Business Overview A Diversified Community Bank with Deep Roots
Citizens Community Bancorp, Inc. (NASDAQ:CZWI) is a bank holding company that operates primarily through its wholly-owned subsidiary, Citizens Community Federal N.A. (the "Bank" or "CCFBank"). Founded in 1973, the Company has established itself as a trusted financial institution serving customers across Wisconsin and Minnesota.
Citizens Community Bancorp, Inc. has a rich history that extends beyond its 1973 founding as a federal savings and loan association. The Bank's origins can be traced back to 1938 when it was established as Citizens State Bank, a state-chartered bank in Eau Claire, Wisconsin. In 1999, the Bank underwent a significant transformation, converting its charter to a national bank and adopting the name Citizens Community Federal N.A.
The Company's evolution continued in 2004 when Citizens Community Bancorp, Inc. was incorporated in Maryland as the holding company for Citizens Community Federal N.A. This corporate structure has allowed the Bank to pursue strategic growth opportunities and enhance its operational efficiency.
Over the years, Citizens Community Bancorp has expanded its footprint through a combination of organic growth and strategic acquisitions. A notable milestone in the Bank's expansion came in 2008 when it entered the Minnesota market through the acquisition of a bank in Mankato. This move allowed the Company to establish a strong presence in the Upper Midwest region, diversifying its geographic reach and customer base.
The Company's growth trajectory continued in 2016 with the acquisition of a community bank in western Wisconsin. This strategic move further strengthened CCFBank's branch network and expanded its customer base in a key market area.
During the Great Recession of the late 2000s, Citizens Community Bancorp faced challenges common to many financial institutions, including an increase in nonperforming assets and loan losses. However, the Company's commitment to prudent risk management and strong capital levels enabled it to navigate this difficult period successfully. The Bank's ability to weather the economic storm and emerge in a position of strength is a testament to its resilient business model and conservative approach to banking.
In 2018, Citizens Community Bancorp took steps to enhance its corporate governance and align the interests of management with shareholders by implementing a new equity incentive plan. This plan, designed to provide stock-based compensation to employees, has played a crucial role in attracting and retaining key talent while reinforcing the Company's commitment to long-term value creation.
The Company'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. CCFBank operates a network of 22 branch locations, providing traditional community banking services such as one-to-four family residential mortgages, commercial and agricultural lending, and consumer banking products.
Citizens Community Bancorp faces competition from other financial and non-financial institutions providing financial products. Additionally, the company is subject to regulations and undergoes periodic examinations by regulatory agencies. There are no known scandals, short seller reports, or CEO departures at CZWI.
Financial Performance Solid Fundamentals Amidst Challenges
Despite the challenges faced by the banking industry in recent years, Citizens Community Bancorp has maintained a solid financial footing. As of December 31, 2023, the Company reported total assets of $1.85 billion, a modest decrease from the prior year's $1.82 billion. This was primarily due to a reduction in the investment securities portfolio, as the Company strategically reallocated its assets to optimize liquidity and interest rate risk management.
The Company's loan portfolio stood at $1.46 billion as of December 31, 2023, down slightly from $1.47 billion a year earlier. This decrease was driven by a combination of paydowns and a more cautious lending approach in certain sectors, reflecting the Company's prudent risk management practices. Importantly, the Bank's asset quality remained strong, with nonperforming assets accounting for just 0.83% of total assets at the end of 2023, a slight improvement from the previous year.
Turning to profitability, Citizens Community Bancorp reported net income of $13.06 million for the year ended December 31, 2023, a decrease from the $17.76 million recorded in 2022. This decline was primarily attributable to lower net interest income, as the rising interest rate environment put pressure on the Company's liability-sensitive balance sheet. However, the Bank's proactive measures to manage its funding costs and optimize its asset-liability mix helped mitigate the impact of the rate increases.
Despite the headwinds, the Company maintained a strong capital position, with a Tier 1 leverage ratio of 11.50% and a total risk-based capital ratio of 14.60% as of December 31, 2023. These ratios exceeded the regulatory requirements for a "well-capitalized" institution, underscoring the Company's financial stability and ability to withstand economic challenges.
For the most recent quarter ended September 30, 2024, Citizens Community Bancorp reported revenue of $14.14 million, representing a 1.01% increase year-over-year. Net income for the quarter stood at $3.29 million, a significant 31.6% increase compared to the same period last year. The increase in revenue was primarily driven by higher gains on loan sales, while the increase in net income was due to a decrease in provision for income taxes.
As of September 30, 2024, the Company's financial position remained strong. The Tier 1 leverage ratio improved to 11.7%, while the total risk-based capital ratio increased to 15%, further solidifying the Bank's well-capitalized status. The debt-to-equity ratio stood at 0.46, indicating a conservative approach to leverage.
Liquidity
Citizens Community Bancorp maintains a strong liquidity position to meet its operational needs and regulatory requirements. The Company's liquidity management strategy includes maintaining a diverse funding base, utilizing a mix of core deposits, wholesale funding sources, and available borrowing capacity. As of December 31, 2023, the Bank had $276 million in available borrowing capacity from the Federal Home Loan Bank and other sources, providing additional flexibility to manage liquidity needs.
As of September 30, 2024, the Company reported cash of $36.63 million and an available credit line of $414.37 million. This FHLB borrowing arrangement with $414.37 million in available and unused capacity provides significant liquidity support. The current ratio and quick ratio both stood at 1.39, indicating the Company's ability to meet its short-term obligations.
Navigating the Challenges Prudent Risk Management and Diversification
Citizens Community Bancorp's management team has demonstrated a steadfast commitment to prudent risk management, which has served the Company well during periods of economic uncertainty. The Bank's loan portfolio is diversified across various sectors, including commercial real estate, agricultural, and consumer lending, mitigating concentration risks and enhancing the overall stability of the balance sheet.
The Company's commercial real estate lending portfolio is closely monitored, with a focus on maintaining a healthy mix of owner-occupied and non-owner-occupied properties. As of September 30, 2024, the Bank's CRE portfolio had an average loan-to-value ratio of 55%, reflecting a conservative underwriting approach. The CRE portfolio is further broken down, with 67% in non-owner occupied properties and 33% in owner-occupied properties. Additionally, the Company has actively managed its exposure to potentially higher-risk sectors, such as hospitality and restaurants, which account for a relatively small portion of the overall CRE portfolio.
In the agricultural lending segment, the Bank has implemented robust risk management practices, including close monitoring of borrower cash flows, collateral values, and industry trends. This vigilance has helped the Company navigate the inherent volatility of the agricultural sector, as evidenced by the low level of nonperforming agricultural loans in the portfolio.
Amidst the challenges posed by the COVID-19 pandemic, Citizens Community Bancorp demonstrated its resilience and adaptability. The Bank quickly implemented measures to support its customers, including loan modifications, payment deferrals, and participation in government-sponsored relief programs. These actions, combined with the Company's strong capital position, enabled CCFBank to weather the storm and continue serving the financial needs of its communities.
Loan Portfolio Composition and Credit Quality
As of September 30, 2024, Citizens Community Bancorp's loan portfolio was well-diversified across three main business segments. The Commercial/Agricultural Real Estate segment was the largest, comprising 51.3% of the total loan portfolio. This segment includes commercial real estate, agricultural real estate, multi-family real estate, and construction and land development loans.
The Commercial/Industrial and Agricultural Operating segment accounted for 10.3% of the total loan portfolio. This includes commercial and industrial loans as well as agricultural operating loans, which are generally term loans to fund the purchase of equipment, livestock, and seasonal operating lines. These loans typically have shorter maturities and are secured by farm assets and other business collateral.
The Residential Mortgage and Consumer Installment segment made up 9.7% of the total loan portfolio. This includes residential mortgages, purchased home equity lines of credit, and consumer installment loans secured by automobiles, boats, and other personal assets. Underwriting for this segment focuses more on the borrowers' documented income, credit profiles, and collateral values.
Overall, the loan portfolio has shown relatively stable credit quality, with nonperforming loans representing 1.09% of total loans as of September 30, 2024. The allowance for credit losses stood at 1.47% of total loans, reflecting management's view of the expected lifetime credit losses in the portfolio. Provision for credit losses has been a net benefit in recent periods due to improvements in economic conditions and credit quality in the portfolio.
Funding and Deposit Base
Citizens Community Bancorp funds its lending activities primarily through a diversified deposit base, which comprised $1.52 billion in total deposits as of September 30, 2024. The deposit base is split roughly 56% consumer, 28% commercial, 12% public, and 4% brokered. This diverse mix of deposits provides stability and helps manage funding costs effectively.
The bank also utilizes FHLB advances and other borrowings to supplement its funding, though the balance of these has declined from $147 million at the end of 2023 to $82.6 million as of the third quarter of 2024. This reduction in wholesale funding reflects the Company's focus on optimizing its funding mix and reducing reliance on potentially more volatile sources of liquidity.
Looking Ahead Navigating Uncertainty with Prudence
As Citizens Community Bancorp looks to the future, the Company faces a dynamic operating environment characterized by rising interest rates, macroeconomic volatility, and heightened regulatory scrutiny. However, the Bank's management team has proven its ability to navigate these challenges with a steadfast commitment to prudent risk management and a focus on serving the diverse financial needs of its customer base.
The Company's strategic priorities include ongoing balance sheet optimization, enhanced operational efficiency, and the prudent deployment of capital to support organic growth and shareholder value creation. With a strong foundation in place, Citizens Community Bancorp is well-positioned to capitalize on emerging opportunities and continue its legacy as a trusted community bank serving the Upper Midwest region.
Conclusion A Resilient Institution Poised for the Future
Citizens Community Bancorp, Inc. has a long and storied history as a community bank, having weathered various economic cycles and industry challenges. The Company's adherence to prudent risk management, diversified business model, and commitment to serving its local communities have been the hallmarks of its success.
As the banking industry navigates a complex and evolving landscape, Citizens Community Bancorp is poised to leverage its strengths and continue delivering value to its shareholders, customers, and the communities it serves. With a solid financial foundation, a seasoned management team, and a steadfast focus on prudent growth, the Company remains well-equipped to navigate the uncertainties ahead and build upon its legacy as a resilient and trusted financial institution.