County Bancorp, Inc. Announces Third Quarter of 2021 Earnings
10/21/2021 - 04:01 PM
Highlights
Net income was $4.1 million for the third quarter of 2021, or $0.65 per diluted share A recovery of provision for loan losses of $0.6 million was recognized in the third quarter of 2021 Cost of funds decreased by seven basis points sequentially to 0.99% , a decline of 53 basis points year-over-year Substandard loans decreased by $14.0 million during the third quarter of 2021, an improvement of 24.2 % MANITOWOC, Wis., Oct. 21, 2021 (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 of 2021. Net income was $4.1 million , or $0.65 per diluted share, for the third quarter of 2021, compared to net income of $6.7 million , or $1.07 per diluted share, and $3.4 million , or $0.52 per diluted share, for the second quarter of 2021 and the third quarter of 2020, respectively. For the nine months ended September 30, 2021, net income was $14.8 million , or $2.34 per diluted share, compared to net income of $1.0 million , or a $0.10 per diluted share, for the nine months ended September 30, 2020. The 2020 net income included a $5.0 million goodwill impairment charge, or $0.77 loss per diluted share.
"We reported another solid quarter as the economy continues to rebound, resulting in increased customer confidence, improved asset quality and in turn, a lower loan loss provision," said Tim Schneider, President of County Bancorp, Inc. "Additionally, our adverse classified asset ratio (a non-GAAP metric) continues to decline and is less than half of what it was at the start of 2021. Finally, the previously announced merger with Nicolet remains on track. We still expect the merger to close on December 3, 2021, and we remain excited about the opportunities that Nicolet’s business model and other product offerings present to our agriculture customers and our community."
Loans
Total loans increased sequentially by $3.1 million , or 0.3% , to $1.0 billion during the third quarter of 2021. Gross loan growth of $24.9 million was partially offset by $21.8 million in Paycheck Protection Program (“PPP”) loans that were forgiven by the Small Business Administration (“SBA”) during the quarter. The following table sets forth the total PPP loans at the dates indicated: September 30, 2021 June 30, 2021 # of Loans Balance Deferred Fee Income # of Loans Balance Deferred Fee Income (dollars in thousands) PPP 1oans - Round 1 9 $ 265 $ 6 69 $ 3,285 $ 82 PPP loans - Round 2 107 11,353 490 391 30,115 1,576 Total PPP loans 116 $ 11,618 $ 496 460 $ 33,400 $ 1,658 % of Total loans 1.16 % 3.33 %
As of September 30, 2021, there were two customer relationships with loan balances totaling $0.2 million in payment deferral associated with COVID-19 customer support programs, a reduction of $2.7 million since June 30, 2021. Deposits and Funding Sources
Total deposits as of September 30, 2021, were $1.2 billion , an increase of $45.8 million , or 4.0% , from June 30, 2021, and an increase of $131.3 million , or 12.5% , since September 30, 2020. Client deposits (demand deposits, NOW accounts, savings accounts, money market accounts, and certificates of deposit) increased by $49.6 million , or 5.2% , from June 30, 2021, to $1.0 billion . Year-over-year, client deposits increased $110.0 million , or 12.3% , since September 30, 2020. The Company decreased its reliance on wholesale funding (brokered deposits, national certificate of deposits, and FHLB funding) by $6.8 million , or 2.6% , during the third quarter of 2021. Wholesale funding represented 20.4% of all funding sources at September 30, 2021 compared to 21.7% and 20.9% at June 30, 2021 and September 30, 2020, respectively. Shareholders’ Equity
Book value per share increased to $27.97 per share on September 30, 2021, from $27.68 on June 30, 2021, and $25.71 on September 30, 2020. Net Interest Income and Margin
Net interest margin for the quarter ended September 30, 2021, was 2.93% , a decrease of 29 basis points compared to the sequential quarter and an increase of 53 basis points year-over-year. The following table shows the accretive effect the SBA PPP loans had on net interest margin for the periods indicated. For the Three Months Ended September 30, 2021 June 30, 2021 September 30, 2020 Net interest margin excluding PPP loans 2.68 % 3.12 % 2.28 % Accretion related to PPP loans: Impact of interest rate on PPP loans (0.07 )% (0.03 )% (0.31 )% Impact of PPP fee income recognized 0.34 % 0.14 % 0.45 % Impact of interest expense on PPP Liquidity Facility program (0.02 )% (0.01 )% (0.02 )% Total accretion related to PPP loans 0.25 % 0.10 % 0.12 % Total net interest margin 2.93 % 3.22 % 2.40 %
Net interest margin excluding PPP loans decreased 44 basis points to 2.68% for the quarter ended September 30, 2021 compared to the quarter ended June 30, 2021, primarily due to the $0.7 million in interest income that was recovered in connection to a nonaccrual loan participation and the pay-off of a $4.0 nonaccrual commercial real estate customer that took place during the second quarter of 2021. Total rates paid on interest-bearing deposits decreased by nine basis points to 0.63% for the three months ended September 30, 2021, compared to the three months ended June 30, 2021, and decreased 65 basis points compared to the three months ended September 30, 2020. The steady decline in cost of funds was primarily due to the Company’s focus on gathering lower-cost transactional deposits versus higher cost time deposits and the market-driven drop in the federal funds rates. The table below presents the effects of changing rates and volumes on net interest income for the periods indicated.
Three Months Ended September 30, 2021 v. Three Months Ended June 30, 2021 Three Months Ended September 30, 2021 v. Three Months Ended September 30, 2020 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 $ (200 ) $ (191 ) $ (391 ) $ 589 $ 59 $ 648 Loans (excluding PPP) 190 (1,082 ) (892 ) 69 (92 ) (23 ) PPP loans - round 1 (1,454 ) 1,259 (195 ) 412 (1,507 ) (1,095 ) PPP loans - round 2 (93 ) 671 578 — 1,015 1,015 Total loans (1,357 ) 848 (509 ) 481 (584 ) (103 ) Federal funds sold and interest-bearing deposits with banks 21 8 29 (1 ) 16 15 Total interest income (1,536 ) 665 (871 ) 1,069 (509 ) 560 Interest Expense: Savings, NOW, money market and interest checking $ 48 $ (51 ) $ (3 ) $ 638 $ (747 ) $ (109 ) Time deposits (34 ) (89 ) (123 ) (265 ) (949 ) (1,214 ) Other borrowings (20 ) 5 (15 ) (93 ) (37 ) (130 ) FHLB advances (30 ) — (30 ) (10 ) (84 ) (94 ) Junior subordinated debentures (4 ) 3 (1 ) (25 ) 48 23 Total interest expense $ (40 ) $ (132 ) $ (172 ) $ 245 $ (1,769 ) $ (1,524 ) Net interest income $ (1,496 ) $ 797 $ (699 ) $ 824 $ 1,260 $ 2,084
The following table sets forth average balances, average yields and rates, and income and expenses for the periods indicated.
For the Three Months Ended September 30, 2021 June 30, 2021 September 30, 2020 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 $ 352,781 $ 2,142 2.41 % $ 386,637 $ 2,533 2.63 % $ 256,059 $ 1,494 2.32 % Loans excluding PPP loans (2) 992,594 10,389 4.15 % 974,525 11,281 4.64 % 978,954 10,412 4.23 % PPP loans - Round 1 (2) 1,666 87 20.72 % 9,344 282 12.11 % 104,429 1,182 4.50 % PPP loans - Round 2 (2) 21,510 1,015 18.72 % 33,080 437 5.30 % — — — Total loans (2) 1,015,770 11,491 4.49 % 1,016,949 12,000 4.73 % 1,083,383 11,594 4.26 % Interest bearing deposits due from other banks 84,756 33 0.15 % 22,085 4 0.07 % 92,701 18 0.08 % Total interest-earning assets $ 1,453,307 $ 13,666 3.73 % $ 1,425,671 $ 14,537 4.09 % $ 1,432,143 $ 13,106 3.64 % Allowance for loan losses (11,519 ) (15,305 ) (18,641 ) Other assets 94,892 91,039 86,109 Total assets $ 1,536,680 $ 1,501,405 $ 1,499,611 Liabilities Savings, NOW, money market, interest checking $ 561,715 $ 365 0.26 % $ 507,089 $ 363 0.29 % $ 406,888 $ 469 0.46 % Time deposits 439,640 1,225 1.11 % 452,443 1,353 1.20 % 499,665 2,444 1.95 % Total interest-bearing deposits $ 1,001,355 $ 1,590 0.63 % $ 959,532 $ 1,716 0.72 % $ 906,553 $ 2,913 1.28 % Other borrowings 25,534 28 0.44 % 43,803 43 0.39 % 101,829 158 0.62 % FHLB advances 86,500 204 0.94 % 101,352 234 0.93 % 89,622 298 1.32 % Junior subordinated debentures 64,546 1,105 6.79 % 67,213 1,106 6.60 % 65,903 1,082 6.53 % Total interest-bearing liabilities $ 1,177,935 $ 2,927 0.99 % $ 1,171,900 $ 3,099 1.06 % $ 1,163,907 $ 4,451 1.52 % Non-interest-bearing deposits 160,980 146,242 147,595 Other liabilities 19,566 12,741 18,314 Total liabilities $ 1,358,481 $ 1,330,883 $ 1,329,816 Shareholders' equity 178,199 170,522 169,795 Total liabilities and equity $ 1,536,680 $ 1,501,405 $ 1,499,611 Net interest income $ 10,739 $ 11,438 $ 8,655 Interest rate spread (3) 2.74 % 3.03 % 2.12 % Net interest margin (4) 2.93 % 3.22 % 2.40 % Ratio of interest-earning assets to interest-bearing liabilities 1.23 1.22 1.23
(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.
Provision for Loan Losses
A recovery of provision for loan losses of $0.6 million was recorded for the three months ended September 30, 2021, compared to a recovery of provision for loan losses of $4.3 million for the three months ended June 30, 2021. The recovery of provision during for the third quarter was primarily the result of a $14.0 million decrease in substandard rated loans and corresponding reserves related to the inherent risk associated with those loans. Year-over-over, provision for loan losses decreased $0.7 million compared to the three months ended September 30, 2020. The reduction was primarily the result of the improvement in asset quality and the reduction in the inherent risk in the loan portfolio associated with COVID-19. Non-Interest Income
Total non-interest income for the three months ended September 30, 2021, increased $1.0 million , or 42.4% , to $3.2 million from the three months ended June 30, 2021, primarily due to the $1.5 million loss on security sales in the second quarter. Year-over-year non-interest income decreased $0.5 million , or 12.7% , from the three months ended September 30, 2020, primarily due to fewer loans sold on the secondary market during the quarter and loans paying off resulting in a loss in loan serving rights. Loan servicing fees quarter-over-quarter were virtually unchanged and increased $0.2 million year-over-year. The weighted average servicing fees were unchanged from the three months ended June 30, 2021 and increased three basis points from the quarter ended September 30, 2020. In addition, loans sold with servicing retained decreased $13.8 million , or 1.6% , and increased $41.5 million , or 5.2% , from June 30, 2021 and September 30, 2020, respectively. For the Three Months Ended September 30, 2021 June 30, 2021 March 31, 2021 December 31, 2020 September 30, 2020 (dollars in thousands) Non-Interest Income Service charges $ 137 $ 165 $ 119 $ 108 $ 108 Crop insurance commission 309 291 301 517 271 Gain on sale of residential loans, net 69 89 93 219 17 Loan servicing fees 2,287 2,278 2,158 1,974 2,054 Gain on sale of service-retained loans, net 1,631 1,784 1,587 1,828 1,268 Loan servicing right pay-down losses (1,696 ) (1,162 ) (1,119 ) (635 ) (551 ) Total loan servicing right income (65 ) 622 468 1,193 717 Gain (loss) on sale of securities — (1,453 ) — — 101 Referral fees — — 319 64 110 Other 469 259 254 283 294 Total non-interest income $ 3,206 $ 2,251 $ 3,712 $ 4,358 $ 3,672
Loans sold that the Company continued to service were $839.4 million as of September 30, 2021, a decrease of $13.8 million , or 1.6% , compared to June 30, 2021. The decrease was primarily the result of excess liquidity which resulted in the need for fewer loans to be sold on the secondary market. Loans sold and continued to service increased $41.5 million , or 5.2% , compared to September 30, 2020. For the Three Months Ended September 30, 2021 June 30, 2021 March 31, 2021 December 31, 2020 September 30, 2020 (dollars in thousands) Loan servicing rights, end of period $ 19,413 $ 19,478 $ 18,864 $ 18,396 $ 17,203 Loans serviced, end of period 839,357 853,176 841,893 812,560 797,819 Loan servicing rights as a % of loans serviced 2.31 % 2.28 % 2.24 % 2.26 % 2.16 % Total loan servicing fees $ 2,287 $ 2,278 $ 2,158 $ 1,974 $ 2,054 Average loans serviced 846,267 847,535 827,227 805,190 779,939 Annualized loan servicing fees as a % of average loans serviced 1.08 % 1.08 % 1.04 % 0.98 % 1.05 %
Non-Interest Expense
Total non-interest expense for the three months ended September 30, 2021, increased $0.3 million , or 3.1% , from the second quarter of 2021 to $9.0 million , and increased $1.4 million , or 17.9% , from the three months ended September 30, 2020. Employee compensation and benefits expense decreased for the three months ended September 30, 2021, by $0.6 million , or 9.0% , to $5.8 million compared to the three months ended June 30, 2021. The change was primarily the result of adjustments made to employee benefit programs as a result of the merger that was announced in the second quarter of 2021. During the three months ended September 30, 2021, the Company made a $0.3 million one-time charitable contribution to further agricultural education in addition to normal giving. For the Three Months Ended September 30, 2021 June 30, 2021 March 31, 2021 December 31, 2020 September 30, 2020 (dollars in thousands) Non-Interest Expense Employee compensation and benefits $ 5,846 $ 6,426 $ 5,582 $ 6,687 $ 4,766 Occupancy 331 293 279 297 321 Information processing 640 664 661 656 641 Professional fees 503 450 802 582 555 Business development 227 289 307 136 305 Charitable contributions 301 50 50 41 47 OREO expenses (income) (2 ) 52 23 20 47 Writedown of OREO — — — 148 — Net loss (gain) on sale of OREO — — 17 (326 ) 9 Net loss (gain) on sale of fixed assets (7 ) (1,075 ) (6 ) 9 (2 ) Merger expenses 322 385 — — — Depreciation and amortization 211 484 257 289 295 Other 665 747 792 955 683 Total non-interest expense $ 9,037 $ 8,765 $ 8,764 $ 9,494 $ 7,667
Asset Quality
Asset quality continued to improve during the third quarter of 2021. Substandard performing loans decreased by $11.6 million , or 41.7% , to $16.2 million at September 30, 2021, compared to June 30, 2021, primarily due to the pay-off of 4 customer relationships. Substandard impaired loans decreased by $2.5 million , or 8.2% , to $27.9 million at September 30, 2021, compared to June 30, 2021, primarily due to the payoff from one commercial customer relationship. The following table presents loan balances by credit grade as of the dates indicated: September 30, 2021 June 30, 2021 March 31, 2021 December 31, 2020 September 30, 2020 (dollars in thousands) Loans by risk category: Sound/Acceptable/Satisfactory/Low Satisfactory $ 828,794 $ 821,970 $ 757,160 $ 716,313 $ 800,451 Watch 124,625 121,242 165,823 190,101 185,254 Special Mention 7,465 566 605 2,501 1,851 Substandard Performing 16,181 27,742 38,961 40,420 41,577 Substandard Impaired 27,892 30,370 49,115 46,950 46,793 Total loans $ 1,004,957 $ 1,001,890 $ 1,011,664 $ 996,285 $ 1,075,926 Adverse classified asset ratio (1) 19.02 % 24.72 % 39.61 % 39.43 % 42.64 %
(1) 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 decreased in the third quarter of 2021 by $2.2 million , or 7.0% , primarily due to the $2.5 million substandard impaired loan pay-off discussed above. Performing troubled debt restructurings (“TDRs”) not on nonaccrual decreased $1.0 million , or 12.5% , in the third quarter of 2021 to $6.7 million on September 30, 2021 from June 30, 2021. The decrease was primarily due to one commercial customer that had loans that were re-underwritten and were no longer a TDR due to improved performance and financial trends. September 30, 2021 June 30, 2021 March 31, 2021 December 31, 2020 September 30, 2020 (dollars in thousands) Non-Performing Assets: Nonaccrual loans $ 27,892 $ 30,071 $ 43,973 $ 41,624 $ 41,351 Other real estate owned 914 914 739 1,077 3,064 Total non-performing assets $ 28,806 $ 30,985 $ 44,712 $ 42,701 $ 44,415 Performing TDRs not on nonaccrual $ 6,686 $ 7,641 $ 13,495 $ 18,592 $ 19,036 Non-performing assets as a % of total loans 2.87 % 3.09 % 4.42 % 4.29 % 4.13 % Non-performing assets as a % of total assets 1.87 % 2.04 % 3.00 % 2.90 % 2.98 % Allowance for loan losses as a % of total loans 1.07 % 1.14 % 1.49 % 1.49 % 1.73 % Net charge-offs (recoveries) quarter-to-date $ 118 $ (662 ) $ (32 ) $ 3,386 $ (1 )
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 Stat e m ents
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 (1) the possibility that any of the anticipated benefits of the proposed merger will not be realized or will not be realized within the expected time period; (2) the risk that integration of the Company’s operations with those of Nicolet will be materially delayed or will be more costly or difficult than expected; (3) the parties’ inability to meet expectations regarding the timing of the proposed merger; (4) changes to tax legislation and their potential effects on the accounting for the merger; (5) the failure to satisfy conditions to completion of the proposed merger; (7) the failure of the proposed merger to close for any other reason; (8) diversion of management’s attention from ongoing business operations and opportunities due to the proposed merger; (9) the challenges of integrating and retaining key employees; (10) the effect of the announcement of the proposed merger on Nicolet’s, the Company’s or the combined company’s respective customer and employee relationships and operating results; (11) the possibility that the proposed merger may be more expensive to complete than anticipated, including as a result of unexpected factors or events; (12) dilution caused by Nicolet’s issuance of additional shares of Nicolet common stock in connection with the merger; and (13) the effects of the COVID-19 pandemic and its 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, 2021 June 30, 2021 March 31, 2021 December 31, 2020 September 30, 2020 (dollars in thousands, except per share data) Period-End Balance Sheet: Assets Cash and cash equivalents $ 105,548 $ 72,745 $ 17,820 $ 19,500 $ 53,283 Securities available-for-sale, at fair value 338,211 349,334 385,240 352,854 298,476 Loans held for sale 11,139 15,805 5,789 35,976 2,593 Agricultural loans 631,833 613,514 609,482 606,881 619,617 Commercial loans 322,715 319,878 317,625 313,265 317,782 Paycheck Protection Plan loans 11,618 33,400 46,249 37,790 98,421 Multi-family real estate loans 31,885 30,310 33,287 33,457 35,496 Residential real estate loans 4,988 4,563 4,776 4,627 4,489 Installment and consumer other 1,918 225 245 265 121 Total loans 1,004,957 1,001,890 1,011,664 996,285 1,075,926 Allowance for loan losses (10,715 ) (11,466 ) (15,082 ) (14,808 ) (18,649 ) Net loans 994,242 990,424 996,582 981,477 1,057,277 Other assets 90,854 88,764 85,897 82,551 80,426 Total Assets $ 1,539,994 $ 1,517,072 $ 1,491,328 $ 1,472,358 $ 1,492,055 Liabilities and Shareholders' Equity Demand deposits $ 168,008 $ 158,880 $ 139,838 $ 163,202 $ 158,798 NOW accounts and interest checking 143,843 136,180 95,591 96,624 78,026 Savings 17,258 9,059 8,431 7,367 11,900 Money market accounts 415,813 394,486 390,741 344,250 325,900 Time deposits 262,658 259,386 278,591 304,580 322,992 Brokered deposits 157,583 159,087 159,034 80,456 101,808 National time deposits 16,333 18,648 26,302 44,347 50,747 Total deposits 1,181,496 1,135,726 1,098,528 1,040,826 1,050,171 Federal Reserve Discount Window advances 11,497 34,174 47,255 47,531 99,693 FHLB advances 85,000 88,000 100,000 129,000 84,600 Subordinated debentures 67,598 67,519 67,179 67,111 67,025 Other liabilities 17,083 16,841 12,028 16,114 20,656 Total Liabilities 1,362,674 1,342,260 1,324,990 1,300,582 1,322,145 Shareholders' equity 177,320 174,812 166,338 171,776 169,910 Total Liabilities and Shareholders' Equity $ 1,539,994 $ 1,517,072 $ 1,491,328 $ 1,472,358 $ 1,492,055 Stock Price Information: High - Quarter-to-date $ 37.24 $ 35.82 $ 26.46 $ 23.72 $ 22.00 Low - Quarter-to-date $ 32.29 $ 22.85 $ 19.66 $ 18.20 $ 17.04 Market price - Quarter-end $ 36.06 $ 33.96 $ 23.97 $ 22.08 $ 18.80 Book value per share $ 27.97 $ 27.68 $ 25.99 $ 26.42 $ 25.72 Tangible book value per share (1) $ 27.97 $ 27.68 $ 25.98 $ 26.42 $ 25.71 Common shares outstanding 6,053,369 6,026,748 6,094,450 6,197,965 6,294,675
(1) This is a non-GAAP financial measure. A reconciliation to GAAP is included below.
For the Three Months Ended September 30, 2021 June 30, 2021 March 31, 2021 December 31, 2020 September 30, 2020 (dollars in thousands, except per share data) Selected Income Statement Data: Interest and Dividend Income Loans, including fees $ 11,491 $ 12,000 $ 11,523 $ 12,737 $ 11,594 Taxable securities 1,821 2,205 1,887 1,777 1,293 Tax-exempt securities 260 261 246 201 167 Federal funds sold and other 94 71 58 10 52 Total interest and dividend income 13,666 14,537 13,714 14,725 13,106 Interest Expense Deposits 1,590 1,716 2,069 2,482 2,914 FHLB advances and other borrowed funds 232 277 321 362 456 Subordinated debentures 1,106 1,106 1,106 1,107 1,082 Total interest expense 2,928 3,099 3,496 3,951 4,452 Net interest income 10,738 11,438 10,218 10,774 8,654 Provision for loan losses (634 ) (4,278 ) 242 (455 ) 79 Net interest income after provision for loan losses 11,372 15,716 9,976 11,229 8,575 Non-Interest Income Services charges 137 165 119 108 108 Crop insurance commission 309 291 301 517 271 Gain on sale of residential loans, net 69 89 93 219 17 Loan servicing fees 2,287 2,278 2,158 1,974 2,054 Gain on sale of service-retained loans, net 1,631 1,784 1,587 1,828 1,268 Loan servicing right pay-down losses (1,696 ) (1,162 ) (1,119 ) (635 ) (551 ) Total loan servicing right income (65 ) 622 468 1,193 717 Gain (loss) on sale of securities — (1,453 ) — — 101 Referral fees (1) — — 319 64 110 Other 469 259 254 283 294 Total non-interest income 3,206 2,251 3,712 4,358 3,672 Non-Interest Expense Employee compensation and benefits 5,846 6,426 5,582 6,687 4,766 Occupancy 331 293 279 297 321 Information processing 640 664 661 656 641 Professional fees 503 450 802 582 555 Business development 227 289 307 136 305 Contributions 301 50 50 41 47 OREO expenses (income) (2 ) 52 23 20 47 Writedown of OREO — — — 148 — Net loss (gain) on sale of OREO — — 17 (326 ) 9 Net loss (gain) on sale of fixed assets (7 ) (1,075 ) (6 ) 9 (2 ) Merger expenses 322 385 — — — Depreciation and amortization 211 484 257 289 295 Other 665 747 792 955 683 Total non-interest expense 9,037 8,765 8,764 9,494 7,667 Income before income taxes 5,541 9,202 4,924 6,093 4,580 Income tax expense 1,433 2,459 996 1,575 1,164 NET INCOME $ 4,108 $ 6,743 $ 3,928 $ 4,518 $ 3,416 Basic earnings per share $ 0.66 $ 1.08 $ 0.62 $ 0.70 $ 0.52 Diluted earnings per share $ 0.65 $ 1.07 $ 0.62 $ 0.70 $ 0.52 Dividends declared per share $ 0.10 $ 0.10 $ 0.10 $ 0.10 $ 0.07
(1) Referral fees in prior quarters reclassed to non-interest income to match current classification
For the Three Months Ended September 30, 2021 June 30, 2021 March 31, 2021 December 31, 2020 September 30, 2020 (dollars in thousands, except share data) Other Data: Return on average assets (1) 1.07 % 1.80 % 1.06 % 1.23 % 0.91 % Return on average shareholders' equity (1) 9.22 % 15.82 % 9.11 % 10.56 % 8.05 % Return on average common shareholders' equity (1)(2) 9.47 % 16.40 % 9.29 % 10.88 % 8.25 % Efficiency ratio (1)(2) 64.86 % 64.98 % 62.84 % 63.86 % 62.66 % Equity to assets ratio 11.51 % 11.52 % 11.15 % 11.67 % 11.39 % Tangible common equity to tangible assets (2) 10.99 % 10.99 % 10.62 % 11.12 % 10.85 % Common Share Data: Net income from continuing operations $ 4,108 $ 6,743 $ 3,928 $ 4,518 $ 3,416 Less: Preferred stock dividends 80 79 81 80 80 Income available to common shareholders $ 4,028 $ 6,664 $ 3,847 $ 4,438 $ 3,336 Weighted average number of common shares issued 7,260,493 7,242,997 7,218,358 7,206,238 7,202,000 Less: Weighted average treasury shares 1,223,728 1,179,271 1,080,089 957,573 882,153 Plus: Weighted average non-vested restricted stock units 97,891 97,915 63,991 67,529 66,492 Weighted average number of common shares outstanding 6,134,656 6,161,641 6,202,260 6,316,194 6,386,339 Effect of dilutive options 81,216 46,438 34,465 28,025 20,915 Weighted average number of common shares outstanding used to calculate diluted earnings per common share 6,215,872 6,208,079 6,236,725 6,344,219 6,407,254
(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, 2021 June 30, 2021 March 31, 2021 December 31, 2020 September 30, 2020 (dollars in thousands) Return on average common shareholders' equity reconciliation (1) : Return on average shareholders' equity 9.22 % 15.82 % 9.11 % 10.56 % 8.05 % Effect of excluding average preferred shareholders' equity 0.25 % 0.58 % 0.18 % 0.32 % 0.20 % Return on average common shareholders' equity 9.47 % 16.40 % 9.29 % 10.88 % 8.25 % Efficiency ratio (2) : Non-interest expense $ 9,037 $ 8,765 $ 8,764 $ 9,494 $ 7,667 Net gain (loss) on sales and write-downs of OREO — — (17 ) 178 (9 ) Net gain (loss) on sale of fixed assets 7 1,075 6 (9 ) 2 Adjusted non-interest expense (non-GAAP) $ 9,044 $ 9,840 $ 8,753 $ 9,663 $ 7,660 Net interest income $ 10,738 $ 11,438 $ 10,218 $ 10,774 $ 8,654 Non-interest income 3,206 2,251 3,712 4,358 3,672 Net loss (gain) on sales of securities — 1,453 — — (101 ) Operating revenue $ 13,944 $ 15,142 $ 13,930 $ 15,132 $ 12,225 Efficiency ratio 64.86 % 64.98 % 62.84 % 63.86 % 62.66 %
(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.
Non-GAAP Financial Measures (continued):
September 30, 2021 June 30, 2021 March 31, 2021 December 31, 2020 September 30, 2020 (dollars in thousands, except per share data) Tangible book value per share and tangible common equity to tangible assets reconciliation (1) : Common equity $ 169,320 $ 166,812 $ 158,338 $ 163,776 $ 161,910 Less: Core deposit intangible, net of amortization 2 12 29 54 86 Tangible common equity (non-GAAP) $ 169,318 $ 166,800 $ 158,309 $ 163,722 $ 161,824 Common shares outstanding 6,053,369 6,026,748 6,094,450 6,197,965 6,294,675 Tangible book value per share $ 27.97 $ 27.68 $ 25.98 $ 26.42 $ 25.71 Total assets $ 1,539,994 $ 1,517,072 $ 1,491,328 $ 1,472,358 $ 1,492,055 Less: Core deposit intangible, net of amortization 2 12 29 54 86 Tangible assets (non-GAAP) $ 1,539,992 $ 1,517,060 $ 1,491,299 $ 1,472,304 $ 1,491,969 Tangible common equity to tangible assets 10.99 % 10.99 % 10.62 % 11.12 % 10.85 % Adverse classified asset ratio (2) : Substandard loans $ 44,073 $ 58,112 $ 88,076 $ 87,370 $ 88,370 Other real estate owned 914 914 739 1,077 3,064 Substandard unused commitments 1,824 2,130 5,091 4,049 5,124 Less: Substandard government guarantees (6,162 ) (8,007 ) (8,485 ) (8,960 ) (7,002 ) Total adverse classified assets (non-GAAP) $ 40,649 $ 53,149 $ 85,421 $ 83,536 $ 89,556 Total equity (Bank) $ 207,180 $ 209,416 $ 202,200 $ 205,743 $ 200,011 Accumulated other comprehensive gain on available for sale securities (4,129 ) (5,854 ) (1,652 ) (8,686 ) (8,640 ) Allowance for loan losses 10,715 11,466 15,082 14,808 18,649 Adjusted total equity (non-GAAP) $ 213,766 $ 215,028 $ 215,630 $ 211,865 $ 210,020 Adverse classified asset ratio 19.02 % 24.72 % 39.61 % 39.43 % 42.64 %
(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.