EXHIBIT 99.1
 
bancorp_logoa03.jpg

Citizens Community Bancorp, Inc. Earns $1.1 million For Fourth Fiscal Quarter 2018;
Fiscal Year 2018 Earnings Were Up 71% Compared to Fiscal 2017 Earnings;
United Bank Acquisition Completed on October 19, 2018.


EAU CLAIRE, WI, October 26, 2018 - Citizens Community Bancorp, Inc. (the "Company") (Nasdaq: CZWI), the parent company of Citizens Community Federal N.A. (the “Bank”), today reported earnings of $1.10 million, or $0.10 per diluted share in the fourth quarter of fiscal 2018 ("Q4 fiscal 2018"), compared to $503,000, or $0.08 per diluted share, in the third fiscal quarter. The Q4 fiscal 2018 operations reflected higher net interest income, higher non-interest income and lower non-interest expense relative to the prior quarter. For fiscal year ended September 30, 2018, earnings increased 71% to $4.28 million, or $0.58 per diluted share from $2.50 million, or $0.46 per diluted share for the fiscal year ended September 30, 2017.
Net income as adjusted (non-GAAP)1 was $1.50 million, or $0.12 per diluted share for Q4 fiscal 2018 compared to $731,000, or $0.14 per diluted shares for Q4 fiscal 2017. Net income as adjusted (non-GAAP)1 excludes merger and branch closure expenditures, insurance and legal settlements 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 Net Income (Loss) and Net Income as Adjusted (non-GAAP)1".
“We closed the United Bank acquisition on October 19th which will enhance the composition of core community banking loans and increase our market presence in Eau Claire and the Chippewa Valley markets. We expect to report assets in excess of $1.2 billion next quarter and rank second in market presence in Eau Claire County as measured by deposits,” said Stephen Bianchi, President and Chief Executive Officer. "The combination of two independent financial institutions will be better positioned to provide enhanced product lines and services along with knowledge and resources to our customers."
"Though the total loan portfolio was flat for the quarter, core community bank loans continued to grow in the 4th quarter as expected. The legacy indirect and one-to-four family loans continued the planned runoff. Over the past two years, legacy indirect and one-to-four family loans have declined from 62.0% of gross loans to 36.0% of gross loans at the end of fiscal 2018. This change in loan composition is a result of recent mergers as well as a focused effort by our lending team equipped with better resources, knowledge and incentives to provide the borrowing needs of the communities we serve," Mr. Bianchi stated.
Q4 Fiscal 2018 Financial Highlights: (at or for the periods ended September 30, 2018, compared to September 30, 2017 and /or June 30, 2018)

Net income totaled $1.1 million, or $0.10 per diluted share in Q4 fiscal 2018, compared to $503,000, or $0.08 per diluted share in Q3 fiscal 2018 and a loss of $458,000, or ($0.08) per diluted share a year ago. Higher net interest and non-interest income, as well as lower non-interest expense more than offset higher tax provisions for the quarter.

1Net income as adjusted, previously referred to as 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 Net Income (Loss) and Net Income as Adjusted (non-GAAP)".
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Net interest margin (NIM) increased slightly to 3.45% for the current quarter, compared to 3.40% for Q3 fiscal 2018 and 3.29% a year earlier. This increase is primarily due to the full quarter impact of our June 2018 preferred stock issuance.

Non-interest income totaled $2.0 million in Q4 fiscal 2018 compared to $1.8 million the prior quarter and $1.4 million one year earlier. The increase was a result of higher income from service charges on deposit accounts and loan fees/service charges.

Total non-interest expense for Q4 fiscal 2018 of $7.64 million was lower compared to Q3 fiscal 2018 at $7.87 million. The decrease was related to lower compensation and benefit expenses, lower professional fees and lower losses on the sale of repossessed assets.

The effective tax rate increased to 40.1% for Q4 fiscal 2018 compared to 30.4% the previous quarter. The higher rate, relative to statutory rates, was due in part to certain non-deductible merger related expenses, as well as tax adjustments related to the prior year acquisition, when the Company's federal and state income tax returns for the fiscal year ended September 30, 2017 were completed. In addition, the Company finalized the analysis of the impact of the Tax Cuts and Jobs Act (the "Tax Act") and determined an additional $63,000 of tax expense was necessary to properly value the deferred tax asset.

Non-performing assets declined to 1.14% for Q4 fiscal 2018 compared to 1.31% the previous quarter and 1.49% one year earlier. The decline reflects the sale of foreclosed and repossessed assets which declined from $5.4 million the previous quarter to $2.8 million at Q4 fiscal 2018.

Total assets, total deposits and total loans were relatively flat over the most recent quarter relative to the prior quarter at $975 million, $747 million and $752 million, respectively. Core Community Banking portfolio loans increased to $488.4 million at Q4 fiscal 2018 compared to $475.8 million one quarter earlier and $391.8 million one year earlier.

As a result of the conversion of preferred stock to common stock on September 28, 2018, the Company's tangible common equity at September 30, 2018 increased to $120.6 million compared to $58.5 million one quarter earlier. The Company's capital ratios will decline in the next quarter reflecting the impact of the United Bank acquisition. 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 September 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)
 
13.1%
 
19.8%
 
10.0%
Tier 1 capital (to risk weighted assets)
 
12.2%
 
16.8%
 
8.0%
Common equity tier 1 capital (to risk weighted assets)
 
12.2%
 
16.8%
 
6.5%
Tier 1 leverage ratio (to adjusted total assets)
 
9.2%
 
12.7%
 
5.0%



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Balance Sheet and Asset Quality Review
Total assets were $975.4 million at September 30, 2018, compared to $975.1 million at June 30, 2018, and $940.7 million at September 30, 2017. Loan balances declined slightly from the linked quarter primarily due to the planned runoff of the Legacy loan portfolio consisting of indirect paper and one-to-four family loans. Total net loans were $752.5 million at September 30, 2018 compared to $754.6 million at June 30, 2018 and $727.1 million one year earlier. At September 30, 2018, total gross Community Banking portfolio loans, consisting of commercial, agricultural and consumer loans, were $488.4 million, or 64.0% of gross loans while gross Legacy portfolio indirect paper and one-to-four family loans totaled $274.3 million, or 36.0%. Gross commercial and agricultural real estate secured loans total $353.0 million or 72.3% of the total Community Banking loan portfolio, or a 3.7% increase relative to Q3 fiscal 2018. The commercial real estate portfolio includes a large single $8.2 million bridge loan which was expected to be repaid before our fiscal year-end but will be repaid in our next quarter. During the current year, the Community Banking portfolio increased $96.6 million or 24.7%, while the Legacy loan portfolio planned runoff was $70.6 million or a 20.5% reduction in the loan balances during the current year.

The allowance for loan and lease losses increased in Q4 fiscal 2018 to $6.7 million, representing 0.89% of total loans, compared to $6.5 million and 0.85% of total loans at June 30, 2018. Net charge offs were $160,000 for Q4 fiscal 2018 compared to $79,000 for Q3 fiscal 2018.

Nonperforming assets declined to $11.1 million, or 1.14% of total assets at September 30, 2018 compared to $12.7 million, or 1.31% of total assets at June 30, 2018. The decrease was primarily the result of sales of foreclosed and repossessed assets during the quarter. Foreclosed and repossessed assets declined to $2.8 million at September 30, 2018 from $5.4 million at June 30, 2018.

Deposits totaled $746.5 million at September 30, 2018, compared to $744.5 million at June 30, 2018, and $742.5 million at September 30, 2017. Certificate of deposits increased to $313.1 million at September 30, 2018 from $297.5 million at June 30, 2018 as the rising interest rate environment has compelled more customers to switch from money market and interest-bearing demand deposits to certificate accounts. Noninterest-bearing deposits also increased to $87.5 million at September 30, 2018 from $82.1 million at June 30, 2018 due in part to new customer relationships associated with the increased commercial lending.

Federal Home Loan Bank ("FHLB") advances increased to $63.0 million at September 30, 2018, compared to $58.0 million at June 30, 2018. Other borrowings decreased to $24.6 million at September 30, 2018 from $29.0 million one quarter earlier, as the Company modestly reduced higher cost holding company debt with proceeds from the preferred stock offering.

On September 25, 2018, the Company received shareholder approval to issue common stock upon the conversion of the Company’s 8.00% Series A Mandatorily Convertible Non-Cumulative Non-Voting Perpetual Preferred Stock. As a result, on September 28, 2018, total common shares outstanding increased to 10,913,853 shares. The Company’s tangible book value per share (non-GAAP) increased to $11.05 per share from $9.89 per share at June 30, 2018. Tangible common equity (non-GAAP) as a percent of tangible assets (non-GAAP) increased to 12.56% from 6.51% at June 30, 2018, due to the conversion of preferred equity to common equity subsequent to shareholder approval. These capital ratios will decrease as a result of the closing of the United Bank acquisition.

As a result of this conversion, common shares outstanding increased 5,000,000 shares on September 28, 2018 and had a time weighted impact on fully diluted shares calculations. In the next quarter, shares used to compute fully diluted shares will include the full quarter impact of these outstanding common shares.

“Our tangible common book value and all capital ratios include the impact of the conversion of preferred stock to common shares at the end of September 2018, but do not include the impact of the October 19 closing of the United Bank acquisition,” said Jim Broucek, Chief Financial Officer.   “We will incur some transition costs next quarter as we re-align our personnel and incur professional fees associated with the transaction.   Earnings from the United

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Bank acquisition will offset a portion of these expenses.  In the following quarter, we anticipate expenses associated with converting the core data processing system to our platform in February 2019,” Broucek continued.

Review of Operations

Net interest income was $7.9 million for Q4 fiscal 2018, compared to $7.5 million for Q3 fiscal 2018 and $6.2 million one year earlier. For the fiscal year ended September 30, 2018, net interest income was $30.3 million compared to $22.3 million for the fiscal year ended September 30, 2017. The net interest margin (“NIM”) increased to 3.45% for Q4 fiscal 2018 compared to 3.40% one quarter earlier and 3.29% for the like quarter one year earlier.

Loan yields increased to 4.95% for Q4 fiscal 2018 compared to 4.87% one quarter earlier and 4.59% for Q4 fiscal 2017. Meanwhile, deposit costs increased to 0.99% for Q4 fiscal 2018 from 0.86% one quarter earlier and 0.77% for Q4 fiscal 2017. Costs on the FHLB and other borrowings increased to 3.14% for Q4 fiscal 2018 from 3.01% one quarter earlier and 2.12% for the quarter ended Q4 2017. For the fiscal year ended September 30, 2018, the NIM increased to 3.42% from 3.31% for the fiscal year ended September 30, 2017.
For Q4 fiscal 2018, $450,000 of provision for loan losses was recorded, reflecting organic loan growth and the impact of modest higher charge offs, which was equivalent to two basis points of the loan portfolio in the quarter. Total provisions for loan losses for the fiscal year ended September 30, 2018 was $1.3 million compared to $319,000 for the fiscal year ended September 30, 2017.
Total non-interest income was $1.99 million for Q4 fiscal 2018 compared to $1.77 million for Q3 fiscal 2018 and $1.39 million for Q4 fiscal 2017. The higher level of non-interest income primarily relates to higher income from service charges on deposit accounts, loan servicing income and loan fees/service charges primarily due to the full year impact of the Wells Financial Corp ("Wells") acquisition. For the fiscal year ended September 30, 2018, non-interest income totaled $7.37 million compared to $4.75 million for the fiscal year ended September 30, 2017.

Total non-interest expense was $7.64 million for Q4 fiscal 2018 compared to $7.87 million for Q3 fiscal 2018 and $7.91 million for Q4 fiscal 2017. Total non-interest expense for the fourth quarter reflects lower compensation and benefit expenses and lower professional fees. For the fiscal year ended September 30, 2018, total non-interest expenses totaled $29.76 million compared to $22.88 million for the fiscal year ended September 30, 2017. The higher expenses for the fiscal 2018 period relate to increased costs associated with the full year impact of the Wells acquisition completed on August 18, 2017 and higher staffing levels to support growth.

Provisions for income taxes were $736,000 for Q4 fiscal 2018 compared to $220,000 for Q3 fiscal 2018 and a tax benefit of $207,000 for Q4 fiscal 2017. The effective tax rate for Q4 fiscal 2018 was 40.1% compared to 30.4% one quarter earlier. The higher effective tax rate for Q4 fiscal 2018 was partially the result of tax non-deductible expenses related to the proposed United Bank acquisition and the true-up of the Company's tax position. For the fiscal year ended September 30, 2018, the effective tax rate was 35.2% compared to 34.6% for the fiscal year ended September 30, 2017. The fiscal year ended September 30, 2018, was impacted by the revaluation of net deferred tax assets in the first and fourth quarters of fiscal 2018 and the tax impact of non-deductible acquisition costs. 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.

In Q1 fiscal 2018, we performed a preliminary analysis of the impact as a result of the Tax Act based on the information available at the time. In Q4 fiscal 2018, based on updated information obtained in connection with the filing of our tax return and analysis of deferred charges both from the return and 2018 tax provisions, we finalized the tax analysis and recorded an additional $63,000 of expense, or a net increase in our tax provision for the year of $338,000 related to the Tax Act.

On September 25, 2018, the Board of Directors of Citizens Community Bancorp, Inc. adopted a resolution to change the Company’s fiscal year end from September 30 to December 31, commencing December 31, 2018. In addition, on September 25, 2018, the Board of Directors of the Bank, a wholly-owned subsidiary of the Company, also adopted

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resolutions to amend the Bank’s bylaws to change the Bank’s fiscal year end from September 30 to December 31, commencing December 31, 2018. The Company intends to file a transition report on Form 10-K/T covering the transition period from October 1, 2018 to December 31, 2018.

The Company expects to incur approximately $500,000 in administrative, accounting and legal expenses in connection with its change in fiscal year.

These financial results are preliminary until the Form 10-K is filed in December 2018.

About the Company

Citizens Community Bancorp, Inc. (NASDAQ: “CZWI”) is the holding company of the Bank, a national bank based in Altoona, Wisconsin, serving customers in Wisconsin, Minnesota and Michigan through 27 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 Bank offers traditional community banking services to businesses, Ag operators and consumers, including one-to-four family mortgages. The Company’s recent acquisition of United Bank and its merger with the Bank, expands its market share in Wisconsin and added six branch locations.

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 the Bank. 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; 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 the Bank; 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

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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

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CITIZENS COMMUNITY BANCORP, INC.
Consolidated Balance Sheets (unaudited)
(in thousands)
 
 
September 30, 2018
 
June 30, 2018
 
September 30, 2017
Assets
 
 
 
 
 
 
Cash and cash equivalents
 
$
34,494

 
$
27,731

 
$
41,677

Other interest bearing deposits
 
7,180

 
8,160

 
8,148

Securities available for sale "AFS"
 
118,482

 
119,702

 
95,883

Securities held to maturity "HTM"
 
4,619

 
4,809

 
5,453

Non-marketable equity securities, at cost
 
7,218

 
6,862

 
7,292

Loans receivable
 
759,247

 
761,087

 
732,995

Allowance for loan losses
 
(6,748
)
 
(6,458
)
 
(5,942
)
Loans receivable, net
 
752,499

 
754,629

 
727,053

Loans held for sale
 
1,917

 
1,778

 
2,334

Mortgage servicing rights
 
1,840

 
1,841

 
1,886

Office properties and equipment, net
 
10,034

 
9,947

 
9,645

Accrued interest receivable
 
3,600

 
3,306

 
3,291

Intangible assets
 
4,805

 
4,966

 
5,449

Goodwill
 
10,444

 
10,444

 
10,444

Foreclosed and repossessed assets, net
 
2,768

 
5,392

 
6,017

Bank owned life insurance
 
11,661

 
11,581

 
11,343

Other assets
 
3,848

 
3,922

 
4,749

TOTAL ASSETS
 
$
975,409

 
$
975,070

 
$
940,664

Liabilities and Stockholders’ Equity
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
Deposits
 
$
746,529

 
$
744,536

 
$
742,504

Federal Home Loan Bank advances
 
63,000

 
58,000

 
90,000

Other borrowings
 
24,619

 
29,059

 
30,319

Other liabilities
 
5,414

 
8,264

 
4,358

Total liabilities
 
839,562

 
839,859

 
867,181

Stockholders’ equity:
 
 
 
 
 
 
Preferred stock - $0.01 par value, $130.00 per share liquidation, 1,000,000 shares authorized, 0; 500,000; 0 shares issued and outstanding, respectively
 

 
61,289

 

Common stock— $0.01 par value, authorized 30,000,000; 10,913,853; 5,914,379; and 5,888,816 shares issued and outstanding, respectively
 
109

 
59

 
59

Additional paid-in capital
 
125,063

 
63,850

 
63,383

Retained earnings
 
14,003

 
12,904

 
10,764

Unearned deferred compensation
 
(622
)
 
(716
)
 
(456
)
Accumulated other comprehensive loss
 
(2,706
)
 
(2,175
)
 
(267
)
Total stockholders’ equity
 
135,847

 
135,211

 
73,483

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
 
$
975,409

 
$
975,070

 
$
940,664

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

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CITIZENS COMMUNITY BANCORP, INC.
Consolidated Statements of Operations (unaudited)
(in thousands, except per share data)
 
 
Three Months Ended
 
Twelve Months Ended
 
 
September 30, 2018
 
June 30, 2018
 
September 30, 2017
 
September 30, 2018
 
September 30, 2017
Interest and dividend income:
 
 
 
 
 
 
 
 
 
 
Interest and fees on loans
 
$
9,414

 
$
8,865

 
$
7,194

 
$
35,539

 
$
25,826

Interest on investments
 
948

 
905

 
576

 
3,357

 
2,052

Total interest and dividend income
 
10,362

 
9,770

 
7,770

 
38,896

 
27,878

Interest expense:
 
 
 
 
 
 
 
 
 
 
Interest on deposits
 
1,659

 
1,432

 
1,095

 
5,543

 
4,299

Interest on FHLB borrowed funds
 
323

 
412

 
217

 
1,310

 
717

Interest on other borrowed funds
 
440

 
446

 
286

 
1,740

 
594

Total interest expense
 
2,422

 
2,290

 
1,598

 
8,593

 
5,610

Net interest income before provision for loan losses
 
7,940

 
7,480

 
6,172

 
30,303

 
22,268

Provision for loan losses
 
450

 
650

 
319

 
1,300

 
319

Net interest income after provision for loan losses
 
7,490

 
6,830

 
5,853

 
29,003

 
21,949

Non-interest income:
 
 
 
 
 
 
 
 
 
 
Service charges on deposit accounts
 
489

 
413

 
368

 
1,792

 
1,433

Interchange income
 
338

 
338

 
214

 
1,284

 
789

Loan servicing income
 
368

 
337

 
175

 
1,379

 
380

Gain on sale of mortgage loans
 
234

 
226

 
196

 
943

 
686

Loan fees and service charges
 
164

 
116

 
20

 
521

 
438

Insurance commission income
 
180

 
187

 
122

 
720

 
122

Settlement proceeds
 

 

 

 

 
283

Gains (losses) on available for sale securities
 

 
4

 
82

 
(17
)
 
111

Other
 
216

 
146

 
214

 
748

 
509

Total non-interest income
 
1,989

 
1,767

 
1,391

 
7,370

 
4,751

Non-interest expense:
 
 
 
 
 
 
 
 
 
 
Compensation and benefits
 
3,778

 
3,840

 
3,233

 
14,979

 
10,862

Occupancy
 
776

 
733

 
584

 
2,975

 
2,780

Office
 
468

 
407

 
426

 
1,715

 
1,204

Data processing
 
771

 
720

 
650

 
2,928

 
2,052

Amortization of intangible assets
 
161

 
161

 
100

 
645

 
219

Amortization of mortgage servicing rights
 
85

 
84

 
39

 
335

 
39

Advertising, marketing and public relations
 
265

 
185

 
302

 
745

 
545

FDIC premium assessment
 
121

 
94

 
69

 
472

 
300

Professional services
 
577

 
735

 
860

 
2,323

 
2,078

Loss on repossessed assets, net
 
71

 
450

 
48

 
535

 
32

Other
 
571

 
465

 
1,598

 
2,112

 
2,767

Total non-interest expense
 
7,644

 
7,874

 
7,909

 
29,764

 
22,878

Income before provision for income taxes
 
1,835

 
723

 
(665
)
 
6,609

 
3,822

Provision (benefit) for income taxes
 
736

 
220

 
(207
)
 
2,326

 
1,323

Net income (loss) attributable to common stockholders
 
$
1,099

 
$
503

 
$
(458
)
 
$
4,283

 
$
2,499

Per share information:
 
 
 
 
 
 
 
 
 
 
Basic earnings (loss)
 
$
0.18

 
$
0.09

 
$
(0.08
)
 
$
0.72

 
$
0.47

Diluted earnings (loss)
 
$
0.10

 
$
0.08

 
$
(0.08
)
 
$
0.58

 
$
0.46

Cash dividends paid
 
$

 
$

 
$

 
$
0.20

 
$
0.16

Book value per share at end of period
 
$
12.45

 
$
12.50

 
$
12.48

 
$
12.45

 
$
12.48

Tangible book value per share at end of period (non-GAAP)
 
$
11.05

 
$
9.89

 
$
9.78

 
$
11.05

 
$
9.78

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

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Reconciliation of GAAP Net Income (Loss) and Net Income as Adjusted (non-GAAP):

 
 
Three Months Ended
 
Twelve Months Ended
 
 
September 30, 2018
 
June 30, 2018
 
September 30, 2017
 
September 30, 2018
 
September 30, 2017
 
 
 
GAAP earnings (loss) before income taxes
 
$
1,835

 
$
723

 
$
(665
)
 
$
6,609

 
$
3,822

Merger related costs (1)
 
131

 
228

 
1,517

 
463

 
1,860

Branch closure costs (2)
 
2

 
16

 
255

 
26

 
951

Settlement proceeds
 

 

 

 

 
(283
)
Prepayment fee
 

 

 

 

 
104

Net income as adjusted before income taxes (3)
 
1,968

 
967

 
1,107

 
7,098

 
6,454

Provision for income tax on net income as adjusted (4)
 
482

 
237

 
376

 
1,739

 
2,194

Tax Cuts and Jobs Act of 2017 (5)
 
63

 

 

 
338

 

Total Provision for income tax
 
545

 
237

 
376

 
2,077

 
2,194

Net income as adjusted after income taxes (non-GAAP) (3)
 
$
1,423

 
$
730

 
$
731

 
$
5,021

 
$
4,260

GAAP diluted earnings (loss) per share, net of tax
 
$
0.10

 
$
0.08

 
$
(0.08
)
 
$
0.58

 
$
0.46

Merger related costs, net of tax (1)
 
0.01

 
0.03

 
0.19

 
0.06

 
0.23

Branch closure costs, net of tax
 

 

 
0.03

 

 
0.12

Tax Cuts and Jobs Act of 2017 tax provision (5)
 
0.01

 

 

 
0.04

 

Settlement Proceeds
 

 

 

 

 
(0.03
)
Prepayment fee
 

 

 

 

 
0.01

Net income as adjusted diluted earnings per share, net of tax (non-GAAP)
 
$
0.12

 
$
0.11

 
$
0.14

 
$
0.68

 
$
0.79

 
 


 


 
 
 
 
 
 
Average diluted shares outstanding
 
10,950,980

 
6,461,760

 
5,629,363

 
7,335,247

 
5,378,548


(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 and include costs of $118,000 in Q4 F2018 and $350,000 in fiscal 2018, which are nondeductible expenses for federal income tax purposes.
(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) Net income as adjusted 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 net income as adjusted 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 and $63 in December 2017 and September 2018, respectively, totaling $338 in fiscal 2018. These tax entries are included in provision for income taxes expense in the consolidated statement of operations.



9










(6) Reconciliation of tangible book value:
Tangible book value per share at end of period
 
September 30, 2018
 
June 30,
2018
 
March 31, 2018
 
September 30,
2017
Total stockholders' equity
 
$
135,847

 
$
135,211

 
$
73,509

 
$
73,483

Less: Preferred stock
 

 
(61,289
)
 

 

Less: Goodwill
 
(10,444
)
 
(10,444
)
 
(10,444
)
 
(10,444
)
Less: Intangible assets
 
(4,805
)
 
(4,966
)
 
(5,126
)
 
(5,449
)
Tangible common equity (non-GAAP)
 
$
120,598

 
$
58,512

 
$
57,939

 
$
57,590

Ending common shares outstanding
 
10,913,853

 
5,914,379

 
5,902,481

 
5,888,816

Tangible book value per share (non-GAAP)
 
$
11.05

 
$
9.89

 
$
9.82

 
$
9.78


    
(7) Reconciliation of tangible common equity as a percent of tangible assets:
Tangible common equity as a percent of tangible assets at end of period
 
September 30, 2018
 
June 30,
2018
 
March 31, 2018
 
September 30,
2017
Total stockholders' equity
 
$
135,847

 
$
135,211

 
$
73,509

 
$
73,483

Less: Preferred stock
 

 
(61,289
)
 

 

Less: Goodwill
 
(10,444
)
 
(10,444
)
 
(10,444
)
 
(10,444
)
Less: Intangible assets
 
(4,805
)
 
(4,966
)
 
(5,126
)
 
(5,449
)
Tangible common equity (non-GAAP)
 
$
120,598

 
$
58,512

 
$
57,939

 
$
57,590

Total Assets
 
$
975,409

 
$
975,070

 
$
940,383

 
$
940,664

Less: Preferred stock
 

 
(61,289
)
 

 

Less: Goodwill
 
(10,444
)
 
(10,444
)
 
(10,444
)
 
(10,444
)
Less: Intangible assets
 
(4,805
)
 
(4,966
)
 
(5,126
)
 
(5,449
)
Tangible Assets (non-GAAP)
 
$
960,160

 
$
898,371

 
$
924,813

 
$
924,771

Tangible common equity as a percent of tangible assets (non-GAAP)
 
12.56
%
 
6.51
%
 
6.26
%
 
6.23
%


10



Nonperforming Assets:

 
 
September 30, 2018 and Three Months Ended
 
June 30, 2018 and Three Months Ended
 
September 30, 2018 and Twelve Months Ended
 
September 30, 2017 and Twelve Months Ended
Nonperforming assets:
 
 
 
 
 
 
 
 
Nonaccrual loans
 
$
7,210

 
$
6,627

 
$
7,210

 
$
7,452

Accruing loans past due 90 days or more
 
1,117

 
710

 
1,117

 
589

Total nonperforming loans (“NPLs”)
 
8,327

 
7,337

 
8,327

 
8,041

Other real estate owned ("OREO")
 
2,749

 
5,328

 
2,749

 
5,962

Other collateral owned
 
19

 
64

 
19

 
55

Total nonperforming assets (“NPAs”)
 
$
11,095

 
$
12,729

 
$
11,095

 
$
14,058

Troubled Debt Restructurings (“TDRs”)
 
$
8,418

 
$
8,210

 
$
8,418

 
$
5,851

Nonaccrual TDRs
 
$
2,687

 
$
2,349

 
$
2,687

 
$
621

Average outstanding loan balance
 
$
754,442

 
$
735,723

 
$
735,602

 
$
653,717

Loans, end of period
 
$
759,247

 
$
761,087

 
$
759,247

 
$
732,995

Total assets, end of period
 
$
975,409

 
$
975,070

 
$
975,409

 
$
940,664

Allowance for loan losses ("ALL"), at beginning of period
 
$
6,458

 
$
5,887

 
$
5,942

 
$
6,068

Loans charged off:
 
 
 
 
 
 
 
 
Residential real estate
 
(82
)
 
(47
)
 
(202
)
 
(233
)
Commercial/Agricultural real estate
 

 
(65
)
 
(74
)
 
(389
)
Consumer non-real estate
 
(85
)
 
(34
)
 
(379
)
 
(9
)
Commercial/Agricultural non-real estate
 
(47
)
 
(5
)
 
(52
)
 

Total loans charged off
 
(214
)
 
(151
)
 
(707
)
 
(631
)
Recoveries of loans previously charged off:
 
 
 
 
 
 
 
 
Residential real estate
 
28

 
34

 
80

 
14

Commercial/Agricultural real estate
 

 

 

 

Consumer non-real estate
 
25

 
26

 
121

 
171

Commercial/Agricultural non-real estate
 
1

 
12

 
12

 
1

Total recoveries of loans previously charged off:
 
54

 
72

 
213

 
186

Net loans charged off (“NCOs”)
 
(160
)
 
(79
)
 
(494
)
 
(445
)
Additions to ALL via provision for loan losses charged to operations
 
450

 
650

 
1,300

 
319

ALL, at end of period
 
$
6,748

 
$
6,458

 
$
6,748

 
$
5,942

Ratios:
 
 
 
 
 
 
 
 
ALL to NCOs (annualized)
 
1,054.38
%
 
2,043.67
%
 
1,365.99
%
 
1,335.28
%
NCOs (annualized) to average loans
 
0.08
%
 
0.04
%
 
0.07
%
 
0.07
%
ALL to total loans
 
0.89
%
 
0.85
%
 
0.89
%
 
0.81
%
NPLs to total loans
 
1.10
%
 
0.96
%
 
1.10
%
 
1.10
%
NPAs to total assets
 
1.14
%
 
1.31
%
 
1.14
%
 
1.49
%







11




Nonaccrual Loans Rollforward:
 
Quarter Ended
 
September 30, 2018
 
June 30, 2018
 
March 31, 2018
 
December 31, 2017
 
September 30, 2017
Balance, beginning of period
$
6,627

 
$
6,642

 
$
6,388

 
$
7,452

 
$
6,035

Additions
2,030

 
3,225

 
$
901

 
287

 
514

Acquired nonaccrual loans

 

 

 

 
1,449

Charge-offs
(68
)
 
(38
)
 
(34
)
 
(74
)
 
(22
)
Transfers to OREO
(400
)
 

 
(334
)
 
(52
)
 
(163
)
Return to accrual status
(93
)
 

 

 

 

Payments received
(676
)
 
(2,915
)
 
(257
)
 
(1,207
)
 
(345
)
Other, net
(210
)
 
(287
)
 
(22
)
 
(18
)
 
(16
)
Balance, end of period
$
7,210

 
$
6,627

 
$
6,642

 
$
6,388

 
$
7,452

Other Real Estate Owned Rollforward:
 
Quarter Ended
 
September 30, 2018
 
June 30, 2018
 
March 31, 2018
 
December 31, 2017
 
September 30, 2017
Balance, beginning of period
$
5,328

 
$
7,015

 
$
6,996

 
$
5,962

 
$
580

Loans transferred in
400

 

 
$
334

 
52

 
163

Acquired OREO

 

 

 

 
5,343

Branch properties transferred in

 

 

 
1,444

 
250

Branch properties sales
(1,245
)
 

 

 

 

Sales
(1,762
)
 
(889
)
 
(256
)
 
(394
)
 
(353
)
Write-downs
(127
)
 
(498
)
 
(27
)
 
(16
)
 
(33
)
Other, net
155

 
(300
)
 
(32
)
 
(52
)
 
12

Balance, end of period
$
2,749

 
$
5,328

 
$
7,015

 
$
6,996

 
$
5,962


Troubled Debt Restructurings in Accrual Status
 
September 30, 2018
 
June 30, 2018
 
March 31, 2018
 
September 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
34

 
$
3,495

 
32

 
$
3,580

 
28

 
$
3,015

 
28

 
$
3,084

Commercial/Agricultural real estate
14

 
1,646

 
14

 
1,662

 
12

 
2,414

 
8

 
1,890

Consumer non-real estate
14

 
109

 
15

 
122

 
16

 
146

 
17

 
168

Commercial/Agricultural non-real estate
3

 
481

 
3

 
496

 
3

 
517

 
2

 
88

Total loans
65

 
$
5,731

 
64

 
$
5,860

 
59

 
$
6,092

 
55

 
$
5,230



12






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.

 
 
September 30, 2018
 
June 30, 2018
 
September 30, 2017
Community Banking Loan Portfolios:
 
 
 
 
 
 
Commercial/Agricultural real estate:
 
 
 
 
 
 
Commercial real estate
 
$
216,703

 
$
208,526

 
$
159,962

Agricultural real estate
 
70,517

 
70,881

 
68,002

Multi-family real estate
 
48,061

 
45,707

 
26,228

Construction and land development
 
17,739

 
15,258

 
19,708

Commercial/Agricultural non-real estate:
 
 
 
 
 
 
Commercial non-real estate
 
76,254

 
74,763

 
55,251

Agricultural non-real estate
 
26,549

 
26,366

 
23,873

Residential real estate:
 
 
 
 
 
 
Purchased HELOC loans
 
13,729

 
15,237

 
18,071

Consumer non-real estate:
 
 
 
 
 
 
Other consumer
 
18,844

 
19,063

 
20,668

Total Community Banking Loan Portfolios
 
488,396

 
475,801

 
391,763

 
 
 
 
 
 
 
Legacy Loan Portfolios:
 
 
 
 
 
 
Residential real estate:
 
 
 
 
 
 
One to four family
 
196,052

 
202,356

 
229,563

Consumer non-real estate:
 
 
 
 
 
 
Originated indirect paper
 
60,991

 
66,791

 
85,732

Purchased indirect paper
 
17,254

 
19,801

 
29,555

Total Legacy Loan Portfolios
 
274,297

 
288,948

 
344,850

Gross loans
 
$
762,693

 
$
764,749

 
$
736,613




13



Loan Composition
 
September 30, 2018
 
June 30, 2018
 
September 30, 2017
Originated Loans:
 
 
 
 
 
 
Residential real estate:
 
 
 
 
 
 
One to four family
 
$
122,797

 
$
122,028

 
$
132,380

Purchased HELOC loans
 
13,729

 
15,237

 
18,071

Commercial/Agricultural real estate:
 
 
 
 
 
 
Commercial real estate
 
168,319

 
156,760

 
97,155

Agricultural real estate
 
27,017

 
23,739

 
10,628

Multi-family real estate
 
44,767

 
42,360

 
24,486

Construction and land development
 
14,648

 
11,212

 
12,399

Consumer non-real estate:
 
 
 
 
 
 
Originated indirect paper
 
60,991

 
66,791

 
85,732

Purchased indirect paper
 
17,254

 
19,801

 
29,555

Other Consumer
 
15,959

 
15,549

 
14,496

Commercial/Agricultural non-real estate:
 
 
 
 
 
 
Commercial non-real estate
 
62,196

 
58,637

 
35,198

Agricultural non-real estate
 
17,514

 
16,792

 
12,493

Total originated loans
 
$
565,191

 
$
548,906

 
$
472,593

Acquired Loans:
 
 
 
 
 
 
Residential real estate:
 
 
 
 
 
 
One to four family
 
$
73,255

 
$
80,328

 
$
97,183

Commercial/Agricultural real estate:
 
 
 
 
 
 
Commercial real estate
 
48,384

 
51,766

 
62,807

Agricultural real estate
 
43,500

 
47,142

 
57,374

Multi-family real estate
 
3,294

 
3,347

 
1,742

Construction and land development
 
3,091

 
4,046

 
7,309

Consumer non-real estate:
 
 
 
 
 
 
Other Consumer
 
2,885

 
3,514

 
6,172

Commercial/Agricultural non-real estate:
 
 
 
 
 
 
Commercial non-real estate
 
14,058

 
16,126

 
20,053

Agricultural non-real estate
 
9,035

 
9,574

 
11,380

Total acquired loans
 
$
197,502

 
$
215,843

 
$
264,020

Total Loans:
 
 
 
 
 
 
Residential real estate:
 
 
 
 
 
 
One to four family
 
$
196,052

 
$
202,356

 
$
229,563

Purchased HELOC loans
 
13,729

 
15,237

 
18,071

Commercial/Agricultural real estate:
 
 
 
 
 
 
Commercial real estate
 
216,703

 
208,526

 
159,962

Agricultural real estate
 
70,517

 
70,881

 
68,002

Multi-family real estate
 
48,061

 
45,707

 
26,228

Construction and land development
 
17,739

 
15,258

 
19,708

Consumer non-real estate:
 
 
 
 
 
 
Originated indirect paper
 
60,991

 
66,791

 
85,732

Purchased indirect paper
 
17,254

 
19,801

 
29,555

Other Consumer
 
18,844

 
19,063

 
20,668

Commercial/Agricultural non-real estate:
 
 
 
 
 
 
Commercial non-real estate
 
76,254

 
74,763

 
55,251

Agricultural non-real estate
 
26,549

 
26,366

 
23,873

Gross loans
 
$
762,693

 
$
764,749

 
$
736,613

Unearned net deferred fees and costs and loans in process
 
557

 
693

 
1,471

Unamortized discount on acquired loans
 
(4,003
)
 
(4,355
)
 
(5,089
)
Total loans receivable
 
$
759,247

 
$
761,087

 
$
732,995

    

14





Deposit Composition:

 
 
September 30,
2018
 
June 30, 2018
 
September 30,
2017
Non-interest bearing demand deposits
 
$
87,495

 
$
82,135

 
$
75,318

Interest bearing demand deposits
 
139,276

 
151,117

 
147,912

Savings accounts
 
97,329

 
98,427

 
102,756

Money market accounts
 
109,314

 
115,369

 
125,749

Certificate accounts
 
313,115

 
297,488

 
290,769

Total deposits
 
$
746,529

 
$
744,536

 
$
742,504



Average balances, Interest Yields and Rates:

 
 
Three months ended September 30, 2018
 
Three months ended June 30, 2018
 
Three months ended September 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
 
$
24,468

 
$
117

 
1.90
%
 
$
19,203

 
$
61

 
1.27
%
 
$
32,692

 
$
71

 
0.86
%
Loans receivable
 
754,442

 
9,414

 
4.95
%
 
729,390

 
8,865

 
4.87
%
 
621,530

 
7,194

 
4.59
%
Interest bearing deposits
 
7,971

 
42

 
2.09
%
 
8,418

 
44

 
2.10
%
 
4,571

 
18

 
1.56
%
Investment securities (1)
 
124,991

 
674

 
2.30
%
 
124,715

 
701

 
2.44
%
 
90,467

 
511

 
2.24
%
Non-marketable equity securities, at cost
 
7,581

 
115

 
6.02
%
 
8,158

 
99

 
4.87
%
 
5,701

 
57

 
3.97
%
Total interest earning assets (1)
 
$
919,453

 
$
10,362

 
4.49
%
 
$
889,884

 
$
9,770

 
4.43
%
 
$
754,961

 
$
7,851

 
4.13
%
Average interest bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Savings accounts
 
$
93,551

 
$
59

 
0.25
%
 
$
94,741

 
$
53

 
0.22
%
 
$
72,476

 
$
21

 
0.11
%
Demand deposits
 
146,372

 
142

 
0.38
%
 
150,666

 
129

 
0.34
%
 
98,416

 
79

 
0.32
%
Money market accounts
 
116,597

 
213

 
0.72
%
 
115,625

 
196

 
0.68
%
 
128,039

 
168

 
0.52
%
CD’s
 
277,125

 
1,145

 
1.64
%
 
271,311

 
959

 
1.42
%
 
235,076

 
752

 
1.27
%
IRA’s
 
33,029

 
100

 
1.20
%
 
32,890

 
94

 
1.15
%
 
31,302

 
75

 
0.95
%
Total deposits
 
$
666,674

 
$
1,659

 
0.99
%
 
$
665,233

 
$
1,431

 
0.86
%
 
$
565,309

 
$
1,095

 
0.77
%
FHLB advances and other borrowings
 
96,448

 
763

 
3.14
%
 
114,498

 
859

 
3.01
%
 
93,978

 
503

 
2.12
%
Total interest bearing liabilities
 
$
763,122

 
$
2,422

 
1.26
%
 
$
779,731

 
$
2,290

 
1.18
%
 
$
659,287

 
$
1,598

 
0.96
%
Net interest income
 
 
 
$
7,940

 
 
 
 
 
$
7,480

 
 
 
 
 
$
6,253

 
 
Interest rate spread
 
 
 
 
 
3.23
%
 
 
 
 
 
3.25
%
 
 
 
 
 
3.17
%
Net interest margin (1)
 
 
 
 
 
3.45
%
 
 
 
 
 
3.40
%
 
 
 
 
 
3.29
%
Average interest earning assets to average interest bearing liabilities
 
 
 
 
 
1.20

 
 
 
 
 
1.14

 
 
 
 
 
1.15


(1) Fully taxable equivalent (FTE). The average yield on tax exempt securities is computed on a tax equivalent basis using a tax rate of 24.5% for the quarters ended September 30, 2018 and June 30, 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 September 30, 2017. The FTE adjustment to net interest income included in the rate calculations totaled $51, $55 and $81 for the three months ended September 30, 2018, June 30, 2018 and September 30, 2017, respectively.



15



 
 
Twelve months ended September 30, 2018
 
Twelve months ended September 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
 
$
24,747

 
$
308

 
1.24
%
 
$
19,368

 
$
139

 
0.72
%
Loans receivable
 
735,602

 
35,539

 
4.83
%
 
568,670

 
25,826

 
4.54
%
Interest bearing deposits
 
7,871

 
149

 
1.89
%
 
1,922

 
29

 
1.51
%
Investment securities (1)
 
116,517

 
2,508

 
2.33
%
 
87,449

 
1,974

 
2.26
%
Non-marketable equity securities, at cost
 
7,735

 
392

 
5.07
%
 
5,136

 
205

 
3.99