Citizens munity Bancorp(CZWI) - 2024 Q4 - Annual Results

Earnings Summary and Corporate Developments The company reported Q4 2024 earnings, highlighting a decrease in net income but an increase in dividend, alongside strategic balance sheet optimization efforts that improved the tangible common equity ratio and net interest margin Fourth Quarter 2024 Financial Highlights Citizens Community Bancorp reported Q4 2024 net income of $2.7 million, or $0.27 per diluted share, a decrease from both the prior quarter and the same quarter last year, influenced by higher net interest income and margin, offset by lower non-interest income and higher non-interest expenses, while increasing its annual dividend by 12.5% to $0.36 per share and improving its tangible common equity ratio Quarterly Earnings Comparison | Metric | Q4 2024 | Q3 2024 | Q4 2023 | | :--- | :--- | :--- | :--- | | Net Income | $2.7 million | $3.3 million | $3.7 million | | Diluted EPS | $0.27 | $0.32 | $0.35 | - The Board of Directors approved a 12.5% increase in the annual dividend, raising it to $0.36 per share[1][12] - Key changes from Q3 2024 include a $0.4 million increase in net interest income, a $0.9 million decrease in non-interest income (due to lower loan sale gains and losses on securities), and a $0.4 million increase in non-interest expense (due to higher REO expenses and professional fees)[2] Book Value Per Share Growth | Metric | Dec 31, 2024 | Sep 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | :--- | | Book Value Per Share | $17.94 | $17.88 | $16.60 | | Tangible Book Value Per Share (non-GAAP) | $14.69 | $14.64 | $13.42 | Management Commentary and Strategic Objectives Management expressed satisfaction with the execution of strategic objectives in 2024, focusing on balance sheet optimization, which increased the net interest margin and tangible common equity (TCE) ratio to 8.54%, while forecasting modest loan growth of 1-3% for 2025 and maintaining a strong credit loss reserve - The company is focused on balance sheet optimization, which led to a 6% increase in net interest margin in Q4[3] - The Tangible Common Equity (TCE) ratio increased to 8.54% from 8.35% in the prior quarter, providing flexibility for future loan growth and potential share repurchases[3] - The company forecasts modest loan growth of one to three percent in 2025[3] - The company repurchased 94,000 shares in Q4 2024 at an average price of $14.55 per share, and for the full year 2024, 476,000 shares were repurchased at an average price of $12.76[12][22] - The Faribault, Minnesota branch is scheduled to close on February 3, 2025, as part of the company's operational adjustments[12] Financial Condition Analysis The company's financial condition reflects a decrease in total assets and loans due to strategic optimization, improved liquidity and asset quality, and a shift in the deposit mix away from wholesale funding Balance Sheet Overview Total assets decreased by $50.6 million to $1.749 billion in Q4 2024, driven by a reduction in loans and securities, while on-balance sheet liquidity improved to 11.75% of total assets, and total borrowing capacity stood at $725 million, providing substantial coverage for uninsured deposits - Total assets decreased by $50.6 million during Q4 2024 to $1.749 billion at December 31, 2024[6] - Securities available for sale (AFS) decreased by $6.6 million to $142.8 million, while securities held to maturity (HTM) decreased by $1.5 million to $85.5 million[6][7] - The on-balance sheet liquidity ratio improved to 11.75% of total assets, up from 11.46% in the prior quarter[8] - Total available borrowing capacity was $725 million, representing 273% of uninsured and uncollateralized deposits[8] Loan Portfolio and Asset Quality The loan portfolio contracted by $55.8 million to $1.372 billion due to strategic pay-offs of non-strategic relationships, with asset quality metrics showing improvement as nonperforming assets decreased by $2.8 million to $14.3 million, and the allowance for credit losses (ACL) stood at 1.50% of total loans, with minimal net charge-offs - Loans decreased by $55.8 million during Q4 2024 to $1.372 billion as part of a balance sheet optimization strategy targeting non-strategic relationships[9] Allowance for Credit Losses (ACL) - Loans | Metric | Dec 31, 2024 | Sep 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | :--- | | ACL - Loans | $20.5 million | $21.0 million | $22.9 million | | ACL as % of Loans | 1.50% | 1.47% | 1.57% | - Net charge-offs were minimal at 0.009% of average loans for Q4 and 0.007% for the full year 2024[12] Criticized and Nonperforming Loan Trends (in thousands) | Loan Category | Dec 31, 2024 | Sep 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | :--- | | Special Mention Loans | $8,480 | $11,047 | $18,392 | | Substandard Loans | $18,891 | $21,202 | $19,596 | | Nonperforming Assets | $14,269 | $17,144 | $15,368 | Deposit Portfolio and Liabilities Total deposits decreased by $32.5 million to $1.49 billion, primarily due to a strategic reduction of $59.7 million in wholesale deposits, with brokered deposits significantly reduced by $47.5 million, and the deposit mix shifting towards a higher concentration of core consumer and commercial deposits, while FHLB advances were also paid down by $16.0 million - Total deposits decreased by $32.5 million to $1.49 billion, driven by a planned reduction in wholesale deposits[17] - Wholesale deposits decreased significantly, with brokered deposits falling by $47.5 million to $19.1 million at quarter-end[17] Deposit Portfolio Composition (Q4 2024 vs Q3 2024) | Deposit Type | Q4 2024 % | Q3 2024 % | | :--- | :--- | :--- | | Consumer | 57% | 55% | | Commercial | 28% | 27% | | Public | 13% | 12% | | Wholesale | 2% | 6% | - Federal Home Loan Bank (FHLB) advances were reduced by $16.0 million, totaling $5.0 million at December 31, 2024[21] Review of Operations The company's operations in Q4 2024 saw an increase in net interest income and margin, a decrease in non-interest income, an increase in non-interest expense, and a lower provision for income taxes Net Interest Income and Margin Net interest income (NII) for Q4 2024 increased by $0.4 million from the prior quarter to $11.7 million, and the net interest margin (NIM) expanded by 16 basis points to 2.79%, benefiting from lower deposit costs and 3 basis points from accelerated deferred fee accretion on loan payoffs Net Interest Income and Margin Performance | Metric | Q4 2024 | Q3 2024 | Q4 2023 | | :--- | :--- | :--- | :--- | | Net Interest Income | $11.71M | $11.29M | $11.75M | | Net Interest Margin | 2.79% | 2.63% | 2.69% | - The increase in NII from Q3 2024 was primarily due to the increase in NIM, which was favorably impacted by 3 basis points from deferred fee accretion on loan payoffs[23] Non-Interest Income and Expense Non-interest income decreased by $0.9 million to $2.0 million compared to the prior quarter, mainly due to a $0.5 million lower gain on sale of loans and a $0.2 million higher net loss on equity securities, while non-interest expense rose by $0.4 million to $10.8 million, driven by increased professional fees and losses on repossessed assets, resulting in an efficiency ratio of 76% - Non-interest income decreased by $0.9 million from Q3 2024, primarily due to $0.5 million lower gain on sale of loans and $0.2 million higher net losses on equity securities[26] - Non-interest expense increased by $0.4 million from Q3 2024, largely due to a $0.2 million increase in professional fees and $0.2 million in losses on repossessed assets[27] - Compared to Q4 2023, non-interest expense was up $0.6 million due to higher compensation, losses on repossessed assets, and data processing costs[27] - The efficiency ratio was 76% for Q4 2024, compared to 72% for Q3 2024[12] Provision for Income Taxes The provision for income taxes was $0.7 million in Q4 2024, down from $0.9 million in the previous quarter, reflecting lower pre-tax income, with an effective tax rate of 19.5% for the quarter Effective Tax Rate Comparison | Period | Effective Tax Rate | | :--- | :--- | | Q4 2024 | 19.5% | | Q3 2024 | 21.5% | | Q4 2023 | 20.9% | Financial Statements and Non-GAAP Reconciliations This section presents the company's consolidated financial statements and provides detailed reconciliations for non-GAAP financial measures used to assess core operational performance and financial strength Consolidated Financial Statements This section provides the detailed unaudited Consolidated Balance Sheets as of December 31, 2024, and the Consolidated Statements of Operations for the three and twelve months ended December 31, 2024, which form the basis for the financial analysis presented in the report Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total Assets | $1,748,519 | $1,851,391 | | Loans receivable, net | $1,348,432 | $1,437,884 | | Total Deposits | $1,488,148 | $1,519,092 | | Total Stockholders' Equity | $179,084 | $173,334 | Consolidated Statement of Operations Highlights (in thousands) | Account (Twelve Months Ended) | Dec 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Net Interest Income | $46,474 | $48,349 | | Total Non-interest Income | $10,107 | $10,250 | | Total Non-interest Expense | $42,306 | $40,142 | | Net Income | $13,751 | $13,059 | Non-GAAP Financial Measures and Reconciliations The company uses several non-GAAP financial measures, including tangible book value per share, tangible common equity to tangible assets, and adjusted net income, to provide a clearer understanding of its core operational performance, with this section providing detailed reconciliations of these non-GAAP measures to their nearest GAAP equivalents - Management uses non-GAAP measures such as tangible book value, tangible common equity ratios, and adjusted net income to help investors assess financial strength and compare results across periods by eliminating the impact of goodwill, intangibles, and certain non-recurring expenses[31][32] Tangible Common Equity to Tangible Assets (non-GAAP) | Date | Ratio | | :--- | :--- | | Dec 31, 2024 | 8.54% | | Sep 30, 2024 | 8.35% | | Dec 31, 2023 | 7.71% | Return on Average Tangible Common Equity (non-GAAP, annualized) | Period | Ratio | | :--- | :--- | | Q4 2024 | 7.72% | | Q3 2024 | 9.38% | | Q4 2023 | 11.29% | | FY 2024 | 10.03% |