- Solid foundation helps bank weather turbulent times -

SOUTH HILL, Va., Jan. 28 /PRNewswire-FirstCall/ -- Citizens Community Bank (OTC Bulletin Board: CZYB) today reported fourth quarter and year-end results for 2008. For the year ended December 31, 2008, net income to common shareholders was $164,202, a decrease of 66.4% or $325,019 from year end December 31, 2007. Earnings per share, both basic and diluted, totaled $.12, a decline of $.24, or 66.7% from 2007. Return on average assets equaled .11%, down 23 basis points, while return on average equity of .90% was down from 2.82% for 2007. For the fourth quarter of 2008, the Bank recorded a net loss of $52,989, a decline of $208,472 from the same three month period in 2007. Accordingly, a tax benefit of $40,865 was recorded during the fourth quarter of 2008 bringing year-to-date 2008 income tax expense to $36,165.

"The year of 2008 proved to be one of the most difficult and unpredictable years in the history of the financial services industry," stated President Tom Manson. "The economic recession is negatively impacting all those in the financial sector; however, as a local community bank we did not participate in the unsound lending practices that have troubled the other financial institutions during the past year. Our capital ratios are among the strongest in our region and became even stronger with the Board of Directors' decision to participate in the U.S. Treasury's Capital Purchase program during December. The additional capital further strengthens our ability to lend in our communities as exhibited by our strong loan growth during the year."

"We are excited that we will be able to continue our steady growth in our expanding footprint without jeopardizing our well-capitalized position. We also are pleased that we were able to increase our net interest margin during 2008 despite the significant drop in interest rates," added Manson.

During the fourth quarter of 2008, the Bank experienced significant loan growth late in the quarter, which the Bank provided reserves for, however has yet to realize the full earnings potential from the new earning assets. This growth combined with additional charge-offs and recognition of impaired loans found the need to provide $126,178 to the loan loss reserve compared to $43,200 for the same three month period in 2007. Additionally, the Bank incurred a $36,655 one-time prepayment penalty for early pay off a $1.5 million Federal Home Loan Bank ("FHLB") advance. The Bank expects further lower cost advances from the FHLB to support future growth and balance sheet expansion.

Year-to-date 2008 net interest income totaled $4,847,598, an increase of 3.0% or $141,843 from 2007. The increase in net interest income was attributed to continued growth in earning assets and an improved balance sheet mix. This led to net interest margin and net interest spread expansion during a period where the Federal Open Market Committee (FOMC) lowered rates rapidly to historical lows. The net interest margin equaled 3.52% for 2008, up 2 basis points from 3.50% for 2007, while the net interest spread widened 19 basis points to 2.96% over the same one-year period. Given that the FOMC reduced rates dramatically during 2008, this negatively affected the net interest margin in the short term as the Bank's earning assets repriced much quicker than its interest bearing liabilities. The Bank overcame much of this pressure during 2008 by improving the balance sheet mix and through various deposit strategies implemented during 2007. Management continues to monitor the net interest margin and net interest spread closely as net interest income is a significant earnings component.

Noninterest income grew $89,898 or 15.3% to $677,165 from $587,267 in 2007. For the year ended December 31, 2008, the Bank provided $457,278 to the loan loss reserve, compared to $340,591 for the same period in 2007. The additional $116,687 of loan loss provisions for 2008 resulted from higher net charge-offs for 2008 over 2007 and from increasing the reserve ratio in light of the economic uncertainties. Noninterest expenses totaled $4,935,148, an increase of $628,179 or 14.6% from 2007 as the Bank continued to expand the franchise. With the new Roanoke Rapids branch that opened in April of 2008 combined with other staff additions, salaries and employee benefits costs pushed noninterest expense higher.

At year-end 2008, total assets equaled $154.4 million, up $5.6 million or 3.8% from December 31, 2007. With management improving the asset mix and utilizing shareholder capital more effectively, net loans increased a solid $10.7 million or 9.3% to $125.6 million, while total deposits increased $3.6 million or 2.8%. During the fourth quarter of 2008, the Bank generated $3.8 million of net loan growth, much of which was in late December.

On December 23, 2008, the Bank took advantage of low-cost capital through the U. S. Treasury's Capital Purchase Program of the Emergency Economic Stabilization Act of 2008. The Bank issued $3,000,000 of preferred stock with an annual non-cumulative dividend rate of 5% per year for the first five years and thereafter at a rate of 9%. As part of the preferred stock issuance, the Treasury Department received $150,000 of preferred stock that will be amortized over five years and provides an annual dividend rate of 9%. Although the Bank's strong capital position was in excess of well-capitalized ratios required by regulatory authorities, the Bank was being proactive in attracting additional capital to support our growth and further strengthen our capital base during unprecedented economic times.

Like many financial institutions, the recession has impacted asset quality. As of December 31, 2008, nonperforming loans totaled $2,047,968 or 1.63% of total loans compared to $576,021 or .50% of total loans at the end of 2007. Net loan charge-offs increased to .21% of average loans versus .11% for 2007. Consequently, the Bank increased the allowance for loan losses to total loans to 1.20% from 1.13% at year-end 2007.

Citizens Community Bank is a Virginia state chartered bank headquartered in South Hill, Va. Opened in December 1999, it operates five branches, three in south central Virginia and two in northern North Carolina. For more information and additional financial data, please visit www.ccbsite.com.

This press release contains "forward-looking statements" that concern future events which are subject to risks and uncertainties. Any such statements are based on certain assumptions and analyses by the Bank and other factors it believes are appropriate in the circumstances. The Bank's actual results, events and developments may differ materially from those contemplated by any forward-looking statement.

SOURCE Citizens Community Bank