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 results for the first quarter of 2020. Net loss was $5.2 million, or $0.78 diluted loss per share, for the first quarter of 2020, compared to net income of $3.8 million, or $0.54 diluted earnings per share, for the first quarter of 2019. Net loss included a $5.0 million goodwill impairment charge as a result of the uncertainty related to COVID-19 and its potential impact on future earnings, as well as overall bank valuations. Excluding that charge, diluted loss would have been $0.04 per share.
Tim Schneider, President of County Bancorp, Inc., noted, “As a result of the swift and decisive actions we took in response to the pandemic, there were several pushes and pulls to our financials this quarter. Those included a goodwill impairment primarily related to market changes, the addition of approximately $2.0 million in provisions for loan losses and some increased margin compression due to the impact of the pandemic, and a $1.4 million write-down on one OREO property due to an updated appraised value. We also recently updated our capital stress testing and it showed that we have more than sufficient capital to maintain our well-capitalized status in a severe adverse stress scenario. Out of an abundance of caution, we have started to extend out our wholesale funding maturities to better manage future liquidity risk and rates up scenarios.”
Schneider continued, “We prioritized our team’s safety and now have the large majority of our team working efficiently from their home offices, and have closed all locations except the drive-thrus at three of our branch locations. Even with these disruptions, I am so proud of how our team came together and continued to safely and effectively serve our clients. Through April 29, 2020, we have processed 812 Paycheck Protection Loans (“PPP”) through the SBA applications, totaling $104 million and representing almost 13,000 jobs protected. Our team is prepared to weather any future temporary disruptions that the pandemic may cause to our business operations and those of our customers. Our capital ratios remain strong and we will continue to stay balanced in our capital allocation approach, which includes a continuation of our current dividend payout and common stock buyback plan. Of note, during the first quarter, we were able to purchase 256,000 shares of common stock.”
Loans and Securities
Total loans decreased $23.3 million, or 2.3%, during the first quarter of 2020 and $170.5 million year-over-year, or 14.4%, to $1.0 billion. The decrease in total loans in the first quarter of 2020 was due to loan paydowns and a continued focus on selling loans in the secondary market. The decrease in total loans year-over-year was the result of a continued focus on long-term liquidity. Loan participations the Company continued to service were $747.6 million at March 31, 2020, a decrease of $4.2 million or 0.6% compared to the fourth quarter of 2019, but an increase of $72.3 million, or 10.7%, yearover-year. By increasing the amount of loans participated, the Company has been reducing credit risk from its balance sheet and increasing non-interest revenue streams.
During the first quarter of 2020, investments increased $87.4 million, or 55.1%, compared to December 31, 2019 due to deploying cash into securities.
Total deposits at March 31, 2020 were $1.0 billion, a decrease of $81.5 million, or 7.4%, sequentially and $156.3 million, or 13.3%, year-over-year. Client deposits (demand deposits, NOW accounts, savings accounts, money market accounts, and certificates of deposit) decreased $43.9 million, or 5.3%, sequentially and increased $32.1 million, or 4.2%, year-overyear. The decrease in client deposits from the sequential quarter was driven by the timing of farmer milk check deposits in December 2019, as well as overall declines in money market account balances across all product lines.
During the first quarter of 2020, the Company took advantage of the Federal Reserve Bank’s interest rate cuts and increased borrowings from FHLB by $65.0 million, with an average rate of 0.77%. The Company’s overall focus remains on funding loan growth with client deposits; however, these borrowings help reduce interest rate risk and our lower cost of funds. Due to the increases in loan participations and client deposit growth discussed above, the Company decreased its dependence on brokered deposits and national certificates of deposit to $228.3 million at March 31, 2020. This represents a decrease of $188.5 million, or 45.2%, from March 31, 2019.
Net Interest Income and Margin
- Net interest margin decreased both sequentially and year-over-year, due to actions taken by the Federal Reserve Bank related to COVID-19 during the first quarter of 2020 and the resulting decrease in rates across the yield curve.
- Interest income on investment securities increased in the linked quarter, due to shifting balances from interestbearing deposits with banks to investment securities.
- Loan interest income decreased in the both linked and year-over-year periods as a result of the previously mentioned shift from loans held on balance sheet to loans sold and serviced.
- Interest expense on savings, NOW, money market, and interest checking accounts decreased despite the increase in average balance both in the linked quarter and year-over year due to the market driven drop in interest rates which contributed to an overall lower cost of funds.
- Interest expense on time deposits decreased in the linked quarter due to the Company’s continued focus on shifting away from brokered time deposit balances for funding. Year-over-year, time deposits also decreased due to the Company’s shift away from wholesale funding.
- Interest expense on FHLB advances increased in the linked quarter due to the overall increase in volume this quarter as FHLB advance rates were more competitive than other forms of wholesale funding. Year-over-year, FHLB advances interest expense decreased due to the Company’s shift away from wholesale funding.
- Loan servicing income increased in the linked quarter due to a 0.02% increase in loan servicing fees income spread during Q1 2020. Year-over-year, loan servicing fees increased due to a 0.07% increase in loan servicing fee spread and an increase in loans serviced.
- Loan servicing right origination income decreased in the linked quarter due to the decreases in loans sold and serviced; however, the loan servicing rights as a percent of loans serviced increased by 4.6% due to our election to switch to fair value accounting versus amortized cost to better reflect shareholder value and the value of future revenue streams.
- Other income decreased year-over-year due to a reduction of the allowance for unused commitments of $0.5 million during Q1 2019.
- The write down of OREO in Q1 2020 was the result of an updated appraisal on a retail shopping center.
- The goodwill impairment in Q1 2020 was due to the anticipated reduction in future earnings and a decrease in bank trading multiples resulting from COVID-19.
- The decrease in employee compensation and benefits expense in the linked quarter was the result of higher incentive compensation expense during Q4 2019.
- The year-over-year increase in employee compensation and benefits expense was the result of a 5.1% increase in headcount and a $0.3 million increase in payroll taxes and options expense related to the 2019 incentive compensation that was paid during the first quarter of 2020.
- The decrease in other non-interest expense in the linked quarter is the result of an impairment that was recognized in Q4 2019 for an investment in a historical tax credit project that did not recur in Q1 2020.
- The decrease in substandard loans and the adverse classified asset ratio in the linked quarter were primarily due to the improved milk prices in 2019 and 2020 prior to the COVID-19 pandemic which caused the average 12-month future price of Class III milk to drop by 17.8% on the Chicago Mercantile Exchange from December 31, 2019 to March 31, 2020.
- Non-performing assets decreased in the linked quarter by $1.2 million. Year-over-year, non-performing assets increased due to a $7.8 million increase in non-accrual agricultural loans, which was partially offset by a $1.6 million improvement in commercial non-accrual loans and a $1.8 million decrease in OREO properties.
- A provision for loan losses of $2.2 million was recorded for the three months ended March 31, 2020 compared to a provision of $0.8 million for the three months ended March 31, 2019. The increase in provision is the result of the additional qualitative factor of $2.0 million related to customers that are at a higher risk of being impacted by COVID-19 based on the information currently known. We will continue to evaluate the impact of COVID-19 and the unprecedented Federal support of small businesses as we estimate provisions in future periods.
The Company will host an earnings call tomorrow, May 1, 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 May 1, 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 whollyowned 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.
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. 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.