Business Overview and History

Citizens Community Bancorp, Inc. (CZWI) is a Midwest-based bank holding company that has maintained a strong presence in its local markets for over three decades. With a focus on serving the financial needs of individuals and businesses in Wisconsin and Minnesota, the company has weathered economic cycles and adapted to industry changes, emerging as a reliable community banking partner.

Citizens Community Bancorp traces its roots back to 1959 when it was founded as a community bank serving customers in western Wisconsin and southeastern Minnesota. The company started with a single branch location in Eau Claire, Wisconsin, and gradually expanded its footprint over the following decades. In 2002, the company underwent a significant transformation, converting from a mutual savings and loan association to a stock-based financial institution and changing its name to Citizens Community Federal N.A. This transition enabled the bank to raise additional capital to fund growth and acquisitions.

Over the next several years, Citizens Community Federal expanded through a series of strategic branch openings and small bank acquisitions in its core markets. The company faced a significant challenge during the 2008 financial crisis, as its loan portfolio was negatively impacted by the economic downturn. However, the bank was able to weather the storm and emerged with a strengthened balance sheet and improved risk management practices. In 2011, Citizens Community Federal reorganized as a bank holding company and changed its name to Citizens Community Bancorp, Inc.

Today, Citizens Community Bancorp operates primarily through its wholly-owned subsidiary, Citizens Community Federal N.A., which serves customers through 22 branch locations in Wisconsin and Minnesota. The bank's primary markets include the Chippewa Valley region in Wisconsin, the Mankato and Twin Cities markets in Minnesota, and various rural communities around these areas. The company has built a strong community banking franchise focused on serving the financial needs of businesses, agricultural operators, and consumers in its local markets.

Over the years, Citizens Community Bancorp has grown both organically and through strategic acquisitions, expanding its footprint and diversifying its product offerings. In 2015, the company acquired Hometown Bancorp, adding 10 branch locations and enhancing its presence in the Chippewa Valley region. The acquisition strengthened the bank's commercial and agricultural lending capabilities, aligning with its focus on supporting local businesses and the agricultural sector.

Financial Performance and Ratios

As of September 30, 2024, Citizens Community Bancorp reported total assets of $1.80 billion, a decrease of 2.7% from the previous year-end. The company's loan portfolio stood at $1.42 billion, down 2.7% from December 31, 2023, due to net portfolio runoff. The bank's deposit base remained stable at $1.52 billion, with a mix of 56% consumer, 28% commercial, 12% public, and 4% brokered deposits.

The company's capital ratios remained strong, with a total risk-based capital ratio of 15.0% and a Tier 1 leverage ratio of 11.7% as of September 30, 2024, well above the regulatory "well-capitalized" thresholds. This solid capital position provides the bank with ample flexibility to navigate market conditions and support its growth initiatives.

In terms of profitability, Citizens Community Bancorp reported net income of $11.0 million, or $1.07 per diluted share, for the nine months ended September 30, 2024, compared to $9.4 million, or $0.89 per diluted share, for the same period in 2023. The company's net interest margin compressed to 2.71% during the nine-month period, down from 2.85% in the prior-year period, primarily due to higher deposit costs and the impact of rising short-term interest rates.

For the most recent fiscal year (2023), Citizens Community Bancorp reported revenue of $58.54 million, net income of $13.06 million, operating cash flow of $13.12 million, and free cash flow of $11.76 million. In the most recent quarter (Q3 2024), the company achieved revenue of $14.21 million, net income of $3.29 million, operating cash flow of $3.46 million, and free cash flow of $3.98 million.

Notably, the company experienced significant year-over-year growth in Q3 2024. Revenue increased by 10.8% compared to Q3 2023, primarily due to a $452,000 increase in gain on sale of loans. Net income saw a substantial increase of 31.6% compared to Q3 2023, driven by higher revenue and a decrease in provision for income taxes. Operating cash flow and free cash flow also improved, with increases of 11.1% and 12.6%, respectively, compared to the same quarter in the previous year.

Liquidity and Asset Quality

Citizens Community Bancorp maintains a strong liquidity position, with a cash and unpledged securities ratio of 11.5% as of September 30, 2024, up from 11.4% at the end of 2023. The company has access to various funding sources, including Federal Home Loan Bank advances, Federal Reserve borrowings, and federal funds purchased lines of credit, providing it with ample flexibility to manage its liquidity needs.

The bank's asset quality metrics remained stable, with nonperforming assets (NPAs) at 0.95% of total assets as of September 30, 2024, compared to 0.83% at the end of 2023. The allowance for credit losses (ACL) stood at 1.47% of total loans, down from 1.57% at the end of 2023, reflecting the bank's proactive approach to managing credit risk and maintaining a robust reserve position.

As of September 30, 2024, Citizens Community Bancorp reported a debt-to-equity ratio of 0.34 and a cash balance of $36.63 million. The bank has an irrevocable Standby Letter of Credit Master Reimbursement Agreement with the Federal Home Loan Bank, with a current unused borrowing capacity of approximately $414.40 million. The company's current ratio and quick ratio both stood at 1.39, indicating a healthy short-term liquidity position.

Product Segments and Loan Portfolio

Citizens Community Bancorp's loan portfolio is diversified across several key product segments:

Commercial and Agricultural Real Estate Loans: This segment, which includes commercial real estate, agricultural real estate, and multi-family real estate loans, constituted 73.4% of the total loan portfolio as of September 30, 2024. Commercial real estate loans totaled $730.46 million, with an average loan size of $0.6 million and a weighted average loan-to-value of 53%. Agricultural real estate loans amounted to $76.04 million, while multi-family real estate loans stood at $239.19 million, with an average loan size of $1.8 million and a weighted average loan-to-value of 61%.

Commercial and Industrial (C&I) and Agricultural Operating Loans: This segment accounted for 10.3% of the total loan portfolio. C&I loans totaled $119.62 million, while agricultural operating loans amounted to $27.55 million.

Residential Mortgage Loans: Comprising 9.7% of the total loan portfolio, this segment includes residential mortgage loans ($134.94 million) and purchased HELOC loans.

Consumer Installment Loans: This segment, making up 0.7% of the total loan portfolio, includes originated indirect paper loans ($4.41 million) and other consumer loans ($5.44 million).

The total loan portfolio stood at $1.42 billion as of September 30, 2024, with an allowance for credit losses of $21 million, representing 1.47% of total loans.

Recent Developments and Outlook

In July 2024, the Wisconsin state government implemented a tax exemption on income earned from commercial and agricultural loans up to $5 million, a move that has positively impacted Citizens Community Bancorp's effective tax rate and profitability. The company has also been actively managing its balance sheet, reducing its FHLB advances and reallocating funds to higher-yielding assets.

Looking ahead, the company remains focused on strengthening its commercial and agricultural lending capabilities, leveraging its local market expertise to support the financial needs of businesses and the agricultural sector. Additionally, the bank is exploring opportunities to expand its digital banking offerings and enhance its technology infrastructure to improve efficiency and the customer experience.

Risks and Considerations

While Citizens Community Bancorp has demonstrated resilience, the bank is not immune to the challenges facing the broader financial industry. The company's performance is susceptible to changes in interest rates, economic conditions, and competitive pressures within its local markets. Additionally, the bank's reliance on the agricultural sector and commercial real estate lending exposes it to potential risks associated with those industries.

The company also faces regulatory scrutiny and the need to adapt to evolving compliance requirements, which can impact its operations and profitability. Cybersecurity threats and the ongoing pandemic-related uncertainties are other factors that the bank must navigate effectively to maintain its long-term success.

Conclusion

Citizens Community Bancorp has established itself as a reliable community banking partner, serving the financial needs of individuals and businesses in its local markets for over three decades. The company's focus on commercial and agricultural lending, coupled with its strong capital position and liquidity, has enabled it to navigate changing economic conditions and industry dynamics. As Citizens Community Bancorp continues to evolve and adapt to the ever-changing landscape, it remains committed to supporting the growth and prosperity of the communities it serves.