 15.32% 15.91% 14.85% 17.48%
    Efficiency ratio 60% 58% 59% 59% 57%
    Net interest margin with loan purchase accretion 3.46% 3.25% 3.22% 3.35% 3.26%
    Net interest margin without loan purchase accretion 3.30% 3.17% 3.14% 3.24% 3.17%



    Reconciliation of tangible book value per share (non-GAAP)
    (in thousands, except per share data)

    Tangible book value per share at end of period June 30, 2022 March 31, 2022 June 30, 2021
    Total stockholders’ equity $164,743  $165,494  $164,016 
    Less: Goodwill  (31,498)  (31,498)  (31,498)
    Less: Intangible assets  (3,100)  (3,499)  (4,696)
    Tangible common equity (non-GAAP) $130,145  $130,497  $127,822 
    Ending common shares outstanding  10,530,415   10,526,781   10,696,075 
    Book value per share $15.64  $15.72  $15.33 
    Tangible book value per share (non-GAAP) $12.36  $12.40  $11.95 



    Reconciliation of tangible common equity as a percent of tangible assets (non-GAAP)
    (in thousands, except ratios)

    Tangible common equity as a percent of tangible assets at end of period  June 30, 2022 March 31, 2022 June 30, 2021
    Total stockholders’ equity $164,743  $165,494  $164,016 
    Less: Goodwill  (31,498)  (31,498)  (31,498)
    Less: Intangible assets  (3,100)  (3,499)  (4,696)
    Tangible common equity (non-GAAP) $130,145  $130,497  $127,822 
    Total Assets $1,763,607  $1,775,469  $1,714,472 
    Less: Goodwill  (31,498)  (31,498)  (31,498)
    Less: Intangible assets  (3,100)  (3,499)  (4,696)
    Tangible Assets (non-GAAP) $1,729,009  $1,740,472  $1,678,278 
    Total stockholders’ equity to total assets ratio  9.34%  9.32%  9.57%
    Tangible common equity as a percent of tangible assets (non-GAAP)  7.53%  7.50%  7.62%



    Reconciliation of Return on Average Tangible Common Equity (non-GAAP)
    (in thousands, except ratios)

      Three Months Ended Six Months Ended
      June 30, 2022 March 31, 2022 June 30, 2021 June 30, 2022 June 30, 2021
    Total stockholders’ equity $164,743  $165,494  $164,016  $164,743  $164,016 
    Less: Goodwill  (31,498)  (31,498)  (31,498)  (31,498)  (31,498)
    Less: Intangible assets  (3,100)  (3,499)  (4,696)  (3,100)  (4,696)
    Tangible common equity (non-GAAP) $130,145  $130,497  $127,822  $130,145  $127,822 
    Average tangible common equity (non-GAAP) $129,939  $132,550  $125,967  $131,351  $124,593 
    GAAP earnings after income taxes $4,366  $4,706  $4,706  $9,072  $10,212 
    Amortization of intangible assets, net of tax  302   302   292   604   587 
    Tangible net income $4,668  $5,008  $4,998  $9,676  $10,799 
    Return on average tangible common equity (annualized)  14.41%  15.32%  15.91%  14.85%  17.48%



    Reconciliation of Efficiency Ratio
    (in thousands, except ratios)

     Three Months Ended Six Months Ended
     June 30, 2022 March 31, 2022 June 30, 2021 June 30, 2022 June 30, 2021
    Non-interest expense (GAAP)$10,462  $9,668  $10,198  $20,130  $19,687 
    Less amortization of intangibles (399)  (399)  (399)  (798)  (798)
    Efficiency ratio numerator (GAAP)$10,063  $9,269  $9,799  $19,332  $18,889 
              
    Non-interest income$2,372  $2,713  $3,793  $5,085  $7,969 
    Loss (Gain) on investment securities 75   37   (37)  112   (272)
    Net interest margin 14,267   13,167   12,831   27,434   25,595 
    Efficiency ratio denominator (GAAP)$16,714  $15,917  $16,587  $32,631  $33,292 
    Efficiency ratio (GAAP) 60%  58%  59%  59%  57%


    1    Tangible book value, tangible book value per share, tangible common equity as a percent of tangible assets and return on tangible common equity are non-GAAP measures that management believes enhances investors’ ability to better understand the Company’s financial position. For a detailed reconciliation of GAAP to non-GAAP results, see the accompanying financial table “Reconciliation of tangible book value per share (non-GAAP)”, “Reconciliation of tangible common equity as a percent of tangible assets (non-GAAP)”, and “Reconciliation of return on average tangible common equity)”.


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