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County Bancorp, Inc. Announces Second Quarter 2020 Financial Results

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·30 min read
In this article:
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Execution on strategic priorities and stabilizing milk prices drove strong client deposit growth and improved sequential results

Highlights

  • Net income of $2.7 million, or $0.40 per diluted share, for the second quarter 2020

  • Net interest income increased $88,000 during the second quarter of 2020 due to reduction in cost of funds

  • Provision for loan losses decreased $1.1 million to $1.1 million in the second quarter of 2020

  • Loans increased $75.1 million during the second quarter of 2020 primarily due to $106.0 million in Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) loan applications approved

  • Average loans sold and serviced increased $8.8 million, and loan fees as a percentage of average loans sold and serviced increased 0.04% to 1.02% during the second quarter 2020

  • Client deposits (demand deposits, NOW, savings, money market accounts, and certificates of deposit) increased $101.9 million, or 12.9%, during the second quarter of 2020

  • Independent director Andrew Steimle selected as Chairman of the Board

  • Capital ratios remain strong with a Total Risk-Based Capital ratio of 20.2% and Tier 1 Leverage of 12.5%

MANITOWOC, Wis., July 23, 2020 (GLOBE NEWSWIRE) -- County Bancorp, Inc. (the “Company”; Nasdaq: ICBK), the holding company of Investors Community Bank (the “Bank”), a community bank headquartered in Manitowoc, Wisconsin, today reported financial results for the second quarter of 2020. Net income was $2.7 million, or $0.40 per diluted share, for the second quarter of 2020, compared to net income of $3.7 million, or $0.53 per diluted share, for the second quarter of 2019. For the six months ended June 30, 2020, there was a net loss of $2.5 million, or a $0.40 loss per diluted share, compared to net income of $7.5 million, or $0.53 per share, for the six months ended June 30, 2019. The 2020 net loss included a $5.0 million goodwill impairment charge, or $0.76 diluted loss per share. The Company concluded goodwill was impaired after an estimate of the fair value of the Company considering the uncertainty related to COVID-19 and its potential impact on future earnings, as well as comparable bank valuations. Excluding that charge, net income for the six months ended June 30, 2020 would have been $2.5 million, or $0.36 per diluted share.

Tim Schneider, President of County Bancorp, Inc., noted, “I am very pleased with how well our team has worked through the current COVID-19 environment to fulfill our mission as we partner with our local communities and businesses. With the vast majority of our employees working remotely, we were able to approve $106 million in SBA PPP loans to support our loyal and new customers and more than 14,000 jobs through this crisis. By executing against our strategic initiatives, we grew our client deposits this quarter expect to invest our excess liquidity during the second half of 2020 as we see increasing signs of stability and health in our operating environment.”

Schneider continued, “Overall, credit quality has held up well. However, we believe it will take some time to see the total impact of COVID-19 on overall credit quality and our provisions for loan losses. While we still have some customers asking for payment deferral related to COVID-19, which now totals $200 million, we witnessed a considerable rebound and stabilization of milk prices during the month of June, which we believe will benefit our agricultural borrowers. More specifically, class III milk prices (cwt) rebounded from the April and May lows of $12 to $13, to $16 to $21 in both June and in the futures for the remainder of 2020.”

Schneider concluded, “Lastly, we successfully raised $17.4 million in subordinated notes at the end of the second quarter 2020. This opportunistic capital raise reinforces County Bancorp’s value proposition and allows us to take advantage of additional market opportunities for our customers and communities. As part of our balanced capital allocation approach, we continue to monitor additional pathways to enhance shareholder value. We are pleased with the attractive pricing we received in the fixed income markets and the ability to strengthen our capital structure as we continue to execute against our short- and long-term strategic priorities. This capital raise allows us to keep our capital ratios strong and will enable us to continue our current dividend payout and common stock buyback plan. Of note, during the second quarter, we purchased 122,000 shares of common stock. We are also very proud to rejoin the Russell 2000 and Russell 3000 Indexes during the second quarter of 2020. This membership is an important milestone for us as we continue to execute our mission and serve our customers and communities. We believe our inclusion will positively impact the liquidity in our stock and create an opportunity to increase our exposure and share our compelling story with a broader investment audience.”

Loans and Securities

Total loans increased $75.1 million, or 7.4%, during the second quarter of 2020 and decreased $60.3 million, or 5.3%, year-over-year to $1.1 billion. The increase in total loans in the second quarter of 2020 was due primarily to SBA PPP loans totaling $106.0 million as of June 30, 2020. The decrease in total loans year-over-year was the result of a continued focus on long-term liquidity. Loan participations the Company continued to service were $762.1 million at June 30, 2020, an increase of $14.5 million, or 1.9%, compared to the first quarter of 2020, and an increase of $66.4 million, or 9.5%, year-over-year.

During the second quarter of 2020, investments decreased $19.2 million, or 7.8%, compared to March 31, 2020 due in part to the sale of $27.8 million of securities that resulted in a gain of $0.6 million.

Deposits

Total deposits at June 30, 2020 were $1.1 billion, an increase of $53.1 million, or 5.2%, from March 31, 2020 and decreased $132.1 million, or 11.0%, year-over-year. Client deposits (demand deposits, NOW accounts, savings accounts, money market accounts, and certificates of deposit) increased $101.9 million, or 12.9%, from March 31, 2020 and increased $94.4 million, or 11.8%, year-over-year. The increase in client deposits from the prior quarter-end was partially driven by customers who participated in the SBA PPP program. Deposits related to those customers totaled approximately $58 million as of June 30, 2020.

During the second quarter of 2020, the Company took advantage of the Federal Reserve Bank’s Paycheck Protection Program Liquidity Facility (“PPPLF”) and funded $99.7 million of SBA PPP loans through borrowings under the PPPLF at an interest rate of 0.35%. The Company’s overall focus remains on funding loan growth with client deposits; however, these borrowings helped bolster the Company’s overall liquidity. Due to the increases in loan participations and client deposit growth discussed above, the Company decreased its dependence on brokered deposits and national certificates of deposit to $179.5 million at June 30, 2020. This represents a decrease of $226.5 million, or 55.8%, from June 30, 2019.

Net Interest Income and Margin

  • Net interest margin decreased both quarter-to-quarter and year-over-year due primarily to the SBA PPP loans that were funded during the second quarter of 2020 at annual yield of 1.0% and the repricing of loans in the declining rate environment.

  • Interest income on investment securities increased both quarter-to-quarter and year-over-year due to shifting balances from interest-bearing deposits with banks to investment securities.

  • Loan interest income decreased in the both linked and year-over-year periods as a result of the lower yields on the previously mentioned PPP loans and the shift from loans held on balance sheet to loans sold and serviced.

  • Interest expense on savings, NOW, money market, and interest checking accounts decreased despite the increase in average balance both in the linked quarter and year-over year due to the market-driven drop in interest rates which contributed to an overall lower cost of funds.

  • Interest expense on time deposits decreased in the linked quarter due to the Company’s continued focus on shifting away from brokered time deposit balances for funding. Year-over-year, time deposits also decreased due to the Company’s shift away from wholesale funding.

The table below presents the effects of changing rates and volumes on net interest income for the periods indicated.

Three Months Ended June 30, 2020 v.
Three Months Ended March 31, 2020

Three Months Ended June 30, 2020 v.
Three Months Ended June 30, 2019

Increase (Decrease)
Due to Change in Average

Increase (Decrease)
Due to Change in Average

Volume

Rate

Net

Volume

Rate

Net

(dollars in thousands)

Interest Income:

Investment securities

$

238

$

(82

)

$

156

$

323

$

(138

)

$

185

Loans

1,044

(1,495

)

(451

)

(987

)

(2,366

)

(3,353

)

Federal funds sold and
interest-bearing
deposits with banks

13

(127

)

(114

)

(54

)

(299

)

(353

)

Total interest income

1,295

(1,704

)

(409

)

(718

)

(2,803

)

(3,521

)

Interest Expense:

Savings, NOW, money market
and interest checking

$

126

$

(375

)

$

(249

)

$

344

$

(1,135

)

$

(791

)

Time deposits

(347

)

(30

)

(377

)

(1,254

)

88

(1,166

)

Other borrowings

3

3

1

1

FHLB advances

132

(37

)

95

393

(466

)

(73

)

Junior subordinated
debentures

3

28

31

5

48

53

Total interest expense

$

(83

)

$

(414

)

$

(497

)

$

(511

)

$

(1,465

)

$

(1,976

)

Net interest income

$

1,378

$

(1,290

)

$

88

$

(207

)

$

(1,338

)

$

(1,545

)

The following table sets forth average balances, average yields and rates, and income and expenses for the period indicated.

For the Three Months Ended

June 30, 2020

March 31, 2020

June 30, 2019

Average
Balance (1)

Income/
Expense

Yields/
Rates

Average
Balance (1)

Income/
Expense

Yields/
Rates

Average
Balance (1)

Income/
Expense

Yields/
Rates

(dollars in thousands)

Assets

Investment securities

$

237,082

$

1,444

2.44

%

$

196,353

$

1,289

2.63

%

$

176,237

$

1,259

2.86

%

Loans (2)

1,098,327

12,131

4.42

%

1,028,637

12,582

4.89

%

1,177,071

15,484

5.26

%

Interest bearing deposits due from
other banks

64,142

111

0.69

%

60,825

225

1.48

%

73,769

465

2.52

%

Total interest-earning assets

$

1,399,551

$

13,686

3.91

%

$

1,285,815

$

14,096

4.39

%

$

1,427,077

$

17,208

4.82

%

Allowance for loan losses

(17,844

)

(15,330

)

(17,782

)

Other assets

85,716

84,461

76,806

Total assets

$

1,467,423

$

1,354,946

$

1,486,101

Liabilities

Savings, NOW, money market,
interest checking

$

379,991

$

525

0.55

%

$

334,740

$

774

0.92

%

$

315,940

$

1,316

1.67

%

Time deposits

553,616

3,196

2.31

%

613,753

3,574

2.33

%

770,554

4,363

2.26

%

Total interest-bearing deposits

$

933,607

$

3,721

1.59

%

$

948,493

$

4,348

1.83

%

$

1,086,494

$

5,679

2.09

%

Other borrowings

66,910

15

0.09

%

1,259

11

3.49

%

1,204

13

4.47

%

FHLB advances

103,916

328

1.26

%

56,708

233

1.65

%

78,653

401

2.04

%

Junior subordinated debentures

45,090

737

6.53

%

44,871

706

6.29

%

44,762

683

6.11

%

Total interest-bearing liabilities

$

1,149,523

$

4,800

1.67

%

$

1,051,331

$

5,298

2.02

%

$

1,211,113

$

6,776

2.24

%

Non-interest bearing deposits

134,271

113,351

102,432

Other liabilities

16,749

16,877

12,154

Total liabilities

$

1,300,543

$

1,181,559

$

1,325,699

Shareholders' equity

166,880

173,387

160,402

Total liabilities and equity

$

1,467,423

$

1,354,946

$

1,486,101

Net interest income

$

8,886

$

8,798

$

10,432

Interest rate spread (3)

2.24

%

2.37

%

2.59

%

Net interest margin (4)

2.54

%

2.74

%

2.92

%

Ratio of interest-earning assets to
interest-bearing liabilities

1.22

1.22

1.18

(1) Average balances are calculated on amortized cost.
(2) Includes loan fee income, nonaccruing loan balances, and interest received on such loans.
(3) Interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.
(4) Net interest margin represents net interest income divided by average total interest-earning assets.

Non-Interest Income

  • Loan servicing income increased in the linked quarter due primarily to a 0.03% increase in loan servicing fees as a percent of average loans serviced during the second quarter. Year-over-year, loan servicing fees increased due primarily to a 0.10% increase in loan servicing fees as a percent of average loans serviced and an increase in loans serviced.

  • Loan servicing right origination decreased in the linked quarter and year-over-year; however, loan servicing rights as a percent of loans serviced increased to 2.14% at June 30, 2020 from 1.38% at June 30, 2019.

  • $27.8 million of securities were sold during the second quarter of 2020 which resulted in a $0.6 million gain.

For the Three Months Ended

June 30,
2020

March 31,
2020

December 31,
2019

September 30,
2019

June 30,
2019

(dollars in thousands)

Non-Interest Income

Service charges

$

368

$

342

$

549

$

348

$

407

Gain on sale of loans, net

4

38

34

87

26

Loan servicing fees

1,923

1,831

1,778

1,677

1,563

Loan servicing right origination

275

289

1,146

1,741

346

Income on OREO

3

54

10

40

Gain on sale of securities

570

341

Other

237

203

161

171

164

Total non-interest income

$

3,380

$

2,703

$

3,722

$

4,034

$

2,887


For the Three Months Ended

June 30, 2020

March 31, 2020

December 31, 2019

September 30, 2019

June 30, 2019

(dollars in thousands)

Loan servicing rights, end of period

$

16,486

$

16,211

$

12,509

$

11,362

$

9,621

Loans serviced, end of period

762,058

747,553

751,738

736,823

695,629

Loan servicing rights as a % of loans serviced

2.16

%

2.17

%

1.66

%

1.54

%

1.38

%

Total loan servicing fees

$

1,923

$

1,831

$

1,778

$

1,677

$

1,563

Average loans serviced

754,806

749,646

744,281

716,226

685,449

Annualized loan servicing fees as a
% of average loans serviced

1.02

%

0.98

%

0.96

%

0.94

%

0.91

%

Non-Interest Expense

  • The decrease in employee compensation and benefits expense in the linked quarter was the result of an increase in deferred loan costs (which is comprised primarily of salary expenses) associated with the PPP loans that were capitalized during the second quarter. The year-over-year increase in employee compensation and benefits expense was mainly the result of a 7.1% increase in headcount.

  • Goodwill was considered impaired and fully written-off in the first quarter 2020.

  • There was no write-down of OREO properties in the second quarter of 2020 compared to writedowns in the linked quarter and year-over-year.

  • The decrease in other non-interest expense in the linked quarter was primarily is the result of a loss of $0.3 million recognized on the sale-leaseback of the Manitowoc branch in the first quarter and reduced travel and education expenses as a result of the COVID-19 pandemic.

For the Three Months Ended

June 30,
2020

March 31,
2020

December 31,
2019

September 30,
2019

June 30,
2019

(dollars in thousands, except per share data)

Non-Interest Expense

Employee compensation and
benefits

$

4,594

$

5,260

$

5,696

$

4,735

$

4,199

Occupancy

305

354

417

313

283

Information processing

663

670

645

683

591

Professional fees

480

401

371

483

417

Business development

333

366

335

351

347

OREO expenses

44

116

59

57

121

Writedown of OREO

1,360

376

250

Net loss (gain) on sale of OREO

4

(231

)

160

9

Depreciation and amortization

303

301

319

319

328

Goodwill impairment

5,038

Other

743

1,148

2,278

567

901

Total non-interest expense

$

7,465

$

15,018

$

10,265

$

7,668

$

7,446

Asset Quality

  • The increase in substandard loans and the adverse classified asset ratio in the linked quarter were primarily due to the downgrade of four agricultural customers and a single hotel customer.

June 30,
2020

March 31,
2020

December 31,
2019

September 30,
2019

June 30,
2019

(dollars in thousands)

Loans by risk category(1):

Sound/Acceptable/Satisfactory/
Low Satisfactory

$

798,945

$

706,247

$

724,444

$

771,567

$

837,094

Watch

198,044

219,459

216,098

202,615

175,995

Special Mention

1,856

15,036

9,239

9,346

25,254

Substandard Performing

47,741

34,179

49,774

71,133

83,992

Substandard Impaired

40,938

37,515

36,218

26,106

25,497

Total loans

$

1,087,524

$

1,012,436

$

1,035,773

$

1,080,767

$

1,147,832

Adverse classified asset ratio (2)

41.73

%

32.35

%

39.85

%

45.67

%

53.21

%

(1) Troubled debt restructurings are presented in their internal risk rating category rather than reclassified to substandard impaired. Prior quarters have been reclassified to reflect this change.
(2) This is a non-GAAP financial measure. A reconciliation to GAAP is included at the end of this earnings release.

Non-Performing Assets

  • Non-performing assets increased in the linked quarter by $2.8 million, or 7.9%, sequentially. Year-over-year, non-performing assets increased $9.3 million, or 32.3%, due to a $5.8 million increase in non-accrual agricultural loans and a $9.6 million increase in non-accrual commercial loans, which were partially offset by a $6.1 million decrease in OREO properties.

  • A provision for loan losses of $1.1 million was recorded for the three months ended June 30, 2020 compared to a provision of $0.9 million for the three months ended June 30, 2019. The increase in provision was the result of the increase in substandard impaired loans.

June 30,
2020

March 31,
2020

December 31,
2019

September 30,
2019

June 30,
2019

(dollars in thousands)

Non-Performing Assets:

Nonaccrual loans

$

35,456

$

32,051

$

30,968

$

20,776

$

20,096

Other real estate owned

2,629

3,247

5,521

7,252

8,693

Total non-performing assets

$

38,085

$

35,298

$

36,489

$

28,028

$

28,789

Performing TDRs not on
nonaccrual

$

21,986

$

21,853

$

21,784

$

28,520

$

28,892

Non-performing assets as a % of total
loans

3.50

%

3.49

%

3.52

%

2.59

%

2.51

%

Non-performing assets as a % of total
assets

2.52

%

2.61

%

2.65

%

1.98

%

1.94

%

Allowance for loan losses as a % of
total loans

1.71

%

1.73

%

1.47

%

1.39

%

1.42

%

Net charge-offs (recoveries) quarter-
to-date

$

120

$

(62

)

$

(253

)

$

39

$

2,111

Corporate Updates

At the annual organizational meeting of the Company’s and the Bank’s boards of directors, Chair William Censky informed the boards that he did not wish to seek re-election as chair of the Company and the Bank. Censky, who is one of the Company's co-founders, has served as chair since the Company's inception in 1996 and will remain a director on the boards of directors of both the Company and the Bank.

According to Timothy Schneider, CEO of Investors Community Bank and President of County Bancorp, Inc., "We are grateful for Bill's leadership and strategic contributions over the past 23 years. His focus on excellence as well as his unwavering support for the bank, its employees and our communities has been vital to our success."

On July 21, 2020, the respective boards appointed current independent director Andrew Steimle as the new chair of the boards of directors of both the Company and the Bank. Steimle has served on both boards of directors since April 2008. He is a business and real estate attorney practicing in Wisconsin and is a founding partner of Steimle Birschbach LLC. Additionally, the Company’s board of directors appointed director Kathi P. Seifert as Chair of the Nominating and Governance Committee and director Vicki L. Leinbach as Chair of the Compensation Committee.

Conference Call

The Company will host an earnings call tomorrow, July 24, 2020, at 8:30 a.m., CDT, conducted by Timothy J. Schneider, President, and Glen L. Stiteley, CFO. The earnings call will be broadcast over the Internet on the Company’s website at Investors.ICBK.com. In addition, you may listen to the Company’s earnings call via telephone by dialing (844) 835-9984. Investors should visit the Company’s website or call in to the dial-in number set forth above at least 10 minutes prior to the scheduled start of the call.

A replay of the earnings call will be available until July 24, 2021, by visiting the Company’s website at Investors.ICBK.com/QuarterlyResults.

About County Bancorp, Inc.

County Bancorp, Inc., a Wisconsin corporation and registered bank holding company founded in May 1996, and its wholly-owned subsidiary Investors Community Bank, a Wisconsin-chartered bank, are headquartered in Manitowoc, Wisconsin. The state of Wisconsin is often referred to as “America’s Dairyland,” and one of the niches it has developed is providing financial services to agricultural businesses statewide, with a primary focus on dairy-related lending. It also serves business and retail customers throughout Wisconsin, with a focus on northeastern and central Wisconsin. Its customers are served from its full-service locations in Manitowoc, Appleton, Green Bay, and Stevens Point and its loan production offices in Darlington, Eau Claire, Fond du Lac, and Sheboygan.

Forward-Looking Statements

This press release includes "forward-looking statements” within the meaning of such term in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to known and unknown risks and uncertainties, many of which may be beyond the Company’s control. The Company cautions you that the forward-looking statements presented in this press release are not a guarantee of future events, and that actual events may differ materially from those made in or suggested by the forward-looking information contained in this press release. Forward-looking statements generally can be identified by the use of forward-looking terminology such as "may," "plan," "seek," "will," "expect," "intend," "estimate," "anticipate," "believe" or "continue" or the negative thereof or variations thereon or similar terminology. Factors that may cause actual results to differ materially from those made or suggested by the forward-looking statements contained in this press release include those identified in the Company’s most recent annual report on Form 10-K and subsequent filings with the Securities and Exchange Commission, including the effects of the COVID-19 pandemic and its potential effects on the economic environment, our customers and our operations, as well as, any changes to federal, state, or local government laws, regulations, or orders in connection with the pandemic. Any forward-looking statements presented herein are made only as of the date of this press release, and the Company does not undertake any obligation to update or revise any forward-looking statements to reflect changes in assumptions, the occurrence of unanticipated events, or otherwise.

Investor Relations Contact
Glen L. Stiteley
EVP - CFO, Investors Community Bank
Phone: (920) 686-5658
Email: gstiteley@icbk.com

County Bancorp, Inc.
Consolidated Financial Summary
(Unaudited)

June 30,
2020

March 31,
2020

December 31,
2019

September 30,
2019

June 30,
2019

(dollars in thousands, except per share data)

Period-End Balance Sheet:

Assets

Cash and cash equivalents

$

127,432

$

21,545

$

129,011

$

120,845

$

116,251

Securities available for sale, at fair
value

226,971

246,148

158,733

154,962

158,561

Loans held for sale

11,847

14,388

2,151

4,192

7,448

Agricultural loans

624,340

642,066

659,725

673,742

713,602

Commercial loans

328,368

325,310

331,723

360,132

383,542

Paycheck Protection Plan loans

103,317

Multi-family real estate loans

30,439

42,198

41,070

43,487

46,683

Residential real estate loans

975

2,753

2,888

3,183

3,753

Installment and consumer other

85

109

367

223

252

Total loans

1,087,524

1,012,436

1,035,773

1,080,767

1,147,832

Allowance for loan losses

(18,569

)

(17,547

)

(15,267

)

(15,065

)

(16,258

)

Net loans

1,068,955

994,889

1,020,506

1,065,702

1,131,574

Other assets

78,712

78,004

68,378

69,263

70,812

Total Assets

$

1,513,917

$

1,354,974

$

1,378,779

$

1,414,964

$

1,484,646

Liabilities and Shareholders' Equity

Demand deposits

$

149,963

$

117,434

$

138,489

$

117,224

$

111,022

NOW accounts and interest checking

81,656

64,873

63,781

56,637

54,253

Savings

8,369

6,566

15,708

6,981

6,621

Money market accounts

307,083

237,889

242,539

248,608

239,337

Time deposits

346,482

364,930

375,100

388,759

387,899

Brokered deposits

121,503

161,882

166,340

206,474

256,475

National time deposits

57,997

66,386

99,485

118,070

149,570

Total deposits

1,073,053

1,019,960

1,101,442

1,142,753

1,205,177

Federal Reserve Discount Window
advances

99,693

FHLB advances

93,400

109,400

44,400

44,400

59,400

Subordinated debentures

61,910

44,896

44,858

44,820

44,781

Other liabilities

17,336

15,672

16,050

14,239

12,564

Total Liabilities

1,345,392

1,189,928

1,206,750

1,246,212

1,321,922

Shareholders' equity

168,525

165,046

172,029

168,752

162,724

Total Liabilities and Shareholders'
Equity

$

1,513,917

$

1,354,974

$

1,378,779

$

1,414,964

$

1,484,646

Stock Price Information:

High - Quarter-to-date

$

24.67

$

27.19

$

27.98

$

20.99

$

18.92

Low - Quarter-to-date

$

17.13

$

13.55

$

18.76

$

16.80

$

16.24

Market price - Quarter-end

$

20.93

$

18.50

$

25.63

$

19.62

$

17.09

Book value per share

$

25.18

$

24.17

$

24.32

$

23.89

$

23.03

Tangible book value per share (1)

$

25.16

$

24.15

$

23.58

$

23.10

$

22.23

Common shares outstanding

6,375,150

6,496,790

6,734,132

6,727,908

6,717,908

(1) This is a non-GAAP financial measure. A reconciliation to GAAP is included below.

For the Three Months Ended

June 30,
2020

March 31,
2020

December 31,
2019

September 30,
2019

June 30,
2019

(dollars in thousands, except per share data)

Selected Income Statement Data:

Interest and Dividend Income

Loans, including fees

$

12,130

$

12,582

$

13,691

$

15,030

$

15,484

Taxable securities

1,283

1,282

1,106

1,117

1,177

Tax-exempt securities

162

6

82

Federal funds sold and other

111

225

442

612

465

Total interest and dividend
income

13,686

14,095

15,239

16,759

17,208

Interest Expense

Deposits

3,721

4,347

4,781

5,574

5,678

FHLB advances and other
borrowed funds

343

244

225

246

415

Subordinated debentures

736

706

695

687

683

Total interest expense

4,800

5,297

5,701

6,507

6,776

Net interest income

8,886

8,798

9,538

10,252

10,432

Provision for loan losses

1,142

2,218

(51

)

(1,154

)

876

Net interest income after provision
for loan losses

7,744

6,580

9,589

11,406

9,556

Non-Interest Income

Services charges

368

342

549

348

407

Gain on sale of loans, net

4

38

34

87

26

Loan servicing fees

1,923

1,831

1,778

1,677

1,563

Loan servicing right origination

275

289

1,146

1,741

346

Income on OREO

3

54

10

40

Gain on sale of securities

570

341

Other

237

203

161

171

164

Total non-interest income

3,380

2,703

3,722

4,034

2,887

Non-Interest Expense

Employee compensation and
benefits

4,594

5,260

5,696

4,735

4,199

Occupancy

305

354

417

313

283

Information processing

663

670

645

683

591

Professional fees

480

401

371

483

417

Business development

333

366

335

351

347

OREO expenses

44

116

59

57

121

Writedown of OREO

1,360

376

250

Net loss (gain) on sale of OREO

4

(231

)

160

9

Depreciation and amortization

303

301

319

319

328

Goodwill impairment

5,038

Other

743

1,148

2,278

567

901

Total non-interest expense

7,465

15,018

10,265

7,668

7,446

Income before income taxes

3,659

(5,735

)

3,046

7,772

4,997

Income tax expense

926

(547

)

(258

)

2,090

1,293

NET INCOME (LOSS)

$

2,733

$

(5,188

)

$

3,304

$

5,682

$

3,704

Basic earnings (loss) per share

$

0.40

$

(0.79

)

$

0.47

$

0.82

$

0.53

Diluted earnings (loss) per share

$

0.40

$

(0.78

)

$

0.47

$

0.82

$

0.53

Dividends declared per share

$

0.07

$

0.07

$

0.05

$

0.05

$

0.05


For the Three Months Ended

June 30,
2020

March 31,
2020

December 31,
2019

September 30,
2019

June 30,
2019

(dollars in thousands, except share data)

Other Data:

Return on average assets(1)

0.74

%

(1.53

)%

0.96

%

1.57

%

1.00

%

Return on average
shareholders' equity(1)

6.55

%

(11.97

)%

7.74

%

13.73

%

9.24

%

Return on average common
shareholders' equity (1)(2)

6.63

%

(12.81

)%

7.83

%

14.14

%

9.41

%

Efficiency ratio (1)(2)

63.83

%

74.92

%

76.32

%

52.55

%

55.38

%

Tangible common equity to
tangible assets (2)

10.60

%

11.58

%

11.56

%

11.03

%

10.10

%

Common Share Data:

Net income from continuing
operations

$

2,733

$

(5,188

)

$

3,304

$

5,682

$

3,704

Less: Preferred stock
dividends

99

108

117

120

118

Income available to common
shareholders

$

2,634

$

(5,296

)

$

3,187

$

5,562

$

3,586

Weighted average number of
common shares issued

7,198,901

7,182,945

7,173,290

7,168,785

7,159,072

Less: Weighted average
treasury shares

759,294

518,740

443,920

443,920

443,920

Plus: Weighted average non-
vested restricted stock units

65,291

39,785

32,125

32,125

30,483

Weighted average number of
common shares outstanding

6,504,898

6,703,990

6,761,495

6,756,990

6,745,635

Effect of dilutive options

28,511

49,072

44,630

19,160

20,731

Weighted average number
of common shares
outstanding used to
calculate diluted earnings
per common share

6,533,409

6,753,062

6,806,125

6,776,150

6,766,366

(1) Annualized
(2) This is a non-GAAP financial measure. A reconciliation to GAAP is included below.

Non-GAAP Financial Measures:

For the Three Months Ended

June 30,
2020

March 31,
2020

December 31,
2019

September 30,
2019

June 30,
2019

(dollars in thousands)

Return on average common
shareholders' equity
reconciliation(1):

Return on average
shareholders' equity

6.55

%

(11.97

)%

7.74

%

13.73

%

9.24

%

Effect of excluding average
preferred shareholders'
equity

0.08

%

(0.84

)%

0.09

%

0.41

%

0.17

%

Return on average common
shareholders' equity

6.63

%

(12.81

)%

7.83

%

14.14

%

9.41

%

Efficiency ratio (2):

Non-interest expense

$

7,465

$

15,018

$

10,265

$

7,668

$

7,446

Less: goodwill impairment

(5,038

)

Less: net loss on sales
and write-downs of OREO

(1,364

)

(145

)

(160

)

(259

)

Adjusted non-interest
expense (non-GAAP)

$

7,465

$

8,616

$

10,120

$

7,508

$

7,187

Net interest income

$

8,886

$

8,798

$

9,538

$

10,252

$

10,432

Non-interest income

3,380

2,703

3,722

4,034

2,887

Less: net gain on sales of
securities

(570

)

(341

)

Operating revenue

$

11,696

$

11,501

$

13,260

$

14,286

$

12,978

Efficiency ratio

63.83

%

74.92

%

76.32

%

52.55

%

55.38

%


For the Three Months Ended

For the Six Months Ended

June 30,
2020

June 30,
2019

June 30,
2020

June 30,
2019

(dollars in thousands, except per share data)

Adjusted diluted earnings per share(3):

Net income (loss) from continuing operations

$

2,733

$

3,704

$

(2,454

)

$

7,466

Less: preferred stock dividends

(99

)

(118

)

(207

)

(235

)

Plus: Goodwill impairment

5,038

Adjusted income available to common shareholders
for basic earnings per common share

$

2,634

$

3,586

$

2,377

$

7,231

Weighted average number of common shares
outstanding

6,504,898

6,745,635

6,604,187

6,735,725

Effect of dilutive options

28,511

20,731

39,548

21,170

Weighted average number of common shares outstanding used to calculate diluted earnings
per common share

6,533,409

6,766,366

6,643,735

6,756,895

Adjusted diluted earnings per share

$

0.40

$

0.53

$

0.36

$

1.07

(1) Management uses the return on average common shareholders’ equity in order to review our core operating results and our performance.
(2) In our judgment, the adjustments made to non-interest expense allow investors to better assess our operating expenses in relation to our core operating revenue by removing the volatility that is associated with certain one-time items and other discrete items that are unrelated to our core business.
(3) In our judgment, the adjustment made to diluted earnings per share allows investors to better assess our income related to core operations by removing the volatility associated with the goodwill impairment which was a one-time, non-cash expense.

Non-GAAP Financial Measures (continued):



June 30,
2020

March 31,
2020

December 31,
2019

September 30,
2019

June 30,
2019

(dollars in thousands, except per share data)

Tangible book value per share and
tangible common equity to tangible
assets reconciliation(1):

Common equity

$

160,526

$

157,046

$

164,029

$

160,752

$

154,724

Less: Goodwill

5,038

5,038

5,038

Less: Core deposit intangible, net of
amortization

125

171

225

286

354

Tangible common equity
(non-GAAP)

$

160,401

$

156,875

$

158,766

$

155,428

$

149,332

Common shares outstanding

6,375,150

6,496,790

6,734,132

6,727,908

6,717,908

Tangible book value per share

$

25.16

$

24.15

$

23.58

$

23.10

$

22.23

Total assets

$

1,513,917

$

1,354,974

$

1,378,779

$

1,414,964

$

1,484,646

Less: Goodwill

5,038

5,038

5,038

Less: Core deposit intangible, net of
amortization

125

171

225

603

701

Tangible assets (non-GAAP)

$

1,513,792

$

1,354,803

$

1,373,516

$

1,409,323

$

1,478,907

Tangible common equity to tangible
assets

10.60

%

11.58

%

11.56

%

11.03

%

10.10

%

Adverse classified asset ratio(2):

Substandard loans

$

88,680

$

71,694

$

85,992

$

97,239

$

109,489

Other real estate owned

2,629

3,247

5,521

7,252

8,693

Substandard unused commitments

3,230

2,840

2,849

991

1,458

Less: Substandard government
guarantees

(6,336

)

(7,699

)

(7,892

)

(7,746

)

(7,821

)

Total adverse classified assets
(non-GAAP)

$

88,203

$

70,082

$

86,470

$

97,736

$

111,819

Total equity (Bank)

$

201,507

$

204,089

$

204,240

$

201,967

$

196,036

Accumulated other comprehensive loss
(gain) on available for sale securities

(8,734

)

(5,012

)

(2,505

)

(3,016

)

(2,166

)

Allowance for loan losses

18,569

17,547

15,267

15,065

16,258

Adjusted total equity (non-GAAP)

$

211,342

$

216,624

$

217,002

$

214,016

$

210,128

Adverse classified asset ratio

41.73

%

32.35

%

39.85

%

45.67

%

53.21

%

(1) In our judgment, the adjustments made to book value, equity and assets allow investors to better assess our capital adequacy and net worth by removing the effect of goodwill and intangible assets that are unrelated to our core business.
(2) The adjustments made to non-performing assets allow management to better assess asset quality and monitor the amount of capital coverage necessary for non-performing assets.