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

EAU CLAIRE, Wis: 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 $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...