Citizens Community's Credit Provision Jumps After Nonaccrual Spike
The Wisconsin-Minnesota lender booked a $4.33 million provision as nonperforming assets rose $14.2 million, while net interest income still rose $0.5 million.
Citizens Community Bancorp (CZWI), the parent of CCFBank N.A., reported second-quarter earnings of $1.1 million, or $0.11 a share, down from $3.8 million, or $0.39 a share, in the first quarter, as a $3.6 million increase in the provision for credit losses and $0.5 million of lower non-interest income more than offset a $0.5 million gain in net interest income and a $0.2 million decline in non-interest expense.
The provision for credit losses was $4.33 million, compared with $0.75 million in the first quarter. The company said the increase reflected a $3.1 million net rise in specific reserves on nonaccrual loans, taking those reserves to $6.3 million, and $1.42 million of charge-offs. The allowance for credit losses on loans rose to $25.9 million, or 1.87% of loans, from 1.69% at March 31.
Nonperforming assets increased $14.2 million to $32.4 million from $18.2 million. The company attributed the rise largely to a $4.2 million owner-occupied commercial real estate loan with a specific reserve equal to the real-estate exposure, a $5.7 million local relationship secured by two campgrounds, a $2.7 million multi-use multi-family/retail loan that had performed for 10 years, and a $1.4 million net increase in repurchased government-guaranteed loans. Substandard loans rose $12.7 million to $35.2 million. Special mention loans fell $6.0 million to $19.9 million, largely on migration of a relationship to substandard.
Chairman, President and CEO Stephen Bianchi said the company was “disappointed with the impact three loan relationships had on net income” and had taken an aggressive posture to limit future earnings effects. One relationship ceased operations and was downgraded to substandard nonaccrual, with a $3.8 million ACL provision impact including a $1.2 million charge-off. Two CRE relationships totaling $8 million moved to substandard nonaccrual from pass. The company said dedicated workout resources were in place.
Net interest income increased $0.5 million to $13.5 million from $13.0 million. Net interest margin expanded 4 basis points to 3.22% from 3.18%, which the company said reflected lower interest-bearing deposit costs, reductions in lower-yielding cash and securities, and higher performing-loan yields, more than offsetting a 5 basis point drop in overall loan yields from new nonaccruals and the repurchase of delinquent government-guaranteed loans. Average interest-earning assets rose 1.4%, and the quarter included one extra business day.
Pre-provision net revenue rose 3.3% to $5.56 million from $5.38 million. Non-interest income fell $0.5 million to $2.6 million from $3.1 million, primarily on lower gains on sale of loans. Non-interest expense declined $0.2 million to $10.5 million as reduced incentive accruals more than offset merit raises; the efficiency ratio improved to 65% from 66%. The effective tax rate was 10.9%, compared with 18.9% in the first quarter.
Loans receivable increased $24.7 million, or 1.8% (7.2% annualized), to $1.383 billion, with growth in commercial real estate and C&I as completed construction loans moved to CRE and multi-family. Total deposits decreased $11.2 million to $1.554 billion, largely from a $15.8 million seasonal drop in public deposits partly offset by $8.5 million of commercial deposit growth; deposits were still $76.0 million above the year-earlier quarter. Total assets were $1.814 billion.
Tangible common equity as a percent of tangible assets rose to 8.96% from 8.88%. Tangible book value per share was $16.55. The board approved a quarterly dividend of $0.105 a share, payable August 21. Bianchi said tangible book value increased $0.03 a share after the dividend and a reduction in AOCI, and that the company was well capitalized.
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