Citizens Community Bancorp, Inc. Reports Earnings of $0.31 Per Share in 2Q23; Tangible Book Value Increases, Specific Reserve Declines

EAU CLAIRE, Wis., July 24, 2023 (GLOBE NEWSWIRE) -- Citizens Community Bancorp, Inc. (the “Company”) ( CZWI), the parent company of Citizens Community Federal N.A. (the “Bank” or “CCFBank”), today reported earnings of $3.2 million and earnings per diluted share of $0.31 for the quarter ended June 30, 2023, compared to $3.7 million and $0.35 per diluted share for the quarter ended March 31, 2023, and $4.4 million and $0.41 per diluted share for the quarter ended June 30, 2022, respectively. For the first six months of 2023, earnings were $6.9 million, or $0.66 per diluted share, compared to earnings of $9.1 million, or $0.86 per diluted share for the first six months of 2022.

The Company’s second quarter 2023 operating results reflected the following changes from the first quarter of 2023: (1) lower net interest income due to the impact of higher deposit liability costs, partially offset by higher asset yields due to loan and security repricing and the addition of new loans; (2) increased provision for credit losses primarily due to the forecasted worsening economic scenario, partially offset by reductions in specific reserves; (3) $0.6 million higher non-interest income, primarily due to higher gains on sale of loans; (4) $0.3 million lower non-interest expense; and (5) a decline in specific reserves due to the repayment in full of 2 loans with specific reserves totaling $0.5 million and collateral improvement, which reduced specific reserves by an additional $0.4 million.

“We continue efforts to improve franchise value not withstanding a challenging economic climate and yield curve inversion. During the second quarter, we expanded our tangible book value per share and tangible common equity to assets ratio. Operationally, we continue to control expenses to lessen the impact of net interest margin compression and its impact on our efficiency ratio,” stated Stephen Bianchi, Chairman, President, and Chief Executive Officer. “Asset quality measures in aggregate remained healthy, specific reserves declined during the quarter and the allowance for credit losses stood at 1.63% of total loans.”

Book value per share was $15.81 at June 30, 2023, compared to $15.70 at March 31, 2023, and $15.64 at June 30, 2022. Tangible book value per share (non-GAAP)¹ was $12.61 at June 30, 2023, compared to $12.48 at March 31, 2023, and $12.36 at June 30, 2022. For the quarter, tangible book value was positively influenced by net income and intangible amortization, partially offset by higher accumulated other comprehensive loss on investment securities.

June 30, 2023 Highlights: (as of or for the 3-month period ended June 30, 2023 compared to March 31, 2023 and June 30, 2022.)

• Quarterly earnings of $3.2 million, or $0.31 per diluted share for the quarter ended June 30, 2023, decreased from the quarter ended March 31, 2023, earnings of $3.7 million or $0.35 per diluted share, and decreased from the quarter ended June 30, 2022, earnings of $4.4 million or $0.41 per diluted share. During the quarters reported, net income as adjusted is not reported as nothing occurred for which adjustments to earnings would better reflect performance.
• Earnings for the six months ended June 30, 2023, were $6.9 million, or $0.66 per diluted share, which is a decrease from $9.1 million, or $0.86 per diluted share, for the same period in the prior year.
• Net interest income decreased $1.1 million to $11.7 million for the quarter ended June 30, 2023, from $12.8 million the previous quarter and decreased $2.6 million from the second quarter of 2022. The decrease in net interest income and net interest margin from first quarter 2023 is due to the change in the deposit mix to higher yielding CD’s, an increase in indexed municipal deposits rates and other customer rate increases more than offsetting the 20 basis point increase in asset yields.
• The net interest margin without loan purchase accretion and SBA PPP net loan fee accretion was 2.69% for the quarter ended June 30, 2023, compared to 2.99% for the previous quarter and 3.29% for the comparable quarter one year earlier.
• The second quarter provision for credit losses was $0.45 million due to the impact of forecasted future worsening economic conditions and modest loan growth partially offset by reductions in specific reserves of $0.9 million, compared to $0.05 million for the preceding quarter. A provision of $0.40 million was recorded during the second quarter a year ago due to loan growth.
• The efficiency ratio was flat at 66% for the quarter ended June 30, 2023, compared to the quarter ended March 31, 2023, as higher non-interest income and lower non-interest expense offset the impact of lower net interest income.
• Gross loans increased by $4.0 million during the second quarter of 2023. As a result of the current interest rate environment, residential 10/1 ARM loan originations were added to the portfolio which resulted in residential mortgage loan growth of $9.3 million. New construction funding was more than offset by a $20 million loan payoff as the construction period ended and other construction loans converted to permanent financing.
• Nonperforming assets were $17.4 million at June 30, 2023, compared to $11.7 million at March 31, 2023.
• Substandard loans increased by $3.8 million to $19.2 million at June 30, 2023, compared to $15.4 million at March 31, 2023. This increase was due to the movement from special mention of a $5.4 million hotel loan which, while current on its payments, has not fully recovered from the negative impact of the pandemic resulting in lower business travel, partially offset by nonaccrual substandard loan payoffs.
• Special mention loans increased $4.6 million. Special mention loans reflect the addition of a $9.6 million relationship offset by movement of the $5.4 million hotel from special mention to substandard. The $9.6 million relationship is a commercial business, secured by real estate, where the underlying business performance is weaker than forecasted, but the collateral position is strong.
• Specific reserves declined $0.95 million as agricultural real estate and commercial and industrial loans with specific reserves repaid in full. No new specific reserves were necessary on any new individually evaluated or substandard loans.
• Our office loan portfolio is $45.1 million and consists of 73 loans. There are no criticized loans in this portfolio and there have been no charge-offs in the trailing twelve months.
• Stockholders’ equity as a percent of total assets was 9.05% at June 30, 2023, compared to 8.84% at March 31, 2023. Tangible common equity (“TCE”) as a percent of tangible assets (non-GAAP)¹ was 7.35% at June 30, 2023, compared to 7.16% at March 31, 2023. The increase in TCE was primarily due to the modest shrinkage in assets largely due to decreases in cash and securities which we used to reduce FHLB advances. The positive impact of net income and amortization of intangibles was largely offset by an increase in the unrealized losses in the available for sale investment portfolio.
• From March 31, 2023, consumer, commercial and government deposits have been stable with some movement between non-maturity deposit accounts and CD’s. There are no material customer or industry concentrations.
• At June 30, 2023, our deposit portfolio composition was 54% consumer, 27% commercial, 12% public and 7% brokered deposits compared to 55% consumer, 27% commercial, 14% public and 4% brokered deposits at March 31, 2023.
• Uninsured and uncollateralized deposits were $268.1 million, or 18% of total deposits, at June 30, 2023, and $252.7 million, or 18% of total deposits, at March 31, 2023. Uninsured deposits alone at June 30, 2023, were $413.0 million, or 28% of total deposits, and $413.5 million, or 29% of total deposits at March 31, 2023, with the difference being fully secured government deposits.
• On-balance sheet liquidity, collateralized new borrowing capacity and uncommitted federal funds borrowing availability was 228% of uninsured and uncollateralized deposits at June 30, 2023, and 205% at March 31, 2023.
• On-balance sheet liquidity, collateralized new borrowing capacity and uncommitted federal funds borrowing availability was $611.1 million at June 30, 2023, and $517.4 million at March 31, 2023.

Balance Sheet and Asset Quality

Total assets decreased modestly by $30.9 million during the quarter to $1.83 billion at June 30, 2023, compared to $1.86 billion at March 31, 2023.

Cash and cash equivalents decreased $22.1 million during the quarter to $43.0 million at June 30, 2023, largely due to a decrease in interest-bearing deposits of $32.5 million used to reduce FHLB advances.

Securities available for sale decreased $12.3 million during the quarter ended June 30, 2023, to $161.1 million from $173.4 million at March 31, 2023. This decrease was primarily due to the sale of $5 million of floating-rate SBA backed pass-through securities, principal repayments, and a decrease in the market value of the portfolio.

Securities held to maturity decreased $1.5 million to $93.8 million during the quarter ended June 30, 2023, from $95.3 million at March 31, 2023, due to principal repayments.

Total loans receivable increased to $1.425 billion at June 30, 2023, from $1.421 billion at March 31, 2023. As a result of current market conditions, residential 10/1 ARM loan originations were added to the portfolio which resulted in residential mortgage loan growth of $9.3 million. Pricing has been changed such that mortgage originations sold will increase, although at a lower gain on sale. Draws on construction loans were $24.6 million during the second quarter, which were more than offset by the payoff of a $20 million loan ending it’s construction cycle and other construction loans converted to permanent financing.

The allowance for credit losses on loans increased by $0.49 million to $23.2 million at June 30, 2023, representing 1.63% of total loans receivable compared to 1.60% of total loans receivable at March 31, 2023. For the quarter ended June 30, 2023, the Bank had net recoveries of $49 thousand.

Allowance for Credit Losses (“ACL”) - Loans Percentage

(in thousands, except ratios)

Allowance for Credit Losses - Unfunded Commitments:

In addition to the ACL - Loans, the Company has established an ACL - Unfunded Commitments of $1.544 million at June 30, 2023 and $1.530 million at March 31, 2023, classified in other liabilities on the consolidated balance sheets.

Nonperforming assets increased $5.6 million to $17.4 million or 0.95% of total assets at June 30, 2023, compared to $11.7 million or 0.63% at March 31, 2023.

Special mention loans increased $4.6 million, largely due to the addition of a $9.6 million relationship, offset by the $5.4 million hotel previously in special mention moving to substandard. The $9.6 million relationship is a commercial business, secured by real estate, where the underlying business performance is weaker than forecasted, but the collateral position is strong.

Substandard loans increased by $3.8 million to $19.2 million at June 30, 2023, compared to $15.4 million at March 31, 2023. This increase was due to the movement from special mention of a $5.4 million hotel loan which, while current on its payments, has not fully recovered from the negative impact of the pandemic resulting in lower business travel.

Total deposits increased $27.9 million during the quarter ended June 30, 2023, to $1.46 billion with most of the growth in brokered, commercial and consumer deposits. Public deposits declined $18.8 million during the quarter ended June 30, 2023, from the previous quarter. Deposit composition changed during the second quarter, as both business and retail depositors sought higher yields on deposit accounts. Modest brokered deposit growth of $33.4 million supplemented deposit growth.

Deposit Portfolio Composition
(in thousands)

Deposit Composition
(in thousands)

Federal Home Loan Bank advances decreased $60 million to $122.5 million at June 30, 2023, from $182.5 million one quarter earlier, as deposit growth over loan growth, along with reductions in cash and securities funded payments on advances.

The Company repurchased 14 thousand shares of the Company’s common stock in the second quarter of 2023. As of June 30, 2023, approximately 229 thousand shares remain available for repurchase under the current share repurchase authorization.

Review of Operations

Net interest income was $11.7 million for the second quarter ended June 30, 2023, compared to $12.8 million for the quarter ended March 31, 2023, and decreased from $14.3 million for the quarter ended June 30, 2022. “The decrease in net interest income in the second quarter was due to funding costs exceeding increases in asset yields. Our one-year interest rate risk profile remains nearly neutral with repricing borrowings and deposits modestly exceeding repricing assets. We could see modest compression in the net interest margin during the third quarter of 2023, as our ending spread at June 30, 2023 was approximately 15 basis points below the second quarter average due to increasing deposit costs,” said Jim Broucek, Executive Vice President and Chief Financial Officer.

Net interest income and net interest margin analysis: