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Citizens Community Bancorp, Inc. Reports Earnings of $0.35 Per Share in 1Q23; Deposit and Loan Balances Increase From Prior Quarter
ソース: Nasdaq GlobeNewswire / 25 4 2023 07:30:01 America/Chicago
EAU CLAIRE, Wis., April 25, 2023 (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 $3.7 million and earnings per diluted share of $0.35 for the quarter ended March 31, 2023, compared to $4.7 million and $0.45 per diluted share for the quarter ended December 31, 2022, and $4.7 million and $0.45 per diluted share for the quarter ended March 31, 2022, respectively.
The Company’s first quarter of 2023 operating results reflected the following changes from the fourth quarter of 2022: (1) lower net interest income due to the impact of higher deposit costs; and (2) lower non-interest income of $0.6 million due to decreases in net gains on investment securities, partially offset by lower credit loss provision due to lower loan growth and improved asset quality.
“Despite unusual challenges presented to us by rapidly rising interest rates, highly publicized bank failures and continued discussion of a pending economic recession, our underlying resilience and teamwork produced a return on tangible shareholders’ equity of 12% for our first quarter of 2023. Much effort has been put into the Bank’s operations designed to ensure efficiency, diversification of deposits and loans and continued growth in franchise value. Our largely small and rural markets have provided stability in employment and deposits with customer outlooks generally positive about 2023. The stability of our deposit base also benefits from the fact that 82% are either insured or collateralized,” stated Stephen Bianchi, Chairman, President and Chief Executive Officer. “We expect to see annual loan growth moderating to low single digit percentage growth in 2023 as higher interest rates appear to be affecting new project feasibility. Asset quality improved further with a 25% reduction in criticized loans to $22.1 million, non-performing assets to total assets of .63%, and minimal loan net charge offs of $23 thousand.”
Book value per share was $15.70 at March 31, 2023, compared to $16.03 at December 31, 2022, and $15.72 at March 31, 2022. Tangible book value per share (non-GAAP)1 was $12.48 at March 31, 2023, compared to $12.77 at December 31, 2022, and $12.40 at March 31, 2022. For the quarter, tangible book value was positively influenced by net income, intangible amortization and lower accumulated other comprehensive loss on investment securities, offset by dividend payments to shareholders and the adoption of the Accounting Standards Update (“ASU”) 2016-13, Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments (“CECL”).
March 31, 2023 Highlights: (as of or for the 3-month period ended March 31, 2023 compared to December 31, 2022 and March 31, 2022.)
- Quarterly earnings of $3.7 million, or $0.35 per diluted share for the quarter ended March 31, 2023, decreased from the quarter ended December 31, 2022, earnings of $4.7 million or $0.45 per diluted share, and decreased from the quarter ended March 31, 2022, earnings of $4.7 million or $0.45 per diluted share.
- Quarterly earnings, as adjusted (non-GAAP)1, were $3.7 million, or $0.35 per diluted share for the quarter ended March 31, 2023, compared to $5.2 million or $0.49 per diluted share for the quarter ended December 31, 2022, and $4.7 million or $0.45 per diluted share for the quarter ended March 31, 2022.
- Net interest income decreased $1.7 million to $12.8 million for the quarter ended March 31, 2023 from $14.5 million the previous quarter and decreased $0.4 million from the first quarter of 2022. First quarter 2023 net interest income without SBA PPP net loan fee accretion and loan purchase accretion decreased $1.5 million from the fourth quarter of 2022 and increased $0.1 million from the first quarter of 2022. The decrease in net interest income and net interest margin from year end is due to a reduction in commercial non-interest-bearing balances in January, replaced with higher cost borrowings, higher CD costs, an increase in indexed municipal deposits rates and other customer rate increases more than offsetting the 9 basis points increase in asset yields.
- The net interest margin without SBA PPP net loan fee accretion and loan purchase accretion was 2.99% for the quarter ended March 31, 2023 compared to 3.33% for the previous quarter and 3.11% for the comparable quarter one year earlier.
- The first quarter provision for credit losses was $0.05 million due to modest loan growth and strong credit results, compared to $0.70 million for the preceding quarter. No credit loss provision was realized during the first quarter a year ago due to low net charge-offs, decreases in criticized assets and stable economic conditions in our markets.
- The Company adopted CECL using the modified retrospective approach effective January 1, 2023 and, as a result, increased the allowance for credit losses (“ACL”) on loans by $4.7 million and established an off-balance sheet reserve of $1.5 million. The increase in ACL is primarily CRE and is primarily due to the impact of the remaining maturity of the portfolio.
- The efficiency ratio increased to 66% for the quarter ended March 31, 2023 from 61% for the quarter December 31, 2022, as lower non-interest expense was more than offset by lower net interest income.
- Gross loans increased by $9.0 million during the first quarter of 2023. Draws on construction loans increased $12.5 million. 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 $5.0 million. The commercial and industrial loan decrease of $5.1 million was largely due to the reduction and payoff of a special mention credit. Agricultural operating loans decreased $4.7 million due to normal seasonality.
- Nonperforming assets were $11.7 million at March 31, 2023, compared to $12.7 million at December 31, 2022.
- Substandard loans decreased by $1.9 million to $15.4 million at March 31, 2022, compared to $17.3 million at December 31, 2022.
- Our office loan portfolio is $45 million and consists of 72 loans. There are no criticized loans in the portfolio and there have been no charge-offs in the trailing twelve months.
- Special mention loans decreased $5.5 million from the December 31, 2022 balance of $12.2 million to $6.6 million at March 31, 2023, as a large C&I loan paid off in the first quarter of 2023.
- Stockholders’ equity as a percent of total assets was 8.84% at March 31, 2023, compared to 9.20% at December 31, 2022. Tangible common equity (“TCE”) as a percent of tangible assets (non-GAAP)1 was 7.16% at March 31, 2023, compared to 7.47% at December 31, 2022. The impact of the adoption of CECL of $4.4 million, the annual dividend payment of $3.0 million and modest asset growth outweighed the impact of net income, a decrease in unrealized losses in the available for sale portfolio and amortization of intangibles.
- Consumer, commercial and government deposits have been stable since January 31, 2023 and since the two large coastal bank failures in early March. There are no material customer or industry concentrations. A decrease in deposits during January occurred as a couple of commercial accounts invested funds in their businesses.
- At March 31, 2023 our deposit portfolio composition was 55% consumer, 27% commercial, 14% public and 4% brokered deposits. At December 31, 2022 our deposit portfolio composition was 57% consumer, 28% commercial, 12% public and 3% brokered deposits.
- Uninsured and uncollateralized deposits were $252.7 million, or 18% of total deposits, at March 31, 2023 and $298.8 million, or 21% of total deposits, at December 31, 2022. Uninsured deposits alone at March 31, 2023 were $413.5 million, or 29% of total deposits, and $441.2 million, or 31% of total deposits at December 31, 2022, with the difference being fully secured government deposits.
- On-balance sheet liquidity, collateralized borrowing and uncommitted federal funds availability was 205% of uninsured and uncollateralized deposits at March 31, 2023 and 191% at December 31, 2022.
- On-balance sheet liquidity, collateralized borrowing and uncommitted federal funds availability was $517.4 million at March 31, 2023 and $570.0 million at December 31, 2022.
Balance Sheet and Asset Quality
Total assets increased modestly by $44.3 million during the quarter to $1.86 billion at March 31, 2023, compared to $1.82 billion at December 31, 2022.
Cash and cash equivalents increased $29.7 million during the quarter to $65.1 million at March 31, 2023, largely due to an increase in interest-bearing deposits of $20 million.
Securities available for sale increased $7.4 million during the quarter ended March 31, 2023 to $173.4 million from $166.0 million at December 31, 2022. This increase was primarily due to the purchase of floating-rate SBA backed pass-through securities, with a modest increase in the market value of the portfolio more than offsetting principal repayments.
Securities held to maturity decreased $1.1 million to $95.3 million during the quarter ended March 31, 2023 from $96.4 million at December 31, 2022 due to principal repayments.
Total loans receivable increased to $1.421 billion at March 31, 2023 from $1.412 billion at December 31, 2022. Draws on construction loans increased $12.5 million during the first quarter. 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 $5.0 million. The commercial and industrial loan portfolio decrease of $5.1 million was largely due to the reduction and payoff of a special mention credit. Agricultural operating loans decreased $4.7 million due to normal seasonality.
The allowance for credit losses on loans increased to $22.7 million at March 31, 2023, largely as a result of the $4.7 million CECL transition adjustment, representing 1.60% of total loans receivable. At December 31, 2022, the allowance for loan losses was 1.27% of total loans receivable. For the quarter ended March 31, 2023, the Bank had net charge offs of $23 thousand.
Allowance for Credit Losses (“ACL”) - Loans Percentage
(in thousands, except ratios)
March 31, 2023 December 31, 2022 September 30, 2022 June 30, 2022 Loans, end of period $ 1,420,955 $ 1,411,784 $ 1,375,876 $ 1,346,855 Allowance for credit losses - Loans $ 22,679 Allowance for loan losses “ALL” $ 17,939 $ 17,217 $ 16,825 ACL - Loans as a percentage of loans, end of period 1.60 % ALL as a percentage of loans, end of period 1.27 % 1.25 % 1.25 % Allowance for Credit Losses - Unfunded Commitments:
(in thousands)In addition to the ACL - Loans, the Company has established an ACL - Unfunded Commitments of $1,530 at March 31, 2023 and $0 at December 31, 2022, classified in other liabilities on the consolidated balance sheets.
March 31, 2023
and Three Months
EndedDecember 31, 2022
and Three Months
EndedACL - Unfunded commitments - beginning of period $ — $ — Cumulative effect of ASU 2016-13 adoption 1,537 — Reductions to ACL - Unfunded commitments via provision for credit losses charged to operations (7 ) — ACL - Unfunded commitments - end of period $ 1,530 $ — Nonperforming assets declined to $11.7 million or 0.63% of total assets at March 31, 2023, compared to $12.7 million or 0.70% at December 31, 2022.
(in thousands) March 31, 2023 December 31, 2022 September 30, 2022 June 30, 2022 March 31, 2022 Special mention loan balances $ 6,636 $ 12,170 $ 20,178 $ 17,274 $ 1,849 Substandard loan balances 15,439 17,319 20,227 20,680 24,822 Criticized loans, end of period $ 22,075 $ 29,489 $ 40,405 $ 37,954 $ 26,671 Special mention loans decreased $5.5 million, largely due to a payoff of a commercial loan. Substandard loans decreased modestly by $1.9 million to $15.4 million at March 31, 2023, compared to $17.3 million at December 31, 2022.
From a month-end perspective, deposits remained stable. From March 7, 2023 to March 31, 2023, a period closely monitored for unusual withdrawal activity, balances remained stable. Deposit composition changed during the quarter ended March 31, 2023, as both business and retail depositors sought higher yields on deposit accounts. For the quarter, retail deposits remained stable, with customers returning to higher yielding certificates with money moving from money market and savings accounts. In January 2023, commercial non-interest bearing deposits fell as commercial customers decreased their cash balances to support the needs of their businesses. Modest brokered deposit growth supplemented deposit growth, with $10 million of brokered money market growth and $15 million of brokered certificate growth.
Deposit Portfolio Composition
(in thousands)March 31, 2023 February 28, 2023 January 31, 2023 December 31, 2022 Consumer deposits $ 786,614 $ 784,162 $ 779,476 $ 805,598 Commercial deposits 391,534 388,770 385,071 405,733 Public deposits 194,683 193,213 195,115 173,548 Brokered deposits 63,962 53,963 39,841 39,841 Total deposits $ 1,436,793 $ 1,420,108 $ 1,399,503 $ 1,424,720 Deposit Composition
(in thousands)March 31, 2023 December 31, 2022 March 31, 2022 Non-interest bearing demand deposits $ 247,735 $ 284,722 $ 269,481 Interest bearing demand deposits 390,730 371,210 423,251 Savings accounts 214,537 220,019 241,072 Money market accounts 309,005 323,435 321,409 Certificate accounts 274,786 225,334 173,010 Total deposits $ 1,436,793 $ 1,424,720 $ 1,428,223 Federal Home Loan Bank advances increased $40 million to $182.5 million at March 31, 2023 from $142.5 million one quarter earlier. Relative to brokered deposits and maturity sensitivity, FHLB advances provided a less expensive funding option.
The Company did not repurchase any of the Company’s common stock in the first quarter of 2023. As of March 31, 2023, approximately 243 thousand shares remain available for repurchase under the current share repurchase authorization.
Review of Operations
Net interest income was $12.8 million for the first quarter ended March 31, 2023, compared to $14.5 million for the quarter ended December 31, 2022, and decreased slightly from $13.2 million for the quarter ended March 31, 2022. Net interest income for the first quarter of 2022, included $0.3 million of SBA PPP net loan fee accretion. “The decrease in net interest income in the first quarter was due to funding costs exceeding increases in assets yields. Though our one-year interest rate risk profile remains nearly neutral with repricing borrowings and deposits modestly exceeding repricing assets, we expect to see a reduction in the net interest margin in the second quarter of 2023, due to increasing CD costs as ending certificate rates exceeded the first quarter average by 50 basis points and the full quarter impact of late first quarter deposit repricing,” said Jim Broucek, Executive Vice President and Chief Financial Officer.
Net interest income and net interest margin analysis:
(in thousands, except yields and rates)Three months ended March 31, 2023 December 31, 2022 September 30, 2022 June 30, 2022 March 31, 2022 Net
Interest
IncomeNet
Interest
MarginNet
Interest
IncomeNet
Interest
MarginNet
Interest
IncomeNet
Interest
MarginNet
Interest
IncomeNet
Interest
MarginNet
Interest
IncomeNet
Interest
MarginAs reported $ 12,795 3.02 % $ 14,478 3.40 % $ 14,457 3.43 % $ 14,267 3.46 % $ 13,167 3.25 % Less non-accretable difference realized as interest from payoff of purchased credit impaired (“PCI”) loans — — % (109 ) (0.02 )% (34 ) (0.01 )% (70 ) (0.02 )% (26 ) (0.01 )% Less accelerated accretion from payoff of certain PCI loans with transferred non-accretable differences — — % (32 ) (0.01 )% (117 ) (0.06 )% (308 ) (0.08 )% (11 ) — % Less accretion for PCD loans (37 ) (0.01 )% — — % — — % — — % — — % Less scheduled accretion interest (84 ) (0.02 )% (169 ) (0.04 )% (247 ) (0.03 )% (255 ) (0.06 )% (264 ) (0.07 )% Without loan purchase accretion $ 12,674 2.99 % $ 14,168 3.33 % $ 14,059 3.33 % $ 13,634 3.30 % $ 12,866 3.17 % Less SBA PPP net loan fee accretion — — % — — % — — % (39 ) (0.01 )% (259 ) (0.06 )% Without SBA PPP net loan fee accretion and loan purchase accretion $ 12,674 2.99 % $ 14,168 3.33 % $ 14,059 3.33 % $ 13,595 3.29 % $ 12,607 3.11 % Credit loss provisions for the quarter ended March 31, 2023 were $50 thousand reflecting the expanding loan portfolio. Loan loss provisions for the quarters ended December 31, 2022, and March 31, 2022, were $0.7 million and $0, respectively.
Non-interest income decreased to $2.3 million in the quarter ended March 31, 2023, compared to $2.9 million in the quarter ended December 31, 2022 and $2.7 million in the quarter ended March 31, 2022. The decrease in the first quarter of 2023, compared to the fourth quarter of 2022, was largely due to lower gains on investment securities. Relative to the comparable quarter one year earlier, non-interest income was lower as a result of lower gain on sale of loans and lower loan servicing income.
Total non-interest expense decreased $215 thousand in the first quarter of 2023 to $10.1 million, compared to $10.3 million for the quarter ended December 31, 2022, and $9.7 million for the quarter ended March 31, 2022. The decrease from the fourth quarter of 2022 was due to: (1) lower other non-interest expense of $0.5 million, largely due to fourth quarter branch closure costs primarily associated with reductions in value of the two closed branches totaling $0.7 million; (2) new market tax credit depletion being reclassified to tax expense (see provision for taxes below); (3) lower marketing expenses due to seasonality; and (4) a reduction in the amortization of core deposit intangibles. These decreases were partially offset by the impact of a one-time seasonal $0.3 million reduction in compensation expense recognized in the fourth quarter of 2022 and increases in other related benefits, occupancy and data processing.
Provision for income taxes decreased to $1.3 million in the first quarter of 2023 from $1.6 million in the fourth quarter of 2022 due primarily to lower pre-tax income. However, income tax provisions were impacted by the adoption of new accounting practices related to tax credit investments. “Effective January 1, 2023, the Company early adopted ASU 2023-02. This guidance results in new market tax credit depletion being reclassified from non-interest expense to tax expense and changes the amortization method to be proportional to the tax credit realized. As a result, retained earnings increased $130 thousand, effective January 1, 2023, non-interest expense decreased by $162 thousand from the previous quarter results, and the effective tax rate increased to 25.5% in the first quarter,” said Broucek. The effective tax rate was 25.6% in the previous quarter due to higher net income and 24.2% for the comparable prior year quarter.
These financial results are preliminary until the Form 10-Q is filed in May 2023.
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 23 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 credit 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, 2022, filed with the Securities and Exchange Commission (“SEC”) on March 7, 2023 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.
1 Non-GAAP Financial Measures
This press release contains non-GAAP financial measures, such as net income as adjusted, net income as adjusted per share, 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.
Net income as adjusted and net income as adjusted per share are non-GAAP measures that eliminate the impact of certain expenses such as branch closure costs and related severance pay, accelerated depreciation expense and lease termination fees, and the gain on sale of branch deposits and fixed assets. 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)March 31, 2023
(unaudited)December 31, 2022
(audited)March 31, 2022
(unaudited)Assets Cash and cash equivalents $ 65,050 $ 35,363 $ 84,364 Other interest bearing deposits 249 249 1,511 Securities available for sale “AFS” 173,423 165,991 187,905 Securities held to maturity “HTM” 95,301 96,379 104,894 Equity investments 2,151 1,794 1,291 Other investments 17,428 15,834 15,084 Loans receivable 1,420,955 1,411,784 1,290,176 Allowance for credit losses (22,679 ) (17,939 ) (16,818 ) Loans receivable, net 1,398,276 1,393,845 1,273,358 Loans held for sale 761 — 2,528 Mortgage servicing rights, net 4,120 4,262 4,614 Office properties and equipment, net 20,197 20,493 21,393 Accrued interest receivable 5,550 5,285 4,179 Intangible assets 2,245 2,449 3,499 Goodwill 31,498 31,498 31,498 Foreclosed and repossessed assets, net 1,113 1,271 1,368 Bank owned life insurance (“BOLI”) 25,118 24,954 24,464 Other assets 18,240 16,719 13,519 TOTAL ASSETS $ 1,860,720 $ 1,816,386 $ 1,775,469 Liabilities and Stockholders’ Equity Liabilities: Deposits $ 1,436,793 $ 1,424,720 $ 1,428,223 Federal Home Loan Bank (“FHLB”) advances 182,530 142,530 85,530 Other borrowings 67,300 72,409 87,062 Other liabilities 9,536 9,639 9,160 Total liabilities 1,696,159 1,649,298 1,609,975 Stockholders’ equity: Common stock— $0.01 par value, authorized 30,000,000; 10,482,821, 10,425,119 and 10,526,781 shares issued and outstanding, respectively 105 104 105 Additional paid-in capital 119,327 119,240 119,789 Retained earnings 61,720 65,400 52,562 Accumulated other comprehensive loss (16,591 ) (17,656 ) (6,962 ) Total stockholders’ equity 164,561 167,088 165,494 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 1,860,720 $ 1,816,386 $ 1,775,469 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 March 31, 2023
(unaudited)December 31, 2022
(unaudited)March 31, 2022
(unaudited)Interest and dividend income: Interest and fees on loans $ 17,126 $ 17,042 $ 13,767 Interest on investments 2,547 2,317 1,609 Total interest and dividend income 19,673 19,359 15,376 Interest expense: Interest on deposits 4,348 2,695 1,068 Interest on FHLB borrowed funds 1,493 1,127 311 Interest on other borrowed funds 1,037 1,059 830 Total interest expense 6,878 4,881 2,209 Net interest income before provision for credit losses 12,795 14,478 13,167 Provision for credit losses 50 700 — Net interest income after provision for credit losses 12,745 13,778 13,167 Non-interest income: Service charges on deposit accounts 485 513 488 Interchange income 551 583 549 Loan servicing income 569 527 701 Gain on sale of loans 298 144 722 Loan fees and service charges 80 179 92 Net gains (losses) on investment securities 56 708 (37 ) Other 253 219 198 Total non-interest income 2,292 2,873 2,713 Non-interest expense: Compensation and related benefits 5,338 5,241 5,398 Occupancy 1,423 1,353 1,365 Data processing 1,460 1,355 1,301 Amortization of intangible assets 204 252 399 Mortgage servicing rights expense, net 158 157 (327 ) Advertising, marketing and public relations 136 255 212 FDIC premium assessment 201 118 115 Professional services 505 555 402 Gains on repossessed assets, net (29 ) (378 ) (7 ) New market tax credit depletion — 162 163 Other 725 1,266 647 Total non-interest expense 10,121 10,336 9,668 Income before provision for income taxes 4,916 6,315 6,212 Provision for income taxes 1,254 1,619 1,506 Net income attributable to common stockholders $ 3,662 $ 4,696 $ 4,706 Per share information: Basic earnings $ 0.35 $ 0.45 $ 0.45 Diluted earnings $ 0.35 $ 0.45 $ 0.45 Cash dividends paid $ 0.29 $ — $ 0.26 Book value per share at end of period $ 15.70 $ 16.03 $ 15.72 Tangible book value per share at end of period (non-GAAP) $ 12.48 $ 12.77 $ 12.40 Note: Certain items previously reported were reclassified for consistency with the current presentation.
Reconciliation of GAAP Net Income and Net Income as Adjusted (non-GAAP)
(in thousands, except per share data)Three Months Ended March 31, 2023 December 31, 2022 March 31, 2022 GAAP pretax income $ 4,916 $ 6,315 $ 6,212 Branch closure costs (1) — 646 — Pretax income as adjusted (2) 4,916 6,961 6,212 Provision for income tax on net income as adjusted (3) 1,254 1,785 1,506 Net income as adjusted (non-GAAP) (2) $ 3,662 $ 5,176 $ 4,706 GAAP diluted earnings per share, net of tax $ 0.35 $ 0.45 $ 0.45 Branch closure costs, net of tax (4) — 0.04 — Diluted earnings per share, as adjusted, net of tax (non-GAAP) $ 0.35 $ 0.49 $ 0.45 Average diluted shares outstanding 10,477,610 10,460,025 10,541,306 (1) Branch closure costs include severance pay recorded in compensation and benefits and accelerated depreciation expense included in other non-interest expense in the consolidated statement of operations.
(2) Pretax income as adjusted and net income as adjusted is a non-GAAP measure that management believes enhances the market’s ability to assess the underlying business performance and trends related to core business activities.
(3) Provision for income tax on net income as adjusted is calculated at our effective tax rate for each respective period presented.
(4) Branch closure costs, net of tax is rounded to $0.04 to balance to diluted earnings per share, as adjusted, net of tax (non-GAAP).Loan Composition
(in thousands)
March 31, 2023 December 31, 2022 March 31, 2022 Total Loans: Commercial/Agricultural real estate: Commercial real estate $ 726,748 $ 725,971 $ 689,774 Agricultural real estate 90,958 87,908 75,716 Multi-family real estate 207,786 208,908 179,487 Construction and land development 114,951 102,492 87,880 C&I/Agricultural operating: Commercial and industrial 130,943 136,013 121,022 Agricultural operating 24,146 28,806 28,757 Residential mortgage: Residential mortgage 110,379 105,389 84,773 Purchased HELOC loans 3,206 3,262 3,487 Consumer installment: Originated indirect paper 9,314 10,236 14,508 Other consumer 6,728 7,150 8,191 Gross loans before SBA PPP loans $ 1,425,159 $ 1,416,135 $ 1,293,595 SBA PPP loans — — 2,071 Gross loans $ 1,425,159 $ 1,416,135 $ 1,295,666 Unearned net deferred fees and costs and loans in process (2,689 ) (2,585 ) (2,223 ) Unamortized discount on acquired loans (1,515 ) (1,766 ) (3,267 ) Total loans receivable $ 1,420,955 $ 1,411,784 $ 1,290,176 Nonperforming Assets
(in thousands, except ratios)
March 31, 2023 (1) December 31, 2022 March 31, 2022 Nonperforming assets: Nonaccrual loans Commercial real estate $ 5,514 $ 5,736 $ 5,503 Agricultural real estate 2,496 2,742 3,454 Construction and land development — — 129 Commercial and industrial (“C&I”) 452 552 284 Agricultural operating 794 890 1,064 Residential mortgage 1,131 1,253 1,334 Consumer installment 23 31 90 Total nonaccrual loans $ 10,410 $ 11,204 $ 11,858 Accruing loans past due 90 days or more 224 246 398 Total nonperforming loans (“NPLs”) 10,634 11,450 12,256 Foreclosed and repossessed assets, net 1,113 1,271 1,368 Total nonperforming assets (“NPAs”) $ 11,747 $ 12,721 $ 13,624 Loans, end of period $ 1,420,955 $ 1,411,784 $ 1,290,176 Total assets, end of period $ 1,860,720 $ 1,816,386 $ 1,775,469 Ratios: NPLs to total loans 0.75 % 0.81 % 0.95 % NPAs to total assets 0.63 % 0.70 % 0.77 % (1) Loan balances are at amortized cost.
Average Balances, Interest Yields and Rates
(in thousands, except yields and rates)Three Months Ended
March 31, 2023Three Months Ended
December 31, 2022Three Months Ended
March 31, 2022Average
BalanceInterest
Income/
ExpenseAverage
Yield/
Rate (1)Average
BalanceInterest
Income/
ExpenseAverage
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Rate (1)Average
BalanceInterest
Income/
ExpenseAverage
Yield/
Rate (1)Average interest earning assets: Cash and cash equivalents $ 18,270 $ 140 3.11 % $ 8,134 $ 88 4.29 % $ 35,208 $ 13 0.15 % Loans receivable 1,412,409 17,126 4.92 % 1,399,244 17,041 4.83 % 1,304,141 13,767 4.28 % Interest bearing deposits 249 1 1.63 % 337 2 2.35 % 1,511 8 2.15 % Investment securities (1) 270,174 2,175 3.22 % 264,064 1,990 3.01 % 288,261 1,416 1.99 % Other investments 16,663 231 5.62 % 15,783 238 5.98 % 15,258 172 4.57 % Total interest earning assets (1) $ 1,717,765 $ 19,673 4.64 % $ 1,687,562 $ 19,359 4.55 % $ 1,644,379 $ 15,376 3.79 % Average interest bearing liabilities: Savings accounts $ 216,169 $ 382 0.72 % $ 226,082 $ 312 0.55 % $ 233,642 $ 99 0.17 % Demand deposits 391,635 1,432 1.48 % 379,011 836 0.88 % 410,890 213 0.21 % Money market accounts 301,710 1,096 1.47 % 316,791 710 0.89 % 299,004 216 0.29 % CD’s 255,567 1,438 2.28 % 205,201 837 1.62 % 189,185 540 1.16 % Total deposits $ 1,165,081 $ 4,348 1.51 % $ 1,127,085 $ 2,695 0.95 % $ 1,132,721 $ 1,068 0.38 % FHLB advances and other borrowings 232,166 2,530 4.42 % 212,051 2,186 4.09 % 166,118 1,141 2.79 % Total interest bearing liabilities $ 1,397,247 $ 6,878 2.00 % $ 1,339,136 $ 4,881 1.45 % $ 1,298,839 $ 2,209 0.69 % Net interest income $ 12,795 $ 14,478 $ 13,167 Interest rate spread 2.64 % 3.10 % 3.10 % Net interest margin (1) 3.02 % 3.40 % 3.25 % Average interest earning assets to average interest bearing liabilities 1.23 1.26 1.27 (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 March 31, 2023, December 31, 2022 and March 31, 2022. The FTE adjustment to net interest income included in the rate calculations totaled $0, $0 and $1 thousand for the three months ended March 31, 2023, December 31, 2022 and March 31, 2022, respectively.
Key Financial Metric Ratios Based on a Net Income as Adjusted Basis:
Three Months Ended March 31, 2023 December 31, 2022 March 31, 2022 Ratios based on net income: Return on average assets (annualized) 0.81 % 1.03 % 1.09 % Return on average equity (annualized) 9.03 % 11.32 % 11.38 % Return on average tangible common equity4 (annualized) 11.85 % 14.85 % 15.32 % Efficiency ratio 66 % 61 % 58 % Net interest margin with loan purchase accretion 3.02 % 3.40 % 3.25 % Net interest margin without loan purchase accretion 2.99 % 3.33 % 3.17 % Ratios based on net income as adjusted (non-GAAP) Return on average assets as adjusted2 (annualized) 0.81 % 1.14 % 1.09 % Return on average equity as adjusted3 (annualized) 9.03 % 12.47 % 11.38 % Reconciliation of Return on Average Assets as Adjusted (non-GAAP)
(in thousands, except ratios)Three Months Ended March 31, 2023 December 31, 2022 March 31, 2022 GAAP earnings after income taxes $ 3,662 $ 4,696 $ 4,706 Net income as adjusted after income taxes (non-GAAP) (1) $ 3,662 $ 5,176 $ 4,706 Average assets $ 1,823,748 $ 1,803,155 $ 1,750,114 Return on average assets (annualized) 0.81 % 1.03 % 1.09 % Return on average assets as adjusted (non-GAAP) (annualized) 0.81 % 1.14 % 1.09 % (1) See Reconciliation of GAAP Net Income and Net Income as Adjusted (non-GAAP)
Reconciliation of Return on Average Equity as Adjusted (non-GAAP)
(in thousands, except ratios)Three Months Ended March 31, 2023 December 31, 2022 March 31, 2022 GAAP earnings after income taxes $ 3,662 $ 4,696 $ 4,706 Net income as adjusted after income taxes (non-GAAP) (1) $ 3,662 $ 5,176 $ 4,706 Average equity $ 164,426 $ 164,621 $ 167,746 Return on average equity (annualized) 9.03 % 11.32 % 11.38 % Return on average equity as adjusted (non-GAAP) (annualized) 9.03 % 12.47 % 11.38 % (1) See Reconciliation of GAAP Net Income and Net Income as Adjusted (non-GAAP)
Reconciliation of tangible book value per share (non-GAAP)
(in thousands, except per share data)Tangible book value per share at end of period March 31, 2023 December 31, 2022 March 31, 2022 Total stockholders’ equity $ 164,561 $ 167,088 $ 165,494 Less: Goodwill (31,498 ) (31,498 ) (31,498 ) Less: Intangible assets (2,245 ) (2,449 ) (3,499 ) Tangible common equity (non-GAAP) $ 130,818 $ 133,141 $ 130,497 Ending common shares outstanding 10,482,821 10,425,119 10,526,781 Book value per share $ 15.70 $ 16.03 $ 15.72 Tangible book value per share (non-GAAP) $ 12.48 $ 12.77 $ 12.40 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 March 31, 2023 December 31, 2022 March 31, 2022 Total stockholders’ equity $ 164,561 $ 167,088 $ 165,494 Less: Goodwill (31,498 ) (31,498 ) (31,498 ) Less: Intangible assets (2,245 ) (2,449 ) (3,499 ) Tangible common equity (non-GAAP) $ 130,818 $ 133,141 $ 130,497 Total Assets $ 1,860,720 $ 1,816,386 $ 1,775,469 Less: Goodwill (31,498 ) (31,498 ) (31,498 ) Less: Intangible assets (2,245 ) (2,449 ) (3,499 ) Tangible Assets (non-GAAP) $ 1,826,977 $ 1,782,439 $ 1,740,472 Total stockholders’ equity to total assets ratio 8.84 % 9.20 % 9.32 % Tangible common equity as a percent of tangible assets (non-GAAP) 7.16 % 7.47 % 7.50 % Reconciliation of Return on Average Tangible Common Equity (non-GAAP)
(in thousands, except ratios)Three Months Ended March 31, 2023 December 31, 2022 March 31, 2022 Total stockholders’ equity $ 164,561 $ 167,088 $ 165,494 Less: Goodwill (31,498 ) (31,498 ) (31,498 ) Less: Intangible assets (2,245 ) (2,449 ) (3,499 ) Tangible common equity (non-GAAP) $ 130,818 $ 133,141 $ 130,497 Average tangible common equity (non-GAAP) $ 130,582 $ 130,577 $ 132,550 GAAP earnings after income taxes 3,662 4,696 4,706 Amortization of intangible assets, net of tax 152 190 302 Tangible net income $ 3,814 $ 4,886 $ 5,008 Return on average tangible common equity (annualized) 11.85 % 14.85 % 15.32 % Reconciliation of Efficiency Ratio
(in thousands, except ratios)Three Months Ended March 31, 2023 December 31, 2022 March 31, 2022 Non-interest expense (GAAP) $ 10,121 $ 10,336 $ 9,668 Less amortization of intangibles (204 ) (252 ) (399 ) Efficiency ratio numerator (GAAP) $ 9,917 $ 10,084 $ 9,269 Non-interest income $ 2,292 $ 2,873 $ 2,713 Loss (Gain) on investment securities (56 ) (708 ) 37 Net interest margin 12,795 14,478 13,167 Efficiency ratio denominator (GAAP) $ 15,031 $ 16,643 $ 15,917 Efficiency ratio (GAAP) 66 % 61 % 58 % 1Net income as adjusted and net income as adjusted per share are non-GAAP financial measures 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 and Net Income as Adjusted (non-GAAP)”.
2Return on average assets as adjusted is a non-GAAP measure that management believes enhances investors’ ability to better understand the underlying business performance and trends relative to average assets. For a detailed reconciliation of GAAP to non-GAAP results, see the accompanying financial table “Reconciliation of Return on Average Assets as Adjusted (non-GAAP)”.
3Return on average equity as adjusted is a non-GAAP measure that management believes enhances investors’ ability to better understand the underlying business performance and trends relative to average equity. For a detailed reconciliation of GAAP to non-GAAP results, see the accompanying financial table “Reconciliation of Return on Average Equity as Adjusted (non-GAAP)”.
4Tangible 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)”.
- Quarterly earnings of $3.7 million, or $0.35 per diluted share for the quarter ended March 31, 2023, decreased from the quarter ended December 31, 2022, earnings of $4.7 million or $0.45 per diluted share, and decreased from the quarter ended March 31, 2022, earnings of $4.7 million or $0.45 per diluted share.