Citizens Community Bancorp, Inc. Earns $2.6 Million, or $0.23 Per Share, in 1Q20; First Quarter Highlighted by COVID 19 Preparation

About this update from Citizens Community Bancorp, Inc.

EAU CLAIRE, Wis. , April 28, 2020 (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 $2.6 million , or $0.23 per diluted share, for the quarter ended March 31, 2020 , compared to $3.2 million , or $0.28 per diluted share for the previous quarter ended December 31, 2019 . In February 2020 , the Company’s operations were impacted by the COVID19 pandemic where state and national “Stay-At-Home” orders impacted businesses and their abilities to generate revenue. The Bank has initiated its Business Continuity Plan to protect its employees and communities which, in part, included closing lobbies of branches and directing approximately 40% of its workforce to work remotely. Full banking operations, however, continued with emphasis on bankers conducting customer outreach to understand customer needs and provide support for customer needs. Our mortgage team is busy with robust refinancing activity. The Company’s first quarter operating results reflected: (1) improved asset quality that fueled accretion on purchase credit impaired loans and gains on the sale of OREO, (2) a continued robust refinancing market, (3) higher loan loss provisions due to COVID 19 impact on slowing the economy, loan growth and the net impact of specific reserves and net charge-offs, (4) slightly higher non-interest expense due to substantially higher impairment of purchase mortgage servicing, and (5) higher tax expenses. “We are seeing all industries being impacted by the COVID19 pandemic. Restaurants and hotels have seen significant declines in cashflow, while some selected manufactures have seen an uptick in business related to health care products. The agricultural sector has been negatively affected by commodity prices related to corn and dairy, which may be partially offset by agricultural support from the federal government. Additionally, wholesale distributers are experiencing varying impacts,” said Stephen Bianchi , Chairman, President and Chief Executive Officer. “We are closely monitoring borrowers and businesses we serve and are providing debt service relief for those that have been impacted. Specifically, we have provided relief on loan covenants, allowed borrowers to pay interest-only or defer loan payments for a period of time and provided working capital when necessary.” “As the Paycheck Protection Program (PPP) was initiated in early April through the Small Business Administration , we processed over 1,000 loan applications with $124 million being disbursed to customers. We earned new business in the first two weeks of April by being well organized with marketing, process and fulfillment, and because we worked through the weekend to help businesses in our communities. Early survey results showed 98% of our bankers were knowledgeable about PPP, 94% of applicants were very satisfied with their banker and 99% would refer a friend”, according to Mr. Bianchi . “I couldn’t be more proud of our colleagues’ caring and commitment to our customers, and to each other during this pandemic. They have adapted well to changes and different ways to conduct business, such as using video conferencing for small and large group meetings as colleagues work remotely”, Bianchi said. March 31, 2020 Highlights: (as of or for the quarter 3-month period ended March 31, 2020 , compared to December 31, 2019 ) Non-performing assets declined to $19.2 million or 1.28% of total assets at March 31, 2020 from $21.6 million , or 1.41% of total assets at December 31, 2019 . The payoff of certain purchase credit impaired loans resulted in accretion to loan interest income of approximately $1.0 million . Loans receivable remained at $1.18 billion at March 31, 2020 despite the repayment of a $12.7 million line of credit on the first business day of the quarter, principal repayments of $5.8 million in one-to-four family loans and $3.2 million of principal repayments on indirect paper. Tangible book value per share (non-GAAP)5 was $9.80 at March 31, 2020 compared to $9.89 at December 31, 2019 , reflecting earnings and the amortization of intangible assets, more than offset by the impacts of (1) an annual dividend payment, (2) the negative impact on other comprehensive loss of unrealized losses in the securities portfolio and (3) the impact of shares repurchased. The net interest margin (“NIM”) increased to 3.64% for the quarter ended March 31, 2020 from 3.41% the prior quarter. The increase primarily related to higher realized nonaccretable discount, included in loan interest income, due to the payoffs of certain purchased credit impaired loans. The net interest margin, excluding realized nonaccretable discount and scheduled accretion was 3.27% for the quarter ended March 31, 2020 compared to 3.26% the previous quarter. The impact of payoff of nonaccrual loans in the quarter increased the net interest margin 3 basis points from the prior quarter. The swift reduction in short-term interest rates by the Federal Reserve is not fully reflected in the March 31, 2020 quarter due to the 125 basis point reduction in short-term interest rates occurring in early and mid-March. The Bank recorded provision for loan losses of $2.0 million for the quarter ended March 31, 2020 . In anticipation of a COVID 19-related economic slowdown, management recorded an additional provision for loan losses of $750,000 . Various “Stay-at-Home Orders” resulted in temporary business closures, reduced operating capacity and uncertainty regarding potential future revenue and cash flows for certain businesses, including bank borrowers. Approximately $600,000 of the provision was related to loan portfolio growth in the quarter. The remaining provision was related to the impact of net loan charge-offs of $485,000 and necessary increases in specific and unallocated allowance for loan losses. In the fourth quarter of 2019, approximately $800,000 of provision for loan losses was due to loan growth with the remaining $600,000 due to increases in specific and unallocated allowances, and charge-offs. Hotels and restaurants represent our portfolios’ two industry sectors most directly and adversely affected by the COVID-19 pandemic. These sectors loans totaled approximately $115 million and $30 million , respectively. At March 31, 2020 , the weighted-average loan-to-value percentage and debt service coverage ratio on these hotel industry loans was 58.5% and 1.75 times, respectively. Approximately $21 million of restaurant loans are to franchise, quick-service restaurants. As of March 31, 2020 , the Bank had not yet completed any loan modifications due to COVID-related borrower requests. However, by April 22, 2020 , the Bank had approved $167.4 million of COVID-related modifications primarily consisting of payment deferrals, $133.4 million of which have been completed. Hotel and restaurant industry sectors represent approximately $94 million of the approved deferrals. $33 million of approved deferrals are in the real estate rental and leasing industry sector, where many of these are to facilitate landlords providing payment deferrals for their tenants. Non-interest income of $3.6 million for the quarter ended March 31, 2020 remained relatively flat compared to $3.8 million for the quarter ended December 31, 2019 . Total non-interest expense was higher due in part to increased impairment on mortgage servicing rights due to higher forecasted future prepayment rates, seasonally high professional fees related to the year-end audit and higher FDIC insurance expense due to receiving a lower FDIC insurance credit as the final credit was used this quarter. These expenses were partially offset by gains realized on the sale of foreclosed property. Estimated Bank and Company capital ratios exceeded regulatory guidelines for a well-capitalized financial institution under the Basel III regulatory requirements at March 31, 2020 : Citizens Community Federal N.A. Citizens Community Bancorp, Inc. To Be Well Capitalized Under Prompt Corrective Action Provisions Tier 1 leverage ratio (to adjusted total assets) 10.3% 7.5% 5.0% Tier 1 capital (to risk weighted assets) 12.6% 9.2% 8.0% Common equity tier 1 capital (to risk weighted assets) 12.6% 9.2% 6.5% Total capital (to risk weighted assets) 13.6% 11.5% 10.0% Balance Sheet and Asset Quality Total assets declined slightly during the quarter to $1.50 billion at March 31, 2020 compared to $1.53 billion one quarter earlier. The slight decline was primarily due to a lower level of cash and investments relative to the prior quarter. Cash and cash equivalents declined to $41.3 million at March 31, 2020 from $55.8 million at December 31, 2019 and securities available for sale declined to $163.4 million from $180.1 million over the same time frame. Securities held to maturity increased to $10.8 million at March 31, 2020 from $2.9 million at December 31, 2019 . Gross loans remained at $1.19 billion at March 31, 2020 despite declines in one-to-four family and originated indirect paper as these loans are paying down principal balances with only modest one-four family new originations being added to the portfolio. New commercial real estate, multi-family, agricultural real estate, agricultural non-real estate and construction loans represented the majority of the core loan growth, while commercial non-real estate declined slightly, and Legacy loans continued their planned reductions. The loan portfolio remained stable despite a $12.7 million line of credit taken on December 31, 2019 and repaid on January 2, 2020 . The originated loan portfolio grew to $790 million or 66.4% of gross loans at March 31, 2020 from $763 million or 64.2% of gross loans at December 31, 2019 . Acquired loans declined to $400 million or 33.6% of gross loans from $425 million or 35.8% of gross loans over the same time period. The acquired loans were marked to fair value as of the acquisition date. The Bank’s agricultural real estate and non-real estate loans decreased to $121 million or 10.2% of gross loans at March 31, 2020 from $123 million or 10.4% of gross loans at December 31, 2019 . The allowance for loan and lease losses increased to $11.8 million at March 31, 2020 , representing 1.00% of total loans, compared to $10.3 million and 0.88% of total loans at December 31, 2019 . As previously stated, the increase in the allowance was due to loan loss provisions associated with anticipated COVID 19-related economic slowdowns and uncertainty along with loan growth in specific and unallocated reserves. Increases were modestly offset by net charge-offs, which were $485,000 for the quarter ended March 31, 2020 , compared to $257,000 for the quarter ended December 31, 2019 . Nonperforming assets decreased to $19.2 million , or 1.28% of total assets at March 31, 2020 , compared to $21.6 million or 1.41% at December 31, 2019 . Classified assets decreased $2 million during the current quarter to $39.9 million . Included in classified assets are agricultural real estate loans of approximately $10.2 million at March 31, 2020 , compared to $10.5 million at December 31, 2019 , and agricultural non-real estate loans of approximately $2.2 million at March 31, 2020 , compared to $1.9 million at December 31, 2019 . Deposits decreased $16 million to $1.18 billion at March 31, 2020 from $1.20 billion at December 31, 2019 . Part of the deposit decline was due to $12.7 million of deposit funds used to pay off the previously mentioned credit line. Brokered certificates of deposit also declined approximately $12 million during the quarter as the Company reduced the use of the higher costing funds. Brokered and institutional certificates decreased to $41 million at March 31, 2020 from $53 million at December 31, 2019 . Total stockholders’ equity decreased to $148 million at March 31, 2020 from $151 million one quarter earlier, as the Company used capital to pay a dividend to shareholders and repurchase stock. The Company’s shareholder’s equity reflected an accumulated other comprehensive loss of $1.6 million at March 31, 2020 compared to $471,000 a quarter earlier. The decline reflects a market value adjustment to various investment securities that incurred a high level of volatility due to turmoil in the bond market caused by pandemic fears. Tangible book value per share (non-GAAP)5 was $9.80 at March 31, 2020 , compared to $9.89 at December 31, 2019 . Stockholders’ equity as a percent of total assets was 9.84% at March 31, 2020 , compared to 9.83% at December 31, 2019 . Tangible common equity (non-GAAP)5 as a percent of tangible assets (non-GAAP) was 7.45% at March 31, 2020 , compared to 7.47% at December 31, 2019 . The dramatic decrease in interest rates did have an impact on the Company’s investment security portfolio, creating unrealized gains on the mortgage backed securities portfolio. However, the flight to safety caused some temporary turmoil in the valuation of the Bank’s investment in Trust Preferred Securities and Student Loan Paper. As such, at March 31, 2020 , accumulated other comprehensive loss increased to $1.6 million from $471,000 at December 31, 2019 . “This unrealized loss increase is considered to be a temporary event and is not related to long-term credit changes in the portfolios. The Company has the ability and intent to hold these securities to maturity and expects to collect the principal owed at maturity.” said Jim Broucek , Executive Vice President and CFO Effective March 20, 2020 , the Company suspended its stock repurchase plan and on February 19, 2020 paid an annual dividend of $0.21 per share. The Company repurchased 156,000 shares during the first quarter for $1.8 million . It is expected the Company will incur some asset growth during the second quarter related to funding PPP loans and the utilization of existing credit lines. However, with an expected slowing economy, commercial loan growth throughout the remainder of the year is uncertain and may be less than previous years. Review of Operations Net interest income was $12.7 million for the first quarter of 2020, compared to $11.8 million for the fourth quarter of 2019, and $10.1 million for the quarter ended March 31, 2019 . The net interest margin increased to 3.64% for the first quarter of 2020 compared to 3.41% in the preceding quarter and 3.43% for the quarter ended March 31, 2019 . For the quarter ended March 31, 2020 , the Company’s net interest margin benefited from realization of nonaccretable discount due to the prepayment of purchased credit impaired loans of $1.0 million , or 30 basis points compared to $271,000 , or eight basis points in the prior quarter. Scheduled accretion for acquired performing loans, was $233,000 , $233,000 , and $194,000 for the quarters ended March 31, 2020 , December 31, 2019 and March 31, 2019 , respectively. The net interest margin without realized nonaccretable discount and scheduled accretion was 3.27% for the quarter ended March 31, 2020 compared to 3.26% the prior quarter and 3.34% one year earlier. Net interest income and net interest margin with and without loan purchase accounting: (in thousands, except yields and rates) Three months ended March 31, 2020 December 31, 2019 March 31, 2019 Net Interest Income Net Interest Margin Net Interest Income Net Interest Margin Net Interest Income Net Interest Margin With loan purchase accretion $ 12,671 3.64 % $ 11,775 3.41 % $ 10,062 3.43 % Less nonaccretable realized interest (1,043 ) (0.30 )% (271 ) (0.08 )% (16 ) (0.02 )% Less scheduled accretion interest (233 ) (0.07 )% (233 ) (0.07 )% (194 ) (0.07 )% Without loan purchase accretion $ 11,395 3.27 % $ 11,271 3.26 % $ 9,852 3.34 % The yield on interest earning assets was 4.85% for the first quarter of 2020, compared to 4.67% the prior quarter, and 4.66% for the first quarter one year earlier. The increase in the most recent quarter was largely related to payoff of purchased credit impaired loans with associated purchased credit discounts being accreted into interest income on loans. The cost of interest-bearing liabilities decreased four basis points to 1.46% for the first quarter from 1.50% one quarter earlier and two basis points from one year earlier. The primary decrease in the first quarter funding costs was due to lower deposit costs. Loan loss provision increased to $2.0 million for the quarter ended March 31, 2020 from $1.4 million for the quarter ended December 31, 2019 . In anticipation of a COVID 19-related economic slowdown, management recorded provision for loan losses of approximately $750,000 . Various “Stay-at-Home Orders” resulted in temporary business closures, reduced operating capacity and uncertainty regarding potential future revenue and cash flows for certain businesses, including Bank borrowers. Approximately $600,000 of the provision was related to loan portfolio growth in the quarter. The remaining provision was related to the impact of net loan charge-offs of $485,000 and necessary increases in specific and unallocated allowance for loan losses. In the fourth quarter of 2019, approximately $800,000 of provision for loan losses was due to loan growth, and $600,000 was primarily due to increases in specific and unallocated allowances. Non-interest income was $3.6 million for the first quarter compared to $3.8 million for the preceding quarter and $2.3 million for the first quarter one year ago. The current quarter reflects slightly lower gains on sale of loans than the preceding quarter, though still elevated relative to the quarter ended March 31, 2019 , due to a continued robust mortgage refinancing environment. Loan fees and service charges increased $192,000 from the prior quarter, primarily due to commercial loan customer activity. Other income decreased from the previous quarter which was elevated due to proceeds on a life insurance policy of $196,000 and was partially offset by a $75,000 prepayment penalty on mortgage back securities in the first quarter of 2020. Total non-interest expense increased to $10.7 million for the first quarter of 2020, compared to $10.4 million in the prior quarter and $9.9 million for the quarter ended March 31, 2019 . The increase in total non-interest expense for the current quarter relative to the previous quarter is primarily due to (1) $480,000 of impairment on mortgage servicing rights, largely due to higher forecasted future prepayments and (2) higher professional fees related to the year-end audit. Additionally, occupancy expenses increased in the current quarter due to higher winter energy and snow removal expenses. The increase in non-interest expenses also reflected a lower FDIC insurance credit of $56,000 in the first quarter, compared to $145,000 in the fourth quarter of 2019. The increase in expenses were partially offset by lower compensation and benefit costs, which decreased $285,000 to $5.4 million . The lower expenses were largely due to lower incentive compensation and modestly higher REO gains. The increase in non-interest expense from the quarter ended March 31, 2020 compared to the quarter ended March 31, 2019 is due primarily to increased overhead resulting from the F&M acquisition and the items noted above, partially offset by merger-related costs incurred in the quarter ended March 31, 2019 . Provisions for income taxes were $937,000 , or an effective tax rate of 26.5% for the first quarter ended March 31, 2020 compared to $562,000 , or an effective tax rate of 15.1% during the preceding quarter. The prior quarter reflected an adjustment to taxes due to clarifications on the tax treatment for certain United Bank acquired bank-owned life insurance and tax treatment finalization of certain outstanding acquisition items. These financial results are preliminary until the Form 10-Q is filed in May 2020 . 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 28 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 one-to-four family mortgages. 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,” “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 the conditions in the financial markets and economic conditions generally; adverse impacts to the Company or Bank arising from the COVID-19 pandemic; 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; 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 Bank; increases in FDIC insurance premiums or special assessments by the FDIC ; disintermediation risk; our inability to obtain needed liquidity; risks related to the success of the acquisition of F. & M. Bancorp. of Tomah, Inc. (“F&M”) through merger (the “F&M Merger”) and integration of F&M into the Company’s operations; the risk that the combined company may be unable to retain the Company and/or F&M personnel successfully after the F&M Merger is completed; 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; 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; changes in federal or state tax laws; 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. 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, 2019 filed with the Securities and Exchange Commission (“SEC”) on March 10, 2020 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, such as net income as adjusted, tangible book value per share and tangible common equity as a percent of tangible assets, 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 is a non-GAAP measure that eliminates the impact of certain 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, the gain on sale of branch deposits and fixed assets and the net impact of the Tax Cuts and Jobs Act of 2017, which management believes enhances investors’ ability to better understand the underlying business performance and trends related to core business activities. 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. Tangible book value per share and tangible common equity as a percent of tangible assets are non-GAAP measures that eliminate the impact of preferred stock equity, 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 CITIZENS COMMUNITY BANCORP, INC. Consolidated Balance Sheets (in thousands) March 31 , 2020 (unaudited) December 31 , 2019 (audited) March 31 , 2019 (unaudited) Assets Cash and cash equivalents $ 41,347 $ 55,840 $ 41,358 Other interest bearing deposits 4,006 4,744 6,235 Securities available for sale “AFS” 163,435 180,119 160,201 Securities held to maturity “HTM” 10,767 2,851 4,711 Equity securities with readily determinable fair value 163 246 182 Other investments 14,999 15,005 11,206 Loans receivable 1,180,951 1,177,380 1,019,678 Allowance for loan losses (11,835 ) (10,320 ) (8,707 ) Loans receivable, net 1,169,116 1,167,060 1,010,971 Loans held for sale 3,281 5,893 1,231 Mortgage servicing rights 3,728 4,282 4,424 Office properties and equipment, net 21,066 21,106 13,487 Accrued interest receivable 4,822 4,738 4,369 Intangible assets 7,175 7,587 7,174 Goodwill 31,498 31,498 31,474 Foreclosed and repossessed assets, net 1,432 1,460 2,100 Bank owned life insurance 23,205 23,063 17,905 Other assets 5,124 5,757 9,562 TOTAL ASSETS $ 1,505,164 $ 1,531,249 $ 1,326,590 Liabilities and Stockholders’ Equity Liabilities: Deposits $ 1,180,055 $ 1,195,702 $ 1,030,649 Federal Home Loan Bank advances 123,477 130,971 122,828 Other borrowings 43,576 43,560 24,675 Other liabilities 10,123 10,463 10,058 Total liabilities 1,357,231 1,380,696 1,188,210 Stockholders’ equity: Common stock— $0.01 par value, authorized 30,000,000; 11,151,009; 11,266,954 and 10,990,033 shares issued and outstanding, respectively 112 113 110 Additional paid-in capital 127,671 128,856 125,940 Retained earnings 22,751 22,517 14,008 Unearned deferred compensation (992 ) (462 ) (956 ) Accumulated other comprehensive income (loss) (1,609 ) (471 ) (722 ) Total stockholders’ equity 147,933 150,553 138,380 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 1,505,164 $ 1,531,249 $ 1,326,590 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 , 2020 (unaudited) December 31 , 2019 (unaudited) March 31 , 2019 (unaudited) Interest and dividend income: Interest and fees on loans $ 15,459 $ 14,611 $ 12,414 Interest on investments 1,449 1,535 1,304 Total interest and dividend income 16,908 16,146 13,718 Interest expense: Interest on deposits 3,180 3,284 2,593 Interest on FHLB borrowed funds 508 508 661 Interest on other borrowed funds 549 579 402 Total interest expense 4,237 4,371 3,656 Net interest income before provision for loan losses 12,671 11,775 10,062 Provision for loan losses 2,000 1,400 1,225 Net interest income after provision for loan losses 10,671 10,375 8,837 Non-interest income: Service charges on deposit accounts 560 612 550 Interchange income 464 468 338 Loan servicing income 685 772 554 Gain on sale of loans 780 902 308 Loan fees and service charges 477 285 128 Insurance commission income 279 161 184 Gains on available for sale securities 73 120 34 Other 285 464 236 Total non-interest income 3,603 3,784 2,332 Non-interest expense: Compensation and related benefits 5,435 5,720 4,706 Occupancy 1,006 972 954 Office 543 539 522 Data processing 996 985 987 Amortization of intangible assets 412 412 327 Amortization of mortgage servicing rights 736 286 191 Advertising, marketing and public relations 239 240 203 FDIC premium assessment 68 (60 ) 94 Professional services 604 496 825 (Gains) losses on repossessed assets, net (68 ) 18 (37 ) Other 760 820 1,122 Total non-interest expense 10,731 10,428 9,894 Income before provision for income taxes 3,543 3,731 1,275 Provision for income taxes 937 562 322 Net income attributable to common stockholders $ 2,606 $ 3,169 $ 953 Per share information: Basic earnings $ 0.23 $ 0.28 $ 0.09 Diluted earnings $ 0.23 $ 0.28 $ 0.09 Cash dividends paid $ 0.21 $ — $ 0.20 Book value per share at end of period $ 13.27 $ 13.36 $ 12.59 Tangible book value per share at end of period (non-GAAP) $ 9.80 $ 9.89 $ 9.07 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 Twelve Months Ended March 31 , 2020 December 31 , 2019 March 31 , 2019 December 31 , 2019 GAAP earnings before income taxes $ 3,543 $ 3,731 $ 1,275 $ 12,277 Merger related costs (1) — 104 659 3,880 Branch closure costs (2) — — 15 15 Audit and Financial Reporting (3) — — 358 358 Gain on sale of branch — — — (2,295 ) Net income as adjusted before income taxes (4) 3,543 3,835 2,307 14,235 Provision for income tax on net income as adjusted (5) 937 579 484 3,260 Tax impact of certain acquired BOLI policies (6) — 300 — 300 Total Provision for income tax 937 879 484 3,560 Net income as adjusted after income taxes (non-GAAP) (4) $ 2,606 $ 2,956 $ 1,823 $ 10,675 GAAP diluted earnings per share, net of tax $ 0.23 $ 0.28 $ 0.09 $ 0.85 Merger related costs, net of tax — 0.01 0.05 0.27 Branch closure costs, net of tax — — — — Audit and Financial Reporting — — 0.03 0.02 Gain on sale of branch — — — (0.15 ) Tax impact of certain acquired BOLI policies (6) — (0.03 ) — (0.03 ) Diluted earnings per share, as adjusted, net of tax (non-GAAP) $ 0.23 $ 0.26 $ 0.17 $ 0.96 Average diluted shares outstanding 11,219,660 11,275,961 10,986,466 11,121,435 (1) Costs incurred are included as professional fees and other non-interest expense in the consolidated statement of operations and include costs of $0 , $0 , and $119,000 for the quarters ended March 31, 2020 , December 31, 2019 and March 31, 2019 , respectively, and $341,000 for the twelve months ended December 31, 2019 , 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.(3) Audit and financial reporting costs include additional audit and professional fees related to the change in our year end from September 30 to December 31 ; effective December 31, 2018 .(4) 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.(5) Provision for income tax on net income as adjusted is calculated at our effective tax rate for each respective period presented.(6) Tax impact of certain BOLI policies acquired from United Bank equal to $300,000 . Nonperforming Assets: (in thousands, except ratios) March 31 , 2020 and Three Months Ended December 31 , 2019 and Three Months Ended March 31 , 2019 and Three Months Ended Nonperforming assets: Nonaccrual loans Commercial real estate $ 3,505 $ 5,705 $ 1,341 Agricultural real estate 7,162 7,568 3,182 Commercial non-real estate 1,360 1,850 1,566 Agricultural non-real estate 1,739 1,702 1,541 One to four family 2,139 2,063 2,041 Consumer non-real estate 185 168 200 Total nonaccrual loans $ 16,090 $ 19,056 $ 9,871 Accruing loans past due 90 days or more 1,670 1,104 1,713 Total nonperforming loans (“NPLs”) 17,760 20,160 11,584 Other real estate owned (“OREO”) 1,412 1,429 2,071 Other collateral owned 20 31 29 Total nonperforming assets (“NPAs”) $ 19,192 $ 21,620 $ 13,684 Troubled Debt Restructurings (“TDRs”) $ 12,088 $ 12,594 $ 9,984 Nonaccrual TDRs $ 7,711 $ 7,198 $ 2,501 Average outstanding loan balance $ 1,172,246 $ 1,136,330 $ 996,778 Loans, end of period $ 1,180,951 $ 1,177,380 $ 1,019,678 Total assets, end of period $ 1,505,164 $ 1,531,249 $ 1,326,590 Allowance for loan losses (“ALL”), at beginning of period $ 10,320 $ 9,177 $ 7,604 Loans charged off: Commercial/Agricultural real estate — (156 ) — Commercial/Agricultural non-real estate (442 ) — — Residential real estate (27 ) (16 ) (67 ) Consumer non-real estate (51 ) (119 ) (78 ) Total loans charged off (520 ) (291 ) (145 ) Recoveries of loans previously charged off: Commercial/Agricultural real estate — — — Commercial/Agricultural non-real estate — — — Residential real estate 13 3 1 Consumer non-real estate 22 31 22 Total recoveries of loans previously charged off: 35 34 23 Net loans charged off (“NCOs”) (485 ) (257 ) (122 ) Additions to ALL via provision for loan losses charged to operations 2,000 1,400 1,225 ALL, at end of period $ 11,835 $ 10,320 $ 8,707 Ratios: ALL to NCOs (annualized) 610.05 % 1,003.89 % 1,784.22 % NCOs (annualized) to average loans 0.17 % 0.09 % 0.05 % ALL to total loans 1.00 % 0.88 % 0.85 % NPLs to total loans 1.50 % 1.71 % 1.14 % NPAs to total assets 1.28 % 1.41 % 1.03 % Nonaccrual Loans Rollforward: (in thousands) Quarter Ended March 31 , 2020 December 31 , 2019 March 31 , 2019 Balance, beginning of period $ 19,056 $ 19,022 $ 7,354 Additions 1,811 2,641 3,428 Acquired nonaccrual loans — — — Charge offs (452 ) (198 ) (31 ) Transfers to OREO (1,100 ) (425 ) (362 ) Return to accrual status (120 ) (14 ) (175 ) Payments received (2,824 ) (1,957 ) (282 ) Other, net (281 ) (13 ) (61 ) Balance, end of period $ 16,090 $ 19,056 $ 9,871 Other Real Estate Owned Rollforward: (in thousands) Quarter Ended March 31 , 2020 December 31 , 2019 March 31 , 2019 Balance, beginning of period $ 1,429 $ 1,348 $ 2,522 Loans transferred in 988 495 362 Sales (965 ) (378 ) (808 ) Write-downs (49 ) (64 ) (6 ) Other, net 9 28 1 Balance, end of period $ 1,412 $ 1,429 $ 2,071 Troubled Debt Restructurings in Accrual Status (in thousands, except number of modifications) March 31, 2020 December 31, 2019 March 31, 2019 Number ofModifications RecordedInvestment Number ofModifications RecordedInvestment Number of Modifications Recorded Investment Troubled debt restructurings: Accrual Status Commercial/Agricultural real estate 13 $ 1,125 14 $ 1,730 37 $ 3,454 Commercial/Agricultural non-real estate 1 9 2 366 17 3,454 Residential real estate 38 3,174 40 3,233 11 90 Consumer non-real estate 8 69 7 67 3 485 Total loans 60 $ 4,377 63 $ 5,396 68 $ 7,483 Credit Quality/Risk Ratings: Management utilizes a numeric risk rating system to identify and quantify the Bank’s risk of loss within its loan portfolio. Ratings are initially assigned prior to funding the loan, and may be changed at any time as circumstances warrant. Ratings range from the highest to lowest quality based on factors that include measurements of ability to pay, collateral type and value, borrower stability and management experience. The Bank’s loan portfolio is presented below in accordance with the risk rating framework that has been commonly adopted by the federal banking agencies. The definitions of the various risk rating categories are as follows: 1 through 4 - Pass. A “Pass” loan means that the condition of the borrower and the performance of the loan is satisfactory or better. 5 - Watch. A “Watch” loan has clearly identifiable developing weaknesses that deserve additional attention from management. Weaknesses that are not corrected or mitigated, may jeopardize the ability of the borrower to repay the loan in the future. 6 - Special Mention. A “Special Mention” loan has one or more potential weakness that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the institution’s credit position in the future. 7 - Substandard. A “Substandard” loan is inadequately protected by the current net worth and paying capacity of the obligor or the collateral pledged, if any. Assets classified as substandard must have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. 8 - Doubtful. A “Doubtful” loan has all the weaknesses inherent in a Substandard loan with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. 9 - Loss. Loans classified as “Loss” are considered uncollectible, and their continuance as bankable assets is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, and a partial recovery may occur in the future. Below is a breakdown of loans by risk rating as of March 31, 2020 : 1 to 5 6 7 8 9 TOTAL Originated Loans: Commercial/Agricultural real estate: Commercial real estate $ 307,313 $ 4,978 $ 856 $ — $ — $ 313,147 Agricultural real estate 33,069 469 2,114 — — 35,652 Multi-family real estate 89,474 — — — — 89,474 Construction and land development 72,427 5,780 3,478 — — 81,685 Commercial/Agricultural non-real estate: Commercial non-real estate 80,746 1,115 3,388 — — 85,249 Agricultural non-real estate 21,552 428 720 — — 22,700 Residential real estate: One to four family 98,138 35 4,681 — — 102,854 Purchased HELOC loans 7,367 — 234 — — 7,601 Consumer non-real estate: Originated indirect paper 36,153 — 261 — — 36,414 Purchased indirect paper — — — — — — Other Consumer 14,923 — 157 — — 15,080 Total originated loans $ 761,162 $ 12,805 $ 15,889 $ — $ — $ 789,856 Acquired Loans: Commercial/Agricultural real estate: Commercial real estate $ 192,367 $ 5,513 $ 9,123 $ — $ — $ 207,003 Agricultural real estate 39,729 — 8,037 — — 47,766 Multi-family real estate 13,361 — 148 — — 13,509 Construction and land development 13,982 — 251 — — 14,233 Commercial/Agricultural non-real estate: Commercial non-real estate 34,914 563 1,280 — — 36,757 Agricultural non-real estate 13,700 82 1,458 — — 15,240 Residential real estate: One to four family 60,335 424 2,198 — — 62,957 Consumer non-real estate: Other Consumer 2,095 — 9 — — 2,104 Total acquired loans $ 370,483 $ 6,582 $ 22,504 $ — $ — $ 399,569 Total Loans: Commercial/Agricultural real estate: Commercial real estate $ 499,680 $ 10,491 $ 9,979 $ — $ — $ 520,150 Agricultural real estate 72,798 469 10,151 — — 83,418 Multi-family real estate 102,835 — 148 — — 102,983 Construction and land development 86,409 5,780 3,729 — — 95,918 Commercial/Agricultural non-real estate: Commercial non-real estate 115,660 1,678 4,668 — — 122,006 Agricultural non-real estate 35,252 510 2,178 — — 37,940 Residential real estate: One to four family 158,473 459 6,879 — — 165,811 Purchased HELOC loans 7,367 — 234 — — 7,601 Consumer non-real estate: Originated indirect paper 36,153 — 261 — — 36,414 Purchased indirect paper — — — — — — Other Consumer 17,018 — 166 — — 17,184 Gross loans $ 1,131,645 $ 19,387 $ 38,393 $ — $ — $ 1,189,425 Less: Unearned net deferred fees and costs and loans in process (510 ) Unamortized discount on acquired loans (7,964 ) Allowance for loan losses (11,835 ) Loans receivable, net $ 1,169,116 Below is a breakdown of loans by risk rating as of December 31, 2019 : 1 to 5 6 7 8 9 TOTAL Originated Loans: Commercial/Agricultural real estate: Commercial real estate $ 301,381 $ 266 $ 899 $ — $ — $ 302,546 Agricultural real estate 31,129 829 2,068 — — 34,026 Multi-family real estate 71,877 — — — — 71,877 Construction and land development 67,989 — 3,478 — — 71,467 Commercial/Agricultural non-real estate: Commercial non-real estate 85,248 1,023 3,459 — — 89,730 Agricultural non-real estate 19,545 402 770 — — 20,717 Residential real estate: One to four family 104,428 — 4,191 — — 108,619 Purchased HELOC loans 8,407 — — — — 8,407 Consumer non-real estate: — Originated indirect paper 39,339 — 246 — — 39,585 Purchased indirect paper — — — — — — Other Consumer 15,425 — 121 — — 15,546 Total originated loans $ 744,768 $ 2,520 $ 15,232 $ — $ — $ 762,520 Acquired Loans: Commercial/Agricultural real estate: Commercial real estate $ 196,692 $ 6,084 $ 9,137 $ — $ — $ 211,913 Agricultural real estate 42,381 534 8,422 — — 51,337 Multi-family real estate 13,533 — 1,598 — — 15,131 Construction and land development 14,181 — 762 — — 14,943 Commercial/Agricultural non-real estate: Commercial non-real estate 41,587 932 1,485 — — 44,004 Agricultural non-real estate 15,621 350 1,092 — — 17,063 Residential real estate: One to four family 65,125 436 2,152 — — 67,713 Consumer non-real estate: Other Consumer 2,628 — 12 — — 2,640 Total acquired loans $ 391,748 $ 8,336 $ 24,660 $ — $ — $ 424,744 Total Loans: Commercial/Agricultural real estate: Commercial real estate $ 498,073 $ 6,350 $ 10,036 $ — $ — $ 514,459 Agricultural real estate 73,510 1,363 10,490 — — 85,363 Multi-family real estate 85,410 — 1,598 — — 87,008 Construction and land development 82,170 — 4,240 — — 86,410 Commercial/Agricultural non-real estate: Commercial non-real estate 126,835 1,955 4,944 — — 133,734 Agricultural non-real estate 35,166 752 1,862 — — 37,780 Residential real estate: One to four family 169,553 436 6,343 — — 176,332 Purchased HELOC loans 8,407 — — — — 8,407 Consumer non-real estate: Originated indirect paper 39,339 — 246 — — 39,585 Purchased indirect paper — — — — — — Other Consumer 18,053 — 133 — — 18,186 Gross loans $ 1,136,516 $ 10,856 $ 39,892 $ — $ — $ 1,187,264 Less: Unearned net deferred fees and costs and loans in process (393 ) Unamortized discount on acquired loans (9,491 ) Allowance for loan losses (10,320 ) Loans receivable, net $ 1,167,060 Below is a breakdown of loans by risk rating as of March 31, 2019 : 1 to 5 6 7 8 9 TOTAL Originated Loans: Commercial/Agricultural real estate: Commercial real estate $ 223,809 $ 995 $ 589 $ — $ — $ 225,393 Agricultural real estate 31,103 160 2,048 — — 33,311 Multi-family real estate 75,534 — — — — 75,534 Construction and land development 27,414 — — — — 27,414 Commercial/Agricultural non-real estate: Commercial non-real estate 64,782 1,612 6,495 — — 72,889 Agricultural non-real estate 19,724 270 667 — — 20,661 Residential real estate: One to four family 116,724 80 2,673 — — 119,477 Purchased HELOC loans 12,346 — — — — 12,346 Consumer non-real estate: Originated indirect paper 52,173 — 249 — — 52,422 Purchased indirect paper 12,910 — — — — 12,910 Other Consumer 15,091 — 32 — — 15,123 Total originated loans $ 651,610 $ 3,117 $ 12,753 $ — $ — $ 667,480 Acquired Loans: Commercial/Agricultural real estate: Commercial real estate $ 131,502 $ 5,928 $ 5,707 $ — $ — $ 143,137 Agricultural real estate 51,139 103 6,367 — — 57,609 Multi-family real estate 8,263 — 164 — — 8,427 Construction and land development 14,588 38 406 — — 15,032 Commercial/Agricultural non-real estate: Commercial non-real estate 29,926 1,340 1,648 — — 32,914 Agricultural non-real estate 13,244 89 2,260 — — 15,593 Residential real estate: One to four family 78,774 1,290 2,255 — — 82,319 Consumer non-real estate: Other Consumer 3,906 — 19 — — 3,925 Total acquired loans $ 331,342 $ 8,788 $ 18,826 $ — $ — $ 358,956 Total Loans: Commercial/Agricultural real estate: Commercial real estate $ 355,311 $ 6,923 $ 6,296 $ — $ — $ 368,530 Agricultural real estate 82,242 263 8,415 — — 90,920 Multi-family real estate 83,797 — 164 — — 83,961 Construction and land development 42,002 38 406 — — 42,446 Commercial/Agricultural non-real estate: Commercial non-real estate 94,708 2,952 8,143 — — 105,803 Agricultural non-real estate 32,968 359 2,927 — — 36,254 Residential real estate: One to four family 195,498 1,370 4,928 — — 201,796 Purchased HELOC loans 12,346 — — — — 12,346 Consumer non-real estate: Originated indirect paper 52,173 — 249 — — 52,422 Purchased indirect paper 12,910 — — — — 12,910 Other Consumer 18,997 — 51 — — 19,048 Gross loans $ 982,952 $ 11,905 $ 31,579 $ — $ — $ 1,026,436 Less: Unearned net deferred fees and costs and loans in process 318 Unamortized discount on acquired loans (7,076 ) Allowance for loan losses (8,707 ) Loans receivable, net $ 1,010,971 Loan Composition March 31, 2020 December 31, 2019 March 31, 2019 Originated Loans: Commercial/Agricultural real estate: Commercial real estate $ 313,147 $ 302,546 $ 225,393 Agricultural real estate 35,652 34,026 33,311 Multi-family real estate 89,474 71,877 75,534 Construction and land development 81,685 71,467 27,414 Commercial/Agricultural non-real estate: Commercial non-real estate 85,249 89,730 72,889 Agricultural non-real estate 22,700 20,717 20,661 Residential real estate: One to four family 102,854 108,619 119,477 Purchased HELOC loans 7,601 8,407 12,346 Consumer non-real estate: Originated indirect paper 36,414 39,585 52,422 Purchased indirect paper — — 12,910 Other Consumer 15,080 15,546 15,123 Total originated loans $ 789,856 $ 762,520 $ 667,480 Acquired Loans: Commercial/Agricultural real estate: Commercial real estate $ 207,003 $ 211,913 $ 143,137 Agricultural real estate 47,766 51,337 57,609 Multi-family real estate 13,509 15,131 8,427 Construction and land development 14,233 14,943 15,032 Commercial/Agricultural non-real estate: Commercial non-real estate 36,757 44,004 32,914 Agricultural non-real estate 15,240 17,063 15,593 Residential real estate: One to four family 62,957 67,713 82,319 Consumer non-real estate: Other Consumer 2,104 2,640 3,925 Total acquired loans $ 399,569 $ 424,744 $ 358,956 Total Loans: Commercial/Agricultural real estate: Commercial real estate $ 520,150 $ 514,459 $ 368,530 Agricultural real estate 83,418 85,363 90,920 Multi-family real estate 102,983 87,008 83,961 Construction and land development 95,918 86,410 42,446 Commercial/Agricultural non-real estate: Commercial non-real estate 122,006 133,734 105,803 Agricultural non-real estate 37,940 37,780 36,254 Residential real estate: One to four family 165,811 176,332 201,796 Purchased HELOC loans 7,601 8,407 12,346 Consumer non-real estate: Originated indirect paper 36,414 39,585 52,422 Purchased indirect paper — — 12,910 Other Consumer 17,184 18,186 19,048 Gross loans $ 1,189,425 $ 1,187,264 $ 1,026,436 Unearned net deferred fees and costs and loans in process (510 ) (393 ) 318 Unamortized discount on acquired loans (7,964 ) (9,491 ) (7,076 ) Total loans receivable $ 1,180,951 $ 1,177,380 $ 1,019,678 Deposit Composition: (in thousands) March 31 , 2020 December 31 , 2019 March 31 , 2019 Non-interest bearing demand deposits $ 150,139 $ 168,157 $ 138,280 Interest bearing demand deposits 242,824 223,102 195,741 Savings accounts 161,038 156,599 159,325 Money market accounts 243,715 246,430 174,508 Certificate accounts 382,339 401,414 362,795 Total deposits $ 1,180,055 $ 1,195,702 $ 1,030,649 Average balances, Interest Yields and Rates: (in thousands, except yields and rates) Three months ended March 31, 2020 Three months ended December 31, 2019 Three months ended March 31, 2019 AverageBalance InterestIncome/Expense AverageYield/Rate (1) AverageBalance Interest Income/ Expense Average Yield/ Rate (1) Average Balance Interest Income/ Expense Average Yield/ Rate (1) Average interest earning assets: Cash and cash equivalents $ 31,069 $ 118 1.53 % $ 31,327 $ 122 1.55 % $ 26,014 $ 168 2.62 % Loans receivable 1,172,246 15,459 5.30 % 1,136,330 14,611 5.10 % 996,778 12,414 5.05 % Interest bearing deposits 4,362 27 2.49 % 4,904 30 2.43 % 6,913 39 2.29 % Investment securities (1) 179,287 1,131 2.54 % 185,920 1,222 2.62 % 156,157 947 2.57 % Non-marketable equity securities, at cost 15,006 173 4.64 % 14,209 161 4.50 % 10,375 150 5.86 % Total interest earning assets (1) $ 1,401,970 $ 16,908 4.85 % $ 1,372,690 $ 16,146 4.67 % $ 1,196,237 $ 13,718 4.66 % Average interest bearing liabilities: Savings accounts $ 154,596 $ 151 0.39 % $ 152,841 $ 172 0.45 % $ 164,129 $ 175 0.43 % Demand deposits 234,822 375 0.64 % 216,021 389 0.71 % 189,348 354 0.76 % Money market accounts 236,470 609 1.04 % 210,398 565 1.07 % 152,963 382 1.01 % CD’s 354,095 1,846 2.10 % 367,278 1,951 2.11 % 326,834 1,529 1.90 % IRA’s 42,695 199 1.87 % 43,809 207 1.87 % 39,857 153 1.56 % Total deposits $ 1,022,678 $ 3,180 1.25 % $ 990,347 $ 3,284 1.32 % $ 873,131 $ 2,593 1.20 % FHLB advances and other borrowings 146,810 1,057 2.90 % 165,660 1,087 2.60 % 126,239 1,063 3.41 % Total interest bearing liabilities $ 1,169,488 $ 4,237 1.46 % $ 1,156,007 $ 4,371 1.50 % $ 999,370 $ 3,656 1.48 % Net interest income $ 12,671 $ 11,775 $ 10,062 Interest rate spread 3.39 % 3.17 % 3.18 % Net interest margin (1) 3.64 % 3.41 % 3.43 % Average interest earning assets to average interest bearing liabilities 1.20 1.19 1.20 (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, 2020 , December 31, 2019 and March 31, 2019 . The FTE adjustment to net interest income included in the rate calculations totaled $0 , $8,000 and $42,000 for the three months ended March 31, 2020 , December 31, 2019 and March 31, 2019 , respectively. The following table reports key financial metric ratios based on a net income and net income as adjusted basis: Three Months Ended Twelve Months Ended March 31 , 2020 December 31 , 2019 March 31 , 2019 December 31 , 2019 Ratios based on net income: Return on average assets (annualized) 0.69 % 0.84 % 0.30 % 0.68 % Return on average equity (annualized) 7.01 % 8.41 % 2.81 % 6.59 % Efficiency ratio (non-GAAP) 66 % 67 % 80 % 73 % Net interest margin with loan purchase accretion 3.64 % 3.41 % 3.43 % 3.37 % Net interest margin without loan purchase accretion 3.27 % 3.26 % 3.34 % 3.26 % Ratios based on net income as adjusted (non-GAAP): Return on average assets as adjusted2 (annualized) 0.69 % 0.79 % 0.57 % 0.76 % Return on average equity as adjusted3 (annualized) 7.01 % 7.85 % 5.37 % 7.44 % Efficiency ratio4 (non-GAAP) 66 % 66 % 72 % 68 % CITIZENS COMMUNITY FEDERAL N.A. Selected Capital Composition Highlights Estimated March 31, 2020 (unaudited) December 31, 2019 (unaudited) March 31, 2019 (audited) To Be Well Capitalized Under Prompt Corrective Action Provisions Tier 1 leverage ratio (to adjusted total assets) 10.3% 10.4% 9.6% 5.0% Tier 1 capital (to risk weighted assets) 12.6% 12.2% 11.9% 8.0% Common equity tier 1 capital (to risk weighted assets) 12.6% 12.2% 11.9% 6.5% Total capital (to risk weighted assets) 13.6% 13.1% 12.7% 10.0% Reconciliation of Return on Average Assets as Adjusted (non-GAAP): (in thousands, except ratios) Three Months Ended March 31, 2020 December 31, 2019 March 31, 2019 GAAP earnings after income taxes $ 2,606 $ 3,169 $ 953 Net income as adjusted after income taxes (non-GAAP) (1) $ 2,606 $ 2,956 $ 1,823 Average assets 1,516,957 1,492,834 1,300,512 Return on average assets (annualized) 0.69 % 0.84 % 0.30 % Return on average assets as adjusted (non-GAAP) (annualized) 0.69 % 0.79 % 0.57 % (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, 2020 December 31, 2019 March 31, 2019 GAAP earnings after income taxes $ 2,606 $ 3,169 $ 953 Net income as adjusted after income taxes (non-GAAP) (1) $ 2,606 $ 2,956 $ 1,823 Average equity 149,441 149,437 137,749 Return on average equity (annualized) 7.01 % 8.41 % 2.81 % Return on average equity as adjusted (non-GAAP) (annualized) 7.01 % 7.85 % 5.37 % (1) See Reconciliation of GAAP Net Income and Net Income as Adjusted (non-GAAP) Reconciliation of Efficiency Ratio as Adjusted (non-GAAP): (in thousands, except ratios) Three Months Ended March 31, 2020 December 31, 2019 March 31, 2019 Non-interest expense (GAAP) $ 10,731 $ 10,428 $ 9,894 Merger related Costs (1) — (104 ) (659 ) Branch Closure Costs (1) — — (15 ) Audit and financial reporting (1) — — (358 ) Non-interest expense as adjusted (non-GAAP) 10,731 10,324 8,862 Non-interest income 3,603 3,784 2,332 Net interest margin 12,671 11,775 10,062 Efficiency ratio denominator (GAAP) 16,274 15,559 12,394 Efficiency ratio (GAAP) 66 % 67 % 80 % Efficiency ratio (non-GAAP) 66 % 66 % 72 % (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, 2020 December 31, 2019 March 31, 2019 Total stockholders’ equity $ 147,933 $ 150,553 $ 138,380 Less: Goodwill (31,498 ) (31,498 ) (31,474 ) Less: Intangible assets (7,175 ) (7,587 ) (7,174 ) Tangible common equity (non-GAAP) $ 109,260 $ 111,468 $ 99,732 Ending common shares outstanding 11,151,009 11,266,954 10,990,033 Book value per share $ 13.27 $ 13.36 $ 12.59 Tangible book value per share (non-GAAP) $ 9.80 $ 9.89 $ 9.07 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, 2020 December 31, 2019 March 31, 2019 Total stockholders’ equity $ 147,933 $ 150,553 $ 138,380 Less: Goodwill (31,498 ) (31,498 ) (31,474 ) Less: Intangible assets (7,175 ) (7,587 ) (7,174 ) Tangible common equity (non-GAAP) $ 109,260 $ 111,468 $ 99,732 Total Assets $ 1,505,164 $ 1,531,249 $ 1,326,590 Less: Goodwill (31,498 ) (31,498 ) (31,474 ) Less: Intangible assets (7,175 ) (7,587 ) (7,174 ) Tangible Assets (non-GAAP) $ 1,466,491 $ 1,492,164 $ 1,287,942 Total stockholders’ equity to total assets ratio 9.83 % 9.83 % 10.43 % Tangible common equity as a percent of tangible assets (non-GAAP) 7.45 % 7.47 % 7.74 % 1 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. 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)”. 2 Return 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)”. 3 Return 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)”. 4 The efficiency ratio as adjusted (non-GAAP) is a non-GAAP measure that management believes enhances investors’ ability to better understand the underlying business performance and the Company’s ability to use what it has to generate the most profit possible for shareholders relative to core business activities. For a detailed reconciliation of GAAP to non-GAAP results, see the accompanying financial table “Reconciliation of Efficiency Ratio as Adjusted (non-GAAP)”. 5 Tangible book value per share and tangible common equity as a percent of tangible assets are non-GAAP measure 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)” and “Reconciliation of tangible common equity as a percent of tangible assets (non-GAAP)”. Source: Citizens Community Bancorp, Inc.

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