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Home / Family / Citizens Community Bancorp, Inc. Earns $1.1 million For Fourth Fiscal Quarter 2018; Fiscal Year 2018 Earnings Were …

Citizens Community Bancorp, Inc. Earns $1.1 million For Fourth Fiscal Quarter 2018; Fiscal Year 2018 Earnings Were …

EAU CLAIRE, Wis., Oct. 26, 2018 (GLOBE NEWSWIRE) — 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 ne 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. — 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.

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)”.

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 Citizens To Be Well Capitalized Under Community Community Federal N.A. Bancorp, Inc. 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 12.2% 16.8% 6.5% assets) Tier 1 leverage ratio (to adjusted total assets) 9.2% 12.7% 5.0%

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 proce 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 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 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 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

CITIZENS COMMUNITY BANCORP, INC. Consolidated Balance Sheets (unaudited) (in thousands) September June 30, September 30, 2018 2018 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 — 61,289 — outstanding, respectively Common stock— $0.01 par value, authorized 30,000,000; 10,913,853; 109 59 59 5,914,379; and 5,888,816 shares issued and outstanding, respectively 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.

CITIZENS COMMUNITY BANCORP, INC. Consolidated Statements of Operations (unaudited) (in thousands, except per share data) Three Months Ended Twelve Months Ended September 30, June 30, September September September 30, 30, 30, 2018 2018 2017 2018 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 7,940 7,480 6,172 30,303 22,268 losses Provision for loan losses 450 650 319 1,300 319 ——- – ——– – ——– —- Net interest income after provision for loan 7,490 6,830 5,853 29,003 21,949 losses ——- —– ——- ——- – ——– – ——– —- 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 proce — — — — 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 $ 1,099 $ 503 $ (458 ) $ 4,283 $ 2,499 stockholders – —– —– – —– – —– – – —— – – —— —- 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 $ 11.05 $ 9.89 $ 9.78 $ 11.05 $ 9.78 (non-GAAP) – —– —– – —– – —– – – —— – – —— —-

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

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

Three Months Ended Twelve Months Ended September June September September September 30, 30, 2018 2018 30, 2017 30, 2018 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 proce — — — — (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 Proce — — — — (0.03 ) Prepayment fee — — — — 0.01 Net income as adjusted diluted earnings per share, net of $ 0.12 $ 0.11 $ 0.14 $ 0.68 $ 0.79 tax (non-GAAP) – —– – —- – —– – – —– – —– – Average diluted shares outstanding 10,950,9 6,461,7 5,629,36 7,335,24 5,378,54 80 60 3 7 8

(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. (6) Reconciliation of tangible book value:

September June 30, March 31, September Tangible book value per share at end of period 30, 2018 2018 30, 2018 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 September June 30, March 31, September end of period 30, 2018 2018 30, 2018 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 12.56 % 6.51 % 6.26 % 6.23 % (non-GAAP) ——— – ——— – ——— – ——— –

Nonperforming Assets:

September June 30, September September 30, 2018 30, 30, 2018 and Three 2018 2017 and Three Months and Twelve and Twelve Months Ended Months Months Ended Ended 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 450 650 1,300 319 operations ——— – 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 %

Nonaccrual Loans Rollforward:

Quarter Ended September June 30, March 31, December September 30, 2018 31, 30, 2018 2018 2017 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 June 30, March 31, December September 30, 2018 31, 30, 2018 2018 2017 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 Recorded Number of Recorded Number of Recorded Number of Recorded Modifications Investment Modifications Investment Modifications Investment Modifications Investment ————- ———- ————- ———- ————- ———- ————- ———- Troubled debt restructurings: Accrual Status Residential real estate 34 $ 3,495 32 $ 3,580 28 $ 3,015 28 $ 3,084 Commercial/Agricultural 14 1,646 14 1,662 12 2,414 8 1,890 real estate Consumer non-real 14 109 15 122 16 146 17 168 estate Commercial/Agricultural 3 481 3 496 3 517 2 88 non-real estate — ———- ——- — — ———- ——- — — ———- ——- — — ———- Total loans 65 $ 5,731 64 $ 5,860 59 $ 6,092 55 $ 5,230 — ———- – —– — — ———- – —– — — ———- – —– — — ———- – —– —

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 – ——- ——– – ——- — – ——- ——–

Loan Composition September June 30, September 30, 2018 2018 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 – ——- – – ——- – – ——- –

Deposit Composition:

September 30, June 30, September 30, 2018 2018 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 Three months ended June 30, Three months ended September 30, 2018 2018 30, 2017 Average Average Average Average Interest Yield/ Average Interest Yield/ Average Interest Yield/ Balance Income/ Rate Balance Income/ Balance Income/ Expense (1) Expense Rate Expense Rate (1) (1) ———- ——— —— ———- ——– —— ———- ——– —— Average interest earning assets: Cash and cash $ 24,468 $ 117 1.90 % $ 19,203 $ 61 1.27 % $ 32,692 $ 71 0.86 % equivalents Loans receivable 754,442 9,414 4.95 % 729,390 8,865 4.87 % 621,530 7,194 4.59 % Interest bearing 7,971 42 2.09 % 8,418 44 2.10 % 4,571 18 1.56 % deposits Investment 124,991 674 2.30 % 124,715 701 2.44 % 90,467 511 2.24 % securities (1) Non-marketable equity securities, 7,581 115 6.02 % 8,158 99 4.87 % 5,701 57 3.97 % at cost Total interest $ 919,453 $ 10,362 4.49 % $ 889,884 $ 9,770 4.43 % $ 754,961 $ 7,851 4.13 % earning assets (1) – ——- – ——- – ——- – —– 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 116,597 213 0.72 % 115,625 196 0.68 % 128,039 168 0.52 % accounts 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 96,448 763 3.14 % 114,498 859 3.01 % 93,978 503 2.12 % other borrowings ——— ——— ——— Total interest $ 763,122 $ 2,422 1.26 % $ 779,731 $ 2,290 1.18 % $ 659,287 $ 1,598 0.96 % bearing liabilities – ——- – —— – ——- – —– – ——- – —– Net interest income $ 7,940 $ 7,480 $ 6,253 – —— – —– – —– Interest rate 3.23 % 3.25 % 3.17 % spread —- – —- – —- – Net interest margin 3.45 % 3.40 % 3.29 % (1) —- – —- – —- – Average interest earning assets to 1.20 1.14 1.15 average interest bearing liabilities —- – —- – —- –

(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.

Twelve months ended September Twelve months ended September 30, 30, 2018 2017 Interest Average Interest Average Average Income/ Yield/ Average Income/ Yield/ Balance Expense Rate Balance Expense Rate (1) (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 % ——— ——– ——— ——– Total interest earning assets (1) $ 892,472 $ 38,896 4.38 % $ 682,545 $ 28,173 4.13 % – ——- – ——- Average interest bearing liabilities: Savings accounts $ 94,854 $ 162 0.17 % $ 53,530 $ 67 0.13 % Demand deposits 149,282 475 0.32 % 65,283 273 0.42 % Money market accounts 118,229 738 0.62 % 126,487 555 0.44 % CD’s 269,749 3,807 1.41 % 236,590 3,104 1.31 % IRA’s 33,668 361 1.07 % 29,042 300 1.03 % ——— ——– ——— ——– Total deposits $ 665,782 $ 5,543 0.83 % $ 510,932 $ 4,299 0.84 % FHLB advances and other borrowings 110,790 3,050 2.75 % 82,781 1,311 1.58 % ——— ——– ——— ——– Total interest bearing liabilities $ 776,572 $ 8,593 1.11 % $ 593,713 $ 5,610 0.94 % – ——- – —— – ——- – —— Net interest income $ 30,303 $ 22,563 – —— – —— Interest rate spread 3.28 % 3.19 % —- – —- – Net interest margin (1) 3.42 % 3.31 % —- – —- – Average interest earning assets to average 1.15 1.15 interest bearing liabilities —- – —- –

(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% and 34% for the twelve months ended September 30, 2018 and September 30, 2017, respectively. The FTE adjustment to net interest income included in the rate calculations totaled $211 and $295 for the twelve months ended September 30, 2018 and 2017, respectively.

CITIZENS COMMUNITY FEDERAL N.A.Selected Capital Composition Highlights (unaudited)

September June 30, September To Be Well Capitalized Under 30, 2018 2018 30, 2017 Prompt Corrective Action Provisions ——— ——– ——— —————————- Total capital (to risk weighted assets) 13.1% 12.8% 13.2% 10.0% Tier 1 capital (to risk weighted assets) 12.2% 11.9% 12.4% 8.0% Common equity tier 1 capital (to risk weighted 12.2% 11.9% 12.4% 6.5% assets) Tier 1 leverage ratio (to adjusted total assets) 9.2% 9.3% 9.2% 5.0%

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