County Bancorp, Inc. Announces Third Quarter 2020 Financial Results

Recovery momentum building as positive credit trends continue to support sequential growth across key performance indicators

/EIN News/ -- 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.