Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
CZWI > SEC Filings for CZWI > Form 10-Q on 11-Aug-2014All Recent SEC Filings

Show all filings for CITIZENS COMMUNITY BANCORP INC.

Form 10-Q for CITIZENS COMMUNITY BANCORP INC.


11-Aug-2014

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS
Certain statements contained in this report are considered "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may be identified by the use of forward-looking words or phrases such as "anticipate," "believe," "could," "expect," "intend," "may," "planned," "potential," "should," "will," "would," or the negative of those terms or other words of similar meaning. Such forward-looking statements in this report are inherently subject to many uncertainties arising in the Company's operations and business environment. These uncertainties include general economic conditions, in particular, relating to consumer demand for the Bank's products and services; the Bank's ability to maintain current deposit and loan levels at current interest rates; competitive and technological developments;


deteriorating credit quality, including changes in the interest rate environment reducing interest margins; prepayment speeds, loan origination and sale volumes, charge-offs and loan loss provisions; the Bank's ability to maintain required capital levels and adequate sources of funding and liquidity; maintaining capital requirements may limit the Bank's operations and potential growth; changes and trends in capital markets; competitive pressures among depository institutions; effects of critical accounting estimates and judgments; changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board (FASB) or other regulatory agencies overseeing the Bank; the Bank's ability to implement its cost-savings and revenue enhancement initiatives; legislative or regulatory changes or actions, or significant litigation, adversely affecting the Bank or the Company; fluctuation of the Company's stock price; the Bank's ability to attract and retain key personnel; the Bank's ability to secure confidential information through the use of computer systems and telecommunications networks; and the impact of reputational risk created by these developments on such matters as business generation and retention, funding and liquidity. Shareholders, 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 September 30, 2013 filed with the Securities and Exchange Commission on December 9, 2013. The Company undertakes no obligation to make any revisions to the forward-looking statements contained in this report or to update them to reflect events or circumstances occurring after the date of this report.
GENERAL
The following discussion sets forth management's discussion and analysis of our consolidated financial condition as of June 30, 2014, and our consolidated results of operations for the nine months ended June 30, 2014, compared to the same period in the prior fiscal year for the nine months ended June 30, 2013. This discussion should be read in conjunction with the interim consolidated financial statements and the condensed notes thereto included with this report and with Management's Discussion and Analysis of Financial Condition and Results of Operations and the financial statements and notes related thereto included in the Company's annual report on Form 10-K filed with the Securities and Exchange Commission on December 9, 2013. Unless otherwise stated, all monetary amounts in this Management's Discussion and Analysis of Financial Condition and Results of Operations, other than share, per share and capital ratio amounts, are stated in thousands.

PERFORMANCE SUMMARY
The following table sets forth our results of operations and related summary
information for the three and nine month periods ended June 30, 2014 and 2013,
respectively:
                                                                                   Nine Months Ended
                                           Three Months Ended June 30,                  June 30,
                                            2014                 2013             2014            2013
Net income as reported                $         558         $         166     $     1,182     $      759
EPS - basic, as reported              $        0.11         $        0.03     $      0.23     $     0.15
EPS - diluted, as reported            $        0.11         $        0.03     $      0.23     $     0.15
Cash dividends paid                   $           -         $           -     $      0.04     $     0.02
Return on average assets (annualized)          0.40 %                0.12 %          0.28 %         0.19 %
Return on average equity (annualized)          4.00 %                1.22 %          2.85 %         1.86 %
Efficiency ratio, as reported (1)             76.95 %               79.40 %         76.70 %        74.44 %

(1) The efficiency ratio is calculated as non-interest expense minus branch closure costs divided by the sum of net interest income plus non-interest income, excluding net impairment losses recognized in earnings. A lower ratio indicates greater efficiency.

The following is a brief summary of some of the significant factors that affected our operating results in the three and nine month periods ended June 30, 2014 and 2013. See the remainder of this section for a more thorough discussion.
We reported net income of $558 for the three months ended June 30, 2014, compared to $166 for the three months ended June 30, 2013. We reported net income of $1,182 for the nine months ended June 30, 2014, compared to $759 for the nine months ended June 30, 2013. Both basic and diluted earnings per share were $0.11 and $0.23 for the three and nine months ended June 30, 2014 and 2013, respectively.
The return on average assets for the three months ended June 30, 2014 and 2013 was 0.40% and 0.12%, respectively. The return on average assets for the nine months ended June 30, 2014 and 2013 was 0.28% and 0.19% , respectively.


The return on average equity for the three months ended June 30, 2014 and 2013 was 4.00% and 1.22%, respectively. The return on average equity for the nine months ended June 30, 2014 and 2013 was 2.85% and 1.86%, respectively Our efficiency ratio decreased to 76.95% for the three months ended June 30, 2014, compared to 79.40% for the three months ended June 30, 2013. Our efficiency ratio increased to 76.70% for the nine months ended June 30, 2014, compared to 74.44% for the nine months ended June 30, 2013, primarily due to an insurance settlement reimbursing us for legal fees incurred during the quarter ended March 31, 2013. Our efficiency ratio has also been negatively impacted by branch operating costs associated with the closure of certain of our branches during the nine months ended June 30, 2014.
An annual cash dividend in the amount of $0.04 was declared and paid in the three month period ended March 31, 2014. An annual cash dividend in the amount of $0.02 was declared in the three month period ended March 31, 2013 and paid on April 18, 2013.
Key factors behind these results were:
Net interest income was $4,924 for the three month period ended June 30, 2014, an increase of $249 or 5.33% from the three month period ended June 30, 2013. Net interest income was $14,736 for the nine month period ended June 30, 2014, an increase of $331 or 2.30% from the prior year period.

The net interest margin of 3.62% for the three months ended June 30, 2014 represents a 14 bp increase from a net interest margin of 3.48% for the three months ended June 30, 2013. The net interest margin was 3.63% for each of the nine months ended June 30, 2014 and 2013.

Total loans were $464,577 at June 30, 2014, an increase of $23,714, or 5.38%, from their balances at September 30, 2013. Total deposits were $439,818 at June 30, 2014, a decrease of $7,580 or 1.69%, from their balances at September 30, 2013.

Net loan charge-offs decreased from $2,105 for the nine months ended June 30, 2013 to $1,377 for the nine months ended June 30, 2014, as a result of overall credit quality improvement within the loan portfolio. Continued lower levels of net loan charge-offs led to a decreased provision for loan losses of $1,535 for the nine month period ended June 30, 2014, compared to $2,415 for the nine months ended June 30, 2013. Annualized net loan charge-offs as a percentage of average loans were 0.41% for the nine months ended June 30, 2014, compared to 0.65% for the nine months ended June 30, 2013.

Non-interest income, including valuation losses, increased from $689 for the three months ended June 30, 2013 to $921 for the three months ended June 30, 2014, mainly due to higher levels of other-than-temporary impairment and a net loss on the sale of three non-agency mortgage-backed securities occurring in the prior year period. Non-interest income, including valuation losses, increased from $2,145 for the nine months ended June 30, 2013 to $2,429 for the nine months ended June 30, 2014, mainly due to an increase in fee income from new deposit products and services.

Non-interest expense increased $139, from $4,359 to $4,498, for the three month period ending June 30, 2014 compared to the three month period ending June 30, 2013. In June 2014, the Company implemented a staff reduction to improve efficiencies and operations. During the quarter ended June 30, 2014, (1) salaries and related benefits increased due to severance package accruals associated with the staff reductions, (2) professional services decreased primarily due to a legal settlement reimbursing us for legal fees incurred during a prior period and (3) other expenses increased due to modest increases in various corporate expense accruals. Non-interest expense increased $850, from $12,908 to $13,758, for the nine month period ending June 30, 2014 compared to the prior year period. The increase in non-interest expense in the current nine month period was primarily attributable to branch closure costs in the amount of $393 and the previously mentioned expenses which occurred in the current three month period.

CRITICAL ACCOUNTING ESTIMATES

Our consolidated financial statements are prepared in accordance with GAAP. In connection with the preparation of our financial statements, we are required to make assumptions and estimates about future events, and apply judgments that affect the reported amount of assets, liabilities, revenue, expenses and their related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that our management believes to be relevant at the time our consolidated financial statements are prepared. Some of these estimates are more critical than others. In addition to the policies included in Note 1, "Nature of Business and Summary of Significant Accounting Policies," to the Consolidated Financial Statements included as an exhibit to our Form 10-K annual report for the fiscal year ending September 30, 2013, our critical accounting estimates are as follows:


Allowance for Loan Losses.
We maintain an allowance for loan losses to absorb probable incurred losses in our loan portfolio. The allowance is based on ongoing, quarterly assessments of the estimated probable incurred losses in our loan portfolio. In evaluating the level of the allowance for loan loss, we consider the types of loans and the amount of loans in our loan portfolio, historical loss experience, adverse situations that may affect the borrower's ability to repay, the estimated value of any underlying loan collateral and prevailing economic conditions. We follow all applicable regulatory guidance, including the "Interagency Policy Statement on the Allowance for Loan and Lease Losses," issued by the Federal Financial Institutions Examination Council (FFIEC). We believe that the Bank's Allowance for Loan Losses Policy conforms to all applicable regulatory requirements. However, based on periodic examinations by regulators, the amount of the allowance for loan losses recorded during a particular period may be adjusted. Our determination of the allowance for loan losses is based on (1) specific allowances for specifically identified and evaluated impaired loans and their corresponding estimated loss based on likelihood of default, payment history, and net realizable value of underlying collateral; and (2) a general allowance on loans not specifically identified in (1) above, based on historical loss ratios which are adjusted for qualitative and general economic factors. We continue to refine our allowance for loan losses methodology, with an increased emphasis on historical performance adjusted for applicable economic and qualitative factors.
Assessing the allowance for loan losses is inherently subjective as it requires making material estimates, including estimating the amount and timing of future cash flows expected to be received on impaired loans, any of which estimates may be susceptible to significant change. In our opinion, the allowance, when taken as a whole, reflects estimated probable loan losses in our loan portfolio. Investment Securities.
Management determines the appropriate classification of investment securities at the time of purchase and reevaluates such designation as of each statement of financial position date. Securities are classified as held to maturity when the Company has the positive intent and ability to hold the securities to maturity. Held to maturity securities are stated at amortized cost. Investment securities not classified as held to maturity are classified as available for sale. Securities classified as available for sale are carried at fair value, with unrealized gains and losses reported in other comprehensive income (loss). Amortization of premiums and accretion of discounts are recognized in interest income using the interest method over the estimated lives of the securities. We evaluate all investment securities on a quarterly basis, and more frequently when economic conditions warrant, to determine if other-than-temporary impairment exists. Management's evaluation of the portfolio is based on the following three criteria: (1) Bonds with an unrealized loss greater than 10 percent of the bond's book value, (2) bonds with an unrealized loss greater than 5 percent and less than 10 percent of book value with a greater than 5 percent unrealized loss for 12 consecutive months, and (3) bonds with an unrealized loss greater than 5 percent for less than 12 months.
Current authoritative guidance provides that some portion of unrealized losses may be other-than-temporary and a credit loss is deemed to exist if the present value of the expected future cash flows is less than the amortized cost basis of the debt security. The credit loss component is recorded in earnings as a component of other-than-temporary impairment in the consolidated statements of operations, while the loss component related to other market factors is recognized in other comprehensive income (loss), provided the Bank does not intend to sell the underlying debt security and it is "more likely than not" that the Bank will not have to sell the debt security prior to recovery of the unrealized loss.
We consider the following factors in determining whether a credit loss exists and the period over which the debt security is expected to recover:
The length of time, and extent to which, the fair value has been less than the amortized cost.

Adverse conditions specifically related to the security, industry or geographic area.

The historical and implied volatility of the fair value of the security.

        The payment structure of the debt security and the likelihood of the
         issuer or underlying borrowers being able to make payments that may
         increase in the future.


        The failure of the issuer of the security or the underlying borrowers to
         make scheduled interest or principal payments.

Any changes to the rating of the security by a rating agency.

Recoveries or additional declines in fair value subsequent to the balance sheet date.


Interest income on securities for which other-than-temporary impairment has been recognized in earnings is recognized at a rate commensurate with the expected future cash flows and amortized cost basis of the securities after the impairment.
Gains and losses on the sale of securities are recorded on the trade date and determined using the specific-identification method.
To determine if other-than-temporary impairment exists on a debt security, the Bank first determines if (1) it intends to sell the security or (2) it is more likely than not that it will be required to sell the security before its anticipated recovery. If either of the foregoing conditions is met, the Bank will recognize other-than-temporary impairment in earnings equal to the difference between the security's fair value and its adjusted cost basis. If neither of the foregoing conditions is met, the Bank determines (a) the amount of the impairment related to credit loss and (b) the amount of the impairment due to all other factors. The difference between the present values of the cash flows expected to be collected and the amortized cost basis is the credit loss. The credit loss is the amount of the other-than-temporary impairment that is recognized in earnings and is a reduction to the cost basis of the security. The amount of the total impairment related to all other factors (excluding credit loss) is included in other comprehensive income (loss).
We monitor our portfolio investments on an on-going basis and we have historically obtained quarterly independent valuations of our non-agency residential mortgage-backed securities. This analysis was utilized to ascertain whether any decline in market value was other-than-temporary. In determining whether an impairment is other-than-temporary, we consider the following factors: the length of time and the extent to which the market value has been below cost; recent events specific to the issuer including investment downgrades by rating agencies and economic conditions within the issuer's industry; whether it is more likely than not that we will be required to sell the security before there would be a recovery in value; and the credit performance of the underlying collateral backing the securities, including delinquency rates, cumulative losses to date, and prepayment speed.
The independent valuation process included:

        Obtaining individual loan level data directly from servicers and
         trustees, and making assumptions regarding the frequency of foreclosure,
         loss severity and conditional prepayment rate (for both the entire pool
         and the loan group pertaining to the bond we hold).


        Projecting cash flows based on these assumptions and stressing the cash
         flows under different time periods and requirements based on the class
         structure and credit enhancement features of the bond we hold.


        Identifying various price/yield scenarios based on the Bank's book value
         and valuations based on both hold-to-maturity and current free market
         trade scenarios. Discount rates were determined based on the volatility
         and complexity of the security and the yields demanded by buyers for
         these or similar securities in the market at the time of the valuation.

For securities that are considered other-than-temporarily impaired and for which we have the ability and intent to hold these securities until the recovery of our amortized cost basis, we recognize other-than-temporary impairment in accordance with accounting principles generally accepted in the United States. Under these principles, we separate the amount of the other-than-temporary impairment into the amount that is credit related and the amount due to all other factors. The credit loss component is recognized in earnings and is the difference between the security's amortized cost basis and the present value of expected future cash flows. The amount due to other factors is recognized in other comprehensive income (loss).
Income Taxes.
The assessment of tax assets and liabilities involves the use of estimates, assumptions, interpretations, and judgments concerning certain accounting pronouncements and federal and state tax codes. There can be no assurance that future events, such as court decisions or positions of federal and state taxing authorities, will not differ from management's current assessment, the impact of which could be material to our consolidated results of our operations and reported earnings. We believe that the tax assets and liabilities are adequate and properly recorded in the accompanying consolidated financial statements. As of June 30, 2014, management does not believe a valuation allowance related to the realizability of its deferred tax assets is necessary.
STATEMENT OF OPERATIONS ANALYSIS
Net Interest Income. Net interest income represents the difference between the dollar amount of interest earned on interest-bearing assets and the dollar amount of interest paid on interest-bearing liabilities. The interest income and expense of financial institutions (including those of the Bank) are significantly affected by general economic conditions, competition, policies of regulatory authorities and other factors.


Interest rate spread and net interest margin are used to measure and explain changes in net interest income. Interest rate spread is the difference between the yield on interest earning assets and the rate paid for interest-bearing liabilities that fund those assets. Net interest margin is expressed as the percentage of net interest income to average interest earning assets. Net interest margin currently exceeds interest rate spread because non-interest bearing sources of funds ("net free funds"), principally demand deposits and stockholders' equity, also support interest earning assets. The narrative below discusses net interest income, interest rate spread, and net interest margin for the three and nine month periods ended June 30, 2014 and 2013, respectively. Net interest income was $4,924 and $14,736 for the three and nine months ended June 30, 2014, compared to $4,675 and $14,405, respectively, for the three and nine months ended June 30, 2013. The net interest margin for the three and nine month period ended June 30, 2014 was 3.62% and 3.63% compared to 3.48% and 3.63% for the three and nine month period ended June 30, 2013, respectively. As shown in the rate/volume analysis in the following pages, volume changes resulted in an increase of $233 and $724 for the three and nine month periods ended June 30, 2014, respectively, compared to the comparable prior year periods. The increase and changes in the composition of interest earning assets resulted in an increase of $266 and $819 for the three and nine month periods ended June 30, 2014, compared to the same periods in the prior year. Rate changes on interest earning assets decreased interest income by $269 and $1,333 for the three and nine month periods ended June 30, 2014. This decrease was partially offset by rate changes on interest-bearing liabilities that decreased interest expense by $285 and $940 over the same periods in the prior year, resulting in a net increase of $16 and net decrease of $393 in net interest income due to changes in interest rates during the three and nine month periods ended June 30, 2014, respectively. The increase in our balances of loans outstanding is due to commercial real estate and seasonal indirect consumer loan growth in the current year periods over the balances in the prior year periods, and is the primary factor affecting volume changes during these same periods. Rate decreases on all asset and deposit categories are reflective of the overall lower market interest rate environment versus historic levels.
We have remained liability sensitive in the short term during the most recent two fiscal years, in which interest rates have declined to historically low levels. A continuing low interest rate environment may enable us to experience a further reduction in our cost of funds while loans continue to prepay at faster than historical speeds.
Average Balances, Net Interest Income, Yields Earned and Rates Paid. The following Net Interest Income Analysis table presents interest income from average interest earning assets, expressed in dollars and yields, and interest expense on average interest-bearing liabilities, expressed in dollars and rates. Shown below, is the weighted average yield on interest earning assets, rates paid on interest-bearing liabilities and the resultant spread at or during the three and nine month periods ended June 30, 2014, and for the comparable prior year three and nine month periods. No tax equivalent adjustments were made. Non-accruing loans have been included in the table as loans carrying a zero yield.
Average interest earning assets were $545,379 and $543,391 for the three and nine month periods ended June 30, 2014, compared to $539,125 and $530,299 for the comparable prior year periods. Interest income on interest earning assets was $5,970 and $17,927 for the three and nine month periods ended June 30, 2014, compared to $5,973 and $18,441 for the same periods in the prior year. Interest income is comprised primarily of interest income on loans and interest income on investment securities. Interest income on loans was $5,589 and $16,830 for the three and nine month periods ended June 30, 2014, compared to $5,710 and $17,412 for the comparable prior year periods. Interest income on investment securities was $321 and $1,017 for the three and nine month periods ended June 30, 2014, compared to $244 and $980 for the similar prior year periods. The decrease in loan interest income in the current year three and nine month periods was primarily due to a continued lower interest rate environment. The increase in interest income on investment securities was primarily due to decreases in prepayments.
Average interest-bearing liabilities were $498,001 and $496,752 for the three and nine month periods ended June 30, 2014, compared to $486,855 and $479,453 for the similar prior year periods. Interest expense on interest-bearing liabilities was $1,046 and $3,191 for the three and nine month periods ended June 30, 2014, compared to $1,298 and $4,036 for the same periods in the prior year. Interest expense is comprised primarily of interest expense accrued on money market accounts, certificates of deposit and FHLB advances. The decrease in interest expense during the current year three and nine month periods was primarily due to lower interest rates paid on money market accounts and certificates of deposit.
For the three and nine months ended June 30, 2014, interest expense on interest-bearing deposits increased $0 and $19 from volume and mix changes and decreased $309 and $958 from the impact of the rate environment, resulting in an aggregate decrease of $309 and $939 in interest expense on interest-bearing deposits during such periods. Interest expense on FHLB advances increased $33 from volume and mix changes and increased $24 from the impact of the rate environment during the three months ended June 30, 2014 for an aggregate increase in the amount of $57. Interest expense on FHLB advances


increased $76 from volume and mix changes and decreased $18 from the impact of . . .

  Add CZWI to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for CZWI - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.