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County Bancorp, Inc. Announces Third Quarter 2020 Financial Results

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·29 min read
In this article:
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Recovery momentum building as positive credit trends continue to support sequential growth across key performance indicators

Highlights

  • Net income of $3.4 million, or $0.52 per diluted share, for the third quarter 2020

  • Loan servicing fees and right origination increased 26.1% to $2.8 million in the third quarter of 2020 due to a $35.8 million increase in loans sold and serviced

  • Provision for loan losses decreased $1.0 million to $0.1 million in the third quarter of 2020

  • Client deposits (demand deposits, NOW, savings, money market accounts, and certificates of deposit) increased by $4.1 million and wholesale deposits decreased $26.9 million during the third quarter of 2020

  • Cost of funds decreased by 15 basis points in the sequential quarter to 1.52%, a decrease of 71 basis points since September 30, 2019

  • Provision for loan losses decreased $1.0 million to $0.1 million in the third quarter of 2020

  • Loans in payment deferral associated with COVID-19 customer support programs declined $100.1 million to $100.5 million or 9.3% of loans since June 30, 2020

  • Capital ratios remain strong with a Total Risk-Based Capital ratio of 20.4% and Tier 1 Leverage of 12.9%

MANITOWOC, Wis., Oct. 22, 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 third quarter ended September 30, 2020. Net income was $3.4 million, or $0.52 per diluted share, for the third quarter of 2020, compared to net income of $5.7 million, or $0.82 per diluted share, for the third quarter of 2019. For the nine months ended September 30, 2020, net income was $1.0 million, or $0.10 per diluted share, compared to net income of $13.1 million, or $1.89 per share, for the nine months ended September 30, 2019. The net income for the nine months ended September 30, 2020 included a $5.0 million goodwill impairment charge, or $0.76 loss per diluted share in the first quarter of 2020. Excluding that charge, net income for the nine months ended September 30, 2020 would have been $6.0 million, or $0.87 per diluted share.

Tim Schneider, President of County Bancorp, Inc., noted, “We continue to see generally positive credit trends across our loan portfolio and we’re highly encouraged by the momentum of the recovery across our business, as well as across the businesses and communities that we live in and support. Class III milk prices (cwt) continued to improve, ranging from $16.43 to $24.54 during the third quarter of 2020, with fourth quarter futures contracts trading from $17.53 to $19.53, which we believe will improve the credit outlook for many of our dairy borrowers. Loans in payment deferral associated with our customer pandemic support program declined $100.1 million during the third quarter. Loans rated watch or worse decreased by $13.1 million, which resulted in lower loan loss provision this quarter.”

Schneider continued, “The investments we’ve made in our agricultural loan offerings are starting to bear fruit, resulting in an increase in overall loan production activity over the last few months. We saw stronger activity in loan sales resulting in increased loan servicing fees and rights during the third quarter 2020, which contributed to improved noninterest income this quarter. Lastly, we continue to be highly encouraged by a strong loan pipeline moving into the fourth quarter 2020, which should continue to support our momentum.”

Loans and Securities

  • Total loans decreased $11.6 million, or 1.1%, during the third quarter of 2020, to $1.1 billion, and decreased $4.8 million, or 0.4%, since September 30, 2019.

  • The decrease was primarily due to the continued focus on long-term liquidity. Loan participations the Company continued to service were $797.8 million at September 30, 2020, an increase of $35.8 million, or 4.7%, compared to the second quarter of 2020, and an increase of $61.0 million, or 8.3%, compared to September 30, 2019.

  • Loans in payment deferral associated with COVID-19 customer support programs are $100.3 million, or 9.3% of total loans, at September 30, 2020, which is a decrease of 100.1, or 50.0%, million since June 30, 2020.

  • $4.9 million, or 5.3%, of Paycheck Protection Program (“PPP”) loans provided to our customers were forgiven by the Small Business Administration (“SBA”) during the third quarter of 2020 resulting in the Company having $98.4 million of PPP loans at September 30, 2020. As of September 30, 2020, $3.3 million of SBA origination fees were deferred until the associated loan is forgiven.

  • During the third quarter of 2020, investments increased by $71.5 million, or 31.5%. Purchases totaling $85.3 million were offset in part by $7.7 million in security sales and $5.8 million in maturities. Gain on the sale of securities was $0.1 million during the third quarter of 2020.

Deposits

  • Total deposits at September 30, 2020 were $1.1 billion, a decrease of $22.9 million, or 2.1%, from June 30, 2020, and a decrease $92.6 million, or 8.1%, year-over-year.

  • Client deposits (demand deposits, NOW accounts, savings accounts, money market accounts, and certificates of deposit) increased $4.1 million, or 0.5%, from June 30, 2020, to $897.6 million, and increased $79.4 million, or 9.7%, year-over-year.

  • The Company decreased its reliance on brokered deposits and national certificate of deposits by $26.9 million, or 15.0%, to $152.6 million during the third quarter of 2020, and decreased by $172.0 million, or 53.0% since September 30, 2019.

Net Interest Income and Margin

  • Net interest margin for the quarter ended September 30, 2020 was 2.40%. Net interest margin decreased 14 basis points quarter-to-quarter, and decreased 45 basis points 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%, as well as the repricing of loans in the declining rate environment. The issuance of subordinated debt during 2020 also adversely affected net interest margin by three basis points year-to-date.

  • 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 with higher yields.

  • Loan interest income decreased compared to the sequential quarter and year-over-year periods primarily as a result of the lower yields on the previously mentioned PPP loans. The year-over-year decrease was also affected by 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, by nine basis points in the linked quarter and by 110 basis points year-over year due to the market-driven drop in the federal funds rate.

  • Interest expense on time deposits decreased quarter-over-quarter due in part to the Company’s continued focus on shifting away from brokered time deposit balances for funding. Time deposits decreased year-over-year, primarily due to the Company’s shift away from wholesale funding. Rates paid on time deposits decreased by 36 basis points in both the linked quarter and year-over-year, which also contributed to the overall decrease in cost of funds.

  • Interest expense on subordinated debt increased quarter-over-quarter and year-over-year due to the $5.1 million of subordinated debt that was issued during the third quarter of 2020 and the $17.4 million of subordinated debt issued on June 30, 2020. Such subordinated debt was issued by the Company to take advantage of attractive market pricing and strengthen the Company's capital structure.

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

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

Three Months Ended September 30, 2020 v.
Three Months Ended September 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

$

122

$

(72

)

$

50

$

527

$

(150

)

$

377

Loans

(146

)

(391

)

(537

)

(544

)

(2,892

)

(3,436

)

Federal funds sold and interest-bearing deposits with banks

93

(186

)

(93

)

(61

)

(533

)

(594

)

Total interest income

69

(649

)

(580

)

(78

)

(3,575

)

(3,653

)

Interest Expense:

Savings, NOW, money market and interest checking

$

40

$

(96

)

$

(56

)

$

431

$

(1,238

)

$

(807

)

Time deposits

(288

)

(464

)

(752

)

(1,256

)

(598

)

(1,854

)

Other borrowings

12

131

143

150

(1

)

149

FHLB advances

(46

)

16

(30

)

80

(19

)

61

Junior subordinated debentures

346

346

347

48

395

Total interest expense

$

64

$

(413

)

$

(349

)

$

(248

)

$

(1,808

)

$

(2,056

)

Net interest income

$

5

$

(236

)

$

(231

)

$

170

$

(1,767

)

$

(1,597

)

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

For the Three Months Ended

September 30, 2020

June 30, 2020

September 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

$

256,059

$

1,494

2.32

%

$

237,082

$

1,444

2.44

%

$

159,091

$

1,117

2.81

%

Loans (2)

1,083,383

11,594

4.26

%

1,098,327

12,131

4.42

%

1,126,243

15,030

5.34

%

Interest bearing deposits due from other banks

92,701

18

0.08

%

64,142

111

0.69

%

104,253

612

2.35

%

Total interest-earning assets

$

1,432,143

$

13,106

3.64

%

$

1,399,551

$

13,686

3.91

%

$

1,389,587

$

16,759

4.82

%

Allowance for loan losses

(18,641

)

(17,844

)

(16,209

)

Other assets

86,109

85,716

78,664

Total assets

$

1,499,611

$

1,467,423

$

1,452,042

Liabilities

Savings, NOW, money market, interest checking

$

406,888

$

469

0.46

%

$

379,991

$

525

0.55

%

$

326,592

$

1,276

1.56

%

Time deposits

499,665

2,444

1.95

%

553,616

3,196

2.31

%

745,032

4,298

2.31

%

Total interest-bearing deposits

$

906,553

$

2,913

1.28

%

$

933,607

$

3,721

1.59

%

$

1,071,624

$

5,574

2.08

%

Other borrowings

101,829

158

0.62

%

66,910

15

0.09

%

804

9

4.60

%

FHLB advances

89,622

298

1.32

%

103,916

328

1.26

%

48,857

237

1.94

%

Junior subordinated debentures

65,903

1,082

6.53

%

45,090

736

6.52

%

44,800

687

6.14

%

Total interest-bearing liabilities

$

1,163,907

$

4,451

1.52

%

$

1,149,523

$

4,800

1.67

%

$

1,166,085

$

6,507

2.23

%

Non-interest bearing deposits

147,595

134,271

105,578

Other liabilities

18,314

16,749

14,801

Total liabilities

$

1,329,816

$

1,300,543

$

1,286,464

Shareholders' equity

169,795

166,880

165,578

Total liabilities and equity

$

1,499,611

$

1,467,423

$

1,452,042

Net interest income

$

8,655

$

8,886

$

10,252

Interest rate spread (3)

2.12

%

2.24

%

2.59

%

Net interest margin (4)

2.40

%

2.54

%

2.95

%

Ratio of interest-earning assets to interest-bearing liabilities

1.23

1.22

1.19

(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 quarter-over-quarter primarily due to a three basis points increase in loan servicing fees as a percent of average loans serviced for the third quarter and a $35.8 million increase total loans serviced. Year-over-year, loan servicing fees increased due primarily to an 11 basis point increase in loan servicing fees as a percent of average loans serviced and an increase in loans serviced.

  • Loan servicing right origination increased both quarter-over-quarter and decreased year-over-year. The increase in the quarter was primarily due to an increase in loans sold and serviced. The loan servicing rights as a percent of loans serviced remained at 2.16% since June 30, 2020. The year-over-year increase from 1.54% at September 30, 2019 is due to loans being recorded at fair value in 2020 versus amortized cost in 2019.

  • $7.7 million of securities were sold during the third quarter of 2020, which resulted in a $0.1 million gain.

For the Three Months Ended

September 30,
2020

June 30,
2020

March 31,
2020

December 31,
2019

September 30,
2019

(dollars in thousands)

Non-Interest Income

Service charges

$

379

$

368

$

342

$

549

$

348

Gain on sale of loans, net

17

4

38

34

87

Loan servicing fees

2,054

1,923

1,831

1,778

1,677

Loan servicing right origination

717

275

289

1,146

1,741

Income on OREO

3

54

10

Gain on sale of securities

101

570

Referral fees

110

121

17

20

53

Other

294

237

203

161

171

Total non-interest income

$

3,672

$

3,501

$

2,720

$

3,742

$

4,087


For the Three Months Ended

September 30,
2020

June 30,
2020

March 31,
2020

December 31,
2019

September 30,
2019

(dollars in thousands)

Loan servicing rights, end of period

$

17,203

$

16,486

$

16,211

$

12,509

$

11,362

Loans serviced, end of period

797,819

762,058

747,553

751,738

736,823

Loan servicing rights as a % of loans serviced

2.16

%

2.16

%

2.17

%

1.66

%

1.54

%

Total loan servicing fees

$

2,054

$

1,923

$

1,831

$

1,778

$

1,677

Average loans serviced

779,939

754,806

749,646

744,281

716,226

Annualized loan servicing fees as a % of average loans serviced

1.05

%

1.02

%

0.98

%

0.96

%

0.94

%

Non-Interest Expense

  • The increase in employee compensation and benefits expense in the quarter was primarily the result of a 4.2% increase in headcount.

  • During the third quarter of 2020, two properties in other real estate owned totaling $0.3 million were sold for a loss of $9 thousand.

For the Three Months Ended

September 30,
2020

June 30,
2020

March 31,
2020

December 31,
2019

September 30,
2019

(dollars in thousands, except per share data)

Non-Interest Expense

Employee compensation and benefits

$

4,766

$

4,594

$

5,260

$

5,696

$

4,735

Occupancy

321

305

354

417

313

Information processing

641

663

670

645

683

Professional fees

555

480

401

371

483

Business development

305

333

366

335

351

OREO expenses

47

44

116

59

57

Writedown of OREO

1,360

376

Net loss (gain) on sale of OREO

9

4

(231

)

160

Depreciation and amortization

295

303

301

319

319

Goodwill impairment

5,038

Other

728

743

1,148

2,278

567

Total non-interest expense

$

7,667

$

7,465

$

15,018

$

10,265

$

7,668

Asset Quality

  • Watch rated loans improved $12.8 million quarter-over-quarter and $17.4 million year-over-year.

  • The increase in substandard loans and the adverse classified asset ratio in the quarter were primarily due to the downgrade of one agricultural customer.

September 30,
2020

June 30,
2020

March 31,
2020

December 31,
2019

September 30,
2019

(dollars in thousands)

Loans by risk category(1):

Sound/Acceptable/Satisfactory/Low Satisfactory

$

800,451

$

798,945

$

706,247

$

724,444

$

771,567

Watch

185,254

198,044

219,459

216,098

202,615

Special Mention

1,851

1,856

15,036

9,239

9,346

Substandard Performing

41,577

47,741

34,179

49,774

71,133

Substandard Impaired

46,793

40,938

37,515

36,218

26,106

Total loans

$

1,075,926

$

1,087,524

$

1,012,436

$

1,035,773

$

1,080,767

Adverse classified asset ratio (2)

42.64

%

41.73

%

32.35

%

39.85

%

45.67

%

(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 quarter by $6.3 million, or 16.6%, sequentially compared to the second quarter of 2020. Year-over-year, non-performing assets increased $16.4 million, or 58.5%, due to a $11.1 million increase in non-accrual agricultural loans and a $9.5 million increase in non-accrual commercial loans, which were partially offset by a $4.2 million decrease in OREO properties.

  • A provision for loan losses of $0.1 million was recorded for the three months ended September 30, 2020 compared to a provision of $ 1.1 million for the three months ended June 30, 2020. The decrease in provision in the linked quarter was primarily the result of the improvement of watch and substandard performing rated credits, which was only partially offset by the increase in specific impairments on impaired credits.

September 30,
2020

June 30,
2020

March 31,
2020

December 31,
2019

September 30,
2019

(dollars in thousands)

Non-Performing Assets:

Nonaccrual loans

$

41,351

$

35,456

$

32,051

$

30,968

$

20,776

Other real estate owned

3,064

2,629

3,247

5,521

7,252

Total non-performing assets

$

44,415

$

38,085

$

35,298

$

36,489

$

28,028

Performing TDRs not on nonaccrual

$

19,036

$

21,986

$

21,853

$

21,784

$

28,520

Non-performing assets as a % of total loans

4.13

%

3.50

%

3.49

%

3.52

%

2.59

%

Non-performing assets as a % of total assets

2.98

%

2.52

%

2.61

%

2.65

%

1.98

%

Allowance for loan losses as a % of total loans

1.73

%

1.71

%

1.73

%

1.47

%

1.39

%

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

$

(1

)

$

120

$

(62

)

$

(253

)

$

39

Conference Call

The Company will host an earnings call tomorrow, October 23, 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 October 23, 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)

September 30,
2020

June 30,
2020

March 31,
2020

December 31,
2019

September 30,
2019

(dollars in thousands, except per share data)

Period-End Balance Sheet:

Assets

Cash and cash equivalents

$

53,283

$

127,432

$

21,545

$

129,011

$

120,845

Securities available-for-sale, at fair value

298,476

226,971

246,148

158,733

154,962

Loans held for sale

2,593

11,847

14,388

2,151

4,192

Agricultural loans

619,617

624,340

642,066

659,725

673,742

Commercial loans

317,782

328,368

325,310

331,723

360,132

Paycheck Protection Plan loans

98,421

103,317

Multi-family real estate loans

35,496

30,439

42,198

41,070

43,487

Residential real estate loans

4,489

975

2,753

2,888

3,183

Installment and consumer other

121

85

109

367

223

Total loans

1,075,926

1,087,524

1,012,436

1,035,773

1,080,767

Allowance for loan losses

(18,649

)

(18,569

)

(17,547

)

(15,267

)

(15,065

)

Net loans

1,057,277

1,068,955

994,889

1,020,506

1,065,702

Other assets

80,426

78,712

78,004

68,378

69,263

Total Assets

$

1,492,055

$

1,513,917

$

1,354,974

$

1,378,779

$

1,414,964

Liabilities and Shareholders' Equity

Demand deposits

$

158,798

$

149,963

$

117,434

$

138,489

$

117,224

NOW accounts and interest checking

78,026

81,656

64,873

63,781

56,637

Savings

11,900

8,369

6,566

15,708

6,981

Money market accounts

325,900

307,083

237,889

242,539

248,608

Time deposits

322,992

346,482

364,930

375,100

388,759

Brokered deposits

101,808

121,503

161,882

166,340

206,474

National time deposits

50,747

57,997

66,386

99,485

118,070

Total deposits

1,050,171

1,073,053

1,019,960

1,101,442

1,142,753

Federal Reserve Discount Window advances

99,693

99,693

FHLB advances

84,600

93,400

109,400

44,400

44,400

Subordinated debentures

67,025

61,910

44,896

44,858

44,820

Other liabilities

20,656

17,336

15,672

16,050

14,239

Total Liabilities

1,322,145

1,345,392

1,189,928

1,206,750

1,246,212

Shareholders' equity

169,910

168,525

165,046

172,029

168,752

Total Liabilities and Shareholders' Equity

$

1,492,055

$

1,513,917

$

1,354,974

$

1,378,779

$

1,414,964

Stock Price Information:

High - Quarter-to-date

$

22.00

$

24.67

$

27.19

$

27.98

$

20.99

Low - Quarter-to-date

$

17.04

$

17.13

$

13.55

$

18.76

$

16.80

Market price - Quarter-end

$

18.80

$

20.93

$

18.50

$

25.63

$

19.62

Book value per share

$

25.72

$

25.18

$

24.17

$

24.32

$

23.89

Tangible book value per share (1)

$

25.71

$

25.16

$

24.15

$

23.58

$

23.10

Common shares outstanding

6,294,675

6,375,150

6,496,790

6,734,132

6,727,908

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

For the Three Months Ended

September 30,
2020

June 30,
2020

March 31,
2020

December 31,
2019

September 30,
2019

(dollars in thousands, except per share data)

Selected Income Statement Data:

Interest and Dividend Income

Loans, including fees(1)

$

11,594

$

12,009

$

12,565

$

13,671

$

14,977

Taxable securities

1,293

1,283

1,282

1,106

1,117

Tax-exempt securities

167

162

6

Federal funds sold and other

52

111

225

442

612

Total interest and dividend income

13,106

13,565

14,078

15,219

16,706

Interest Expense

Deposits

2,914

3,721

4,347

4,781

5,574

FHLB advances and other borrowed funds

456

343

244

225

246

Subordinated debentures

1,082

736

706

695

687

Total interest expense

4,452

4,800

5,297

5,701

6,507

Net interest income

8,654

8,765

8,781

9,518

10,199

Provision for loan losses

79

1,142

2,218

(51

)

(1,154

)

Net interest income after provision for loan losses

8,575

7,623

6,563

9,569

11,353

Non-Interest Income

Services charges

379

368

342

549

348

Gain on sale of loans, net

17

4

38

34

87

Loan servicing fees

2,054

1,923

1,831

1,778

1,677

Loan servicing right origination

717

275

289

1,146

1,741

Income on OREO

3

54

10

Gain on sale of securities

101

570

Referral fees

110

121

17

20

53

Other

294

237

203

161

171

Total non-interest income

3,672

3,501

2,720

3,742

4,087

Non-Interest Expense

Employee compensation and benefits

4,766

4,594

5,260

5,696

4,735

Occupancy

321

305

354

417

313

Information processing

641

663

670

645

683

Professional fees

555

480

401

371

483

Business development

305

333

366

335

351

OREO expenses

47

44

116

59

57

Writedown of OREO

1,360

376

Net loss (gain) on sale of OREO

9

4

(231

)

160

Depreciation and amortization

295

303

301

319

319

Goodwill impairment

5,038

Other

728

743

1,148

2,278

567

Total non-interest expense

7,667

7,465

15,018

10,265

7,668

Income before income taxes

4,580

3,659

(5,735

)

3,046

7,772

Income tax expense (benefit)

1,164

926

(547

)

(258

)

2,090

NET INCOME (LOSS)

$

3,416

$

2,733

$

(5,188

)

$

3,304

$

5,682

Basic earnings (loss) per share

$

0.52

$

0.40

$

(0.79

)

$

0.47

$

0.82

Diluted earnings (loss) per share

$

0.52

$

0.40

$

(0.78

)

$

0.47

$

0.82

Dividends declared per share

$

0.07

$

0.07

$

0.07

$

0.05

$

0.05

(1) Referral fees reclassed to non-interest income to match current classification

For the Three Months Ended

September 30,
2020

June 30,
2020

March 31,
2020

December 31,
2019

September 30,
2019

(dollars in thousands, except share data)

Other Data:

Return on average assets (1)

0.91

%

0.74

%

(1.53

)%

0.96

%

1.57

%

Return on average shareholders' equity (1)

8.05

%

6.55

%

(11.97

)%

7.74

%

13.73

%

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

8.25

%

6.63

%

(12.81

)%

7.83

%

14.14

%

Efficiency ratio (1)(2)

62.64

%

63.83

%

74.92

%

67.65

%

52.55

%

Equity to assets ratio

11.39

%

11.13

%

12.18

%

12.48

%

11.93

%

Tangible common equity to tangible assets (2)

10.85

%

10.60

%

11.58

%

11.56

%

11.03

%

Common Share Data:

Net income from continuing operations

$

3,416

$

2,733

$

(5,188

)

$

3,304

$

5,682

Less: Preferred stock dividends

80

99

108

117

120

Income available to common shareholders

$

3,336

$

2,634

$

(5,296

)

$

3,187

$

5,562

Weighted average number of common shares issued

7,202,000

7,198,901

7,182,945

7,173,290

7,168,785

Less: Weighted average treasury shares

882,153

759,294

518,740

443,920

443,920

Plus: Weighted average non-vested restricted stock units

66,492

65,291

39,785

32,125

32,125

Weighted average number of common shares outstanding

6,386,339

6,504,898

6,703,990

6,761,495

6,756,990

Effect of dilutive options

20,915

28,511

49,072

44,630

19,160

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

6,407,254

6,533,409

6,753,062

6,806,125

6,776,150

(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

September 30,
2020

June 30,
2020

March 31,
2020

December 31,
2019

September 30,
2019

(dollars in thousands)

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

Return on average shareholders' equity

8.05

%

6.55

%

(11.97

)%

7.74

%

13.73

%

Effect of excluding average preferred shareholders' equity

0.20

%

0.08

%

(0.84

)%

0.09

%

0.41

%

Return on average common shareholders' equity

8.25

%

6.63

%

(12.81

)%

7.83

%

14.14

%

Efficiency ratio (2):

Non-interest expense

$

7,667

$

7,465

$

15,018

$

10,265

$

7,668

Less: goodwill impairment

(5,038

)

Less: historical tax credit investment impairment

(1,149

)

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

(9

)

(1,364

)

(145

)

(160

)

Adjusted non-interest expense (non-GAAP)

$

7,658

$

7,465

$

8,616

$

8,971

$

7,508

Net interest income

$

8,654

$

8,765

$

8,781

$

9,518

$

10,199

Non-interest income

3,672

3,501

2,720

3,742

4,087

Less: net gain on sales of securities

(101

)

(570

)

Operating revenue

$

12,225

$

11,696

$

11,501

$

13,260

$

14,286

Efficiency ratio

62.64

%

63.83

%

74.92

%

67.65

%

52.55

%


For the Three Months Ended

For the Nine Months Ended

September 30,
2020

September 30,
2019

September 30,
2020

September 30,
2019

(dollars in thousands, except per share data)

Adjusted diluted earnings per share(3):

Net income from continuing operations

$

3,416

$

5,682

$

961

$

13,148

Less: preferred stock dividends

(80

)

(120

)

(286

)

(355

)

Plus: goodwill impairment

5,038

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

$

3,336

$

5,562

$

5,713

$

12,793

Weighted average number of common shares outstanding

6,386,339

6,756,990

6,531,041

6,742,892

Effect of dilutive options

20,915

19,160

32,833

19,063

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

6,407,254

6,776,150

6,563,874

6,761,955

Adjusted diluted earnings per share

$

0.52

$

0.82

$

0.87

$

1.89

(1) Management uses the return on average common shareholders’ equity 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):

September 30,
2020

June 30,
2020

March 31,
2020

December 31,
2019

September 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

$

161,910

$

160,525

$

157,046

$

164,029

$

160,752

Less: Goodwill

5,038

5,038

Less: Core deposit intangible, net of amortization

86

125

171

225

286

Tangible common equity (non-GAAP)

$

161,824

$

160,400

$

156,875

$

158,766

$

155,428

Common shares outstanding

6,294,675

6,375,150

6,496,790

6,734,132

6,727,908

Tangible book value per share

$

25.71

$

25.16

$

24.15

$

23.58

$

23.10

Total assets

$

1,492,055

$

1,513,917

$

1,354,974

$

1,378,779

$

1,414,964

Less: Goodwill

5,038

5,038

Less: Core deposit intangible, net of amortization

86

125

171

603

701

Tangible assets (non-GAAP)

$

1,491,969

$

1,513,792

$

1,354,803

$

1,373,138

$

1,409,225

Tangible common equity to tangible assets

10.85

%

10.60

%

11.58

%

11.56

%

11.03

%

Adverse classified asset ratio(2):

Substandard loans

$

88,370

$

88,680

$

71,694

$

85,992

$

97,239

Other real estate owned

3,064

2,629

3,247

5,521

7,252

Substandard unused commitments

5,124

3,230

2,840

2,849

991

Less: Substandard government guarantees

(7,002

)

(6,336

)

(7,699

)

(7,892

)

(7,746

)

Total adverse classified assets (non-GAAP)

$

89,556

$

88,203

$

70,082

$

86,470

$

97,736

Total equity (Bank)

$

200,011

$

201,507

$

204,089

$

204,240

$

201,967

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

(8,640

)

(8,734

)

(5,012

)

(2,505

)

(3,016

)

Allowance for loan losses

18,649

18,569

17,547

15,267

15,065

Adjusted total equity (non-GAAP)

$

210,020

$

211,342

$

216,624

$

217,002

$

214,016

Adverse classified asset ratio

42.64

%

41.73

%

32.35

%

39.85

%

45.67

%

(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.