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ICBK County Bancorp

Participants
Tim Schneider President
Glen Stiteley Chief Financial Officer & Treasurer
Brendan Nosal Sandler O'Neill and Partners
Kevin Reevey D.A. Davidson
Terence McEvoy Stephens
Feddie Strickland Janney
Ross Haberman RLH Investments
David Honold Patriot
Call transcript
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Operator

Good day, and welcome to the County Bancorp Inc. July 18, 2019, Earnings Release Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded.

to conference like Schneider, to now President. would turn over the Tim I go Please ahead.

Tim Schneider

thanks joining all and you, Thank for us today.

Before you to which like to of I'd statement deck, forward-looking is we our our slide start, X disclosure. direct

by loans And relationships. is special loans these a monthly proposed placed ag updates. anticipate temporary saw credit loan by grade. in mention. plans this to their updating quarter, The as three an special mention we an increases grading business the driven as We mention assets in if successful, their We We as credits classified changes increase end and I'd well to their from in in are of monitor like quarter in with see past ag QX. primarily the start prior increase loans special rated

driven Increase The their manufacturing related downgraded six is on by sales ag in relationships in getting relationships having which created their business, reviews cycle to these stress loans through financial performing flows. one ag cash a has are challenges startup relationship. relationship annual was of substandard The is which commercial extending, and commercial our relationships.

a We rated in this as mention previously had QX. special

charged a from credit performing We one had also that moved commercial allocated portion specific we to off OREO reserve substandard our and of of in QX.

of overall, our deals, commercial commercial have we handful to stress some seen perform continues a While well. from credit portfolio

way review XX% about lower the process credits. and are through watch the total our classified we perspective, of agricultural an of dollars our From on credit

through and currently. our occurring few few more on as with this some liquidations operations solid possible farm ORE We the fall continue activity ongoing reduction a aggressively a to spring more and classifieds, manage of as of of

the felt worse credits and Up to selective milk of we in to we reviewed, reviewing the more of price sensitive the cycle credits low size relationship. the watch recent were were XX% or

market. futures Chicago on seen III Exchange We Mercantile milk Class in continued prices improvement the have

The drop $XX three-year forward-looking credit quarter, on XXXX quarter. average milk up lower from from when use impact XX-month reviews. hundredweight of the rating, a determining credit in loan's per average of off quality flows last this hundredweight the we positive a cash is uptick XXXX $XX.XX and Since in we flows overall have should XXXX go through some in prices cash when the the the a

XXXX, XXXX recall The per milk that $XX.XX balance the price price June III was prices you futures through is since year-over-year this Chicago hundredweight, record and Exchange Mercantile as for the high a actual Class best year which are and of milk the seen we've at year.

a up We deal did bankruptcy, which also been reserve have off one specific have commercial regional a charged related I earlier, that quarter. bubble couple the involving and downgraded, retailer had that to of quarter a that including in to one was that filed deals alluded and

$XX.X Now standpoint, focused $XX.X deposits from have growth growth since or a on quarter last in our a Client we continue to up be million XX.X% been are really client X.X% million deposit by growth deposit landscape. or up such and pleased competitive and client year-over-year.

to I'll now, Glen turn it Stiteley. over And

Glen Stiteley

things. of Couple Tim. Thanks,

off, on First deposit pricing.

watching deposit We our pricing that's in strategies. closely reflecting we're are that inversion yield occurring, of the and the curve

board to We mirror rates. cutback across on have our begun rates funding to the wholesale more closely

have will the Our year. allow end in to by in in the also us XXXX of during advances holes flexibility, aggressive we liquidity FHLB plug reduction case

it wholesale aggressive side. $XX.X the CDs. funding broker we've rate wholesale funding We be deposit especially about, In funding wholesale in reduction the and And our environment, continue we we'll talked focus On continue front, reduction $XXX talked this a about focused earlier, on million as saw million quarter of will are year, challenging we as year-to-date. reducing to on due. we this to targeting this $XX.X comes wholesale paying brokered as on off mostly million in

of taken reconstitution, were the to Russell at regards end out June, XXXX of In we Index. the Russell

So to volumes first the during a to overall two comparison impact far weeks in trading we not trading volumes have negative in ago. seen in an July year the July,

I think prepared that open to and our questions. for we'd be concludes happy it remarks, up

Operator

Thank you.

We now Please with comes question [Operator begin will and Brendan question-and-answer session. Partners. first the Instructions] ahead. Nosal O'Neill from go today Our Sandler

Brendan Nosal

good are you? How guys. Hey afternoon

Tim Schneider

How are you? Good Brendan.

Brendan Nosal

thanks. Good,

of the want couple to that been you mean these of content more pressured are there wouldn't very handful Are mentioned Just the I and broader or book. discussed like on credits quarter this kind commercial in you have it a book? if loss that one something there credit off drew going that commercial I isolated sounds are of keeping that dairy on. previously reserved start a the other probably know is be that so commercial credits currently? a been that's less noteworthy But closer weren't on for. eye

Tim Schneider

obviously, that's side credits our in is the healthy. very it's portfolio classified raising level Generally, definitely really right in are there isolated now. but the occurring side nothing with of assets is higher on ag systemic handful question, They of obviously the and the commercial

Brendan Nosal

Thanks. Good. And review Okay. of moving dairy then, the the to over books.

migration. played the dollars were some certain sounds big much any it mean, I have as know of and it pretty you're have borrowers going Have you would found way out like off you have about here. So the worth XX% But things in there. you would where assumed I much expected? surprises caused through

Tim Schneider

our our we've out are interim we were a better financial statements. expected ag the talked farms I obtaining we played in lenders, as than bit think the quite little often that in And expected bankers earlier out maybe they before, ag even year. as

any on real eye I don't think this close surprises had a we keeping things. we're So, at point.

Brendan Nosal

I back. Good. from then Okay. more one And me before step

the a sensitive. a which funding earning balances Just shedding Loan liability give declining, course wholesale keep but on the you kept I on, you do lot are of asset you parts up obviously moving mean, have margin, of and here. some yield bit

course see we you if the year of the cuts throughout of So, in trajecting half especially year, second one the how here? the get two rate or the NIM do

Glen Stiteley

Glen. is this Brendan, Hey,

current speak the to rate and kind about of can talk first me rate I let Just drops. the environment,

inter of things up saw still a of loan so May, that in hope kind some positive yields, sign quarter June, that's creep So repricing. we are kind we

So the that out kind of as flatten higher seen – kind too things last rate a side, of from environment the on from we've now. of refinanced. right year And kind things deposit

price. margin the hoping going that's hoping current on environment, the competition, deposit forward we're because it's So positive rate about on based talked I I'm side

folks really side. help and going back thinking to the that's disciplined I and think being kind on rushing more deposit feels are like it of rates working

really not We're aggressively it's but not We're asset asset sensitive. sensitive. liability sensitive, we're very –

but liability the are we near-term So increases subject asset sensitive. first long and are foremost we term, rate to on side,

margin see to we more rate the us some on I'm short positive have in if So term hoping cuts, that's some hopefully, so. impact to the – going some side have

Brendan Nosal

it. Got

Okay. taking my Thanks for questions.

Glen Stiteley

Yep.

Tim Schneider

Thanks, Brendan.

Operator

Our next question Please with comes Davidson. ahead. from Reevey D.A. go Kevin

Kevin Reevey

Good afternoon, you? gentlemen. are How

Glen Stiteley

Hi, Kevin.

Tim Schneider

are you? Kevin. Great, How

Kevin Reevey

Thanks. Good.

is we're So how we assumptions, those first on quarters? modeling two items charge-off next and the net two as the reserving question should out about think

Glen Stiteley

Kevin. Glen, is This

in, – got the as So if impact much they we've they've to manageable. seemed haven't have especially, reserve because it specifics built hasn't fairly yet, been charge-offs,

are gradings. allowance that performing the impaired, the for on in what's to I loans impact substandard is our of percentages buckets. had mention not loan moving more the but are and tend some put We think special flat in

So had side. of right the impact grading now, the much are movement as as again, seems kind loan Hopefully, would. of charge-offs to they have not charge-offs on we manageable

much to $X the we So have as we keep million if seems them in, $X it again, if have impact. any, million to not range,

Kevin Reevey

And then the side – equation charge-off outside given think quarter, that we that model as we the charge-off how you had and this should out? about of

Glen Stiteley

know, question. headed in to future. reserves got we've if charge-off anything good a specific on I don't the immediate That's is

quarters. anything for I So next couple the don't anticipate now right

but we is we can So, going seen the to I haven't obviously, mean, yet anything something that think bubble charge-off. in up,

Tim Schneider

And we've occurred in what past. that with articulated situation the

be anything this we watching that that that seems pike, Glen one-off of a think of from quarters. from couple down we're next as said, But the we closely a for and I So was that the sort have don't charge-off knew to coming point. standpoint at

Glen Stiteley

Yeah.

larger bank move a OREO that was just to in talked regional We As we bankruptcy decided of we about took. a quarter. retail from the this charge-off center shopping kind

Kevin Reevey

lastly, what your negative you're of in there loans. is is far Okay. on a risk is adjustment risk valuation participating And a out you then Can valuation, them kind of Is color? being give And those credit as there some if any as there us also loans? issue? back put

Tim Schneider

that standpoint, ultimately not our On And do sales can't the there a are to have some both to is standpoint agree that maturity then us has them servicing only anything that really there we risk allowance to the fronts, -- that isn't No. the could the valuation a us. in and or back They things, renew those it to they force risk. put buyer impact would and might either. valuation side other from but that take

Kevin Reevey

Thanks. go step the in queue. All right. I'll and back I'll back

Tim Schneider

Thanks, Kevin.

Operator

from Stephens. with ahead. Terence comes question next McEvoy go Our Please

Terence McEvoy

Good afternoon guys.

Tim Schneider

Hi, Terry.

Glen Stiteley

Hi, Terry.

Terence McEvoy

If quarterly run a expenses OREO, $X.X it's of with start Maybe remove million kind look and I just expenses. at rate. the of the write-down

of about think on this kind isolating are of expenses, second your again, you half year, the As what thoughts OREO?

Glen Stiteley

Glen. this Sure, is Yes.

of anticipate last I changes I big year. think the in in pretty level. those the run mean, any don't of I quarters rate's kind two the

So...

Tim Schneider

positions of just we we've starting most slightly higher that those opened of here just while are people and for be the know, of handful had think don't next couple recently weeks. filled, might It I a there -- as I in

So...

Glen Stiteley

see any uptick an little of dollars percentage Yes. a basis, not changes, bit may been I On but on have we a don't the big significant. but

Terence McEvoy

to CD that just all? website I ago was at CD went deposit guess, and bank that's product potentially the the your minutes then the top prices getting it if product, a I X.XX%, I rates CD kind close XX to at looking my math as we're the the And your lucky X.XX% And time average you there? has like rate product, Is -- X.XX% CD follow-up, versus your out peaking see Okay. at seems of And correct? that XX come or at out. there, do of peak the

Glen Stiteley

We ago. that just Yes. weeks a introduced couple was it

cancel at far as back we're rates we as to pulling on to going looking it, So everything we'd start -- need be goes. if

you kind to the if of most more think see market that's comfortable now, of where tried right kind back attract So want those we're our to quite right overboard really of again so. you'll I that you'll see the bit rates to said, rates mirror you the we've kind relationships. don't that. now. ratch RAC FHLB advance is hopefully, track good with Like We client and or pretty it a there back still cut we've

Terence McEvoy

Loan last sorry, I'm one I yields X.XX% question, -- if to four Maybe up quarter-over-quarter. X.XX% could. went

fees loan or TDRs -- Just or talk call had yield about any impacted that noise rates? any the impact loan it,

Glen Stiteley

we Terry. in think anything material down one had that's or taken this that the quarter in don't quarter, I have first that used would anything

So obviously think far with out. non-accrual yield. situation the as as there to dealing overall still don't level unusual is anything I the of But back we're loan

Terence McEvoy

Thanks guys. Great.

Tim Schneider

Thanks, Terry.

Operator

Feddie ahead. Janney. with Our Please next from Strickland comes go question

Feddie Strickland

Hey, Tim you and Glen. How doing? are guys

Glen Stiteley

Great.

Tim Schneider

are How Feddie. you? Hey,

Feddie Strickland

Good, good.

answered, And you how much I guys far think have there mine to the loan you of question. going balance just been through more too? quick do How you're are reduction? but the think have most on side one sheet

Glen Stiteley

We kind of million $XX didn't that down We year. payoffs this Yes. commercial going had expect. some we targeted

good I So, think to go that. than further bit don't of I that know we're going because feel right we're that a much little overall we liquidity. really past now about obviously

aggressively kind on maybe over that now, I bit mode fill don't here So, of know we'll XX we're a from that. of we're months to million, out -- try grow in went little kind $XX for next to the but we've We going of the here.

and could better classifieds the really change too deposits to just continue just by to also as -- I it's metrics mean and things our see we client too. ability milk prices governed on generate so. also But the

watch really deposits. ability manage we're -- bringing So, to our trying to good growth our --

So…

Feddie Strickland

thanks. it. Got

of flat, we total how kind looking I then relatively be at then. guess, assets should is So,

Tim Schneider

XXXX, -- again, especially, of little based the I Yes, right now now, wouldn't client don't deposit. to bring and in between end our anticipate material maybe ability it but being be on the uptick

Feddie Strickland

you. so Got Thanks much.

Tim Schneider

Yes.

Operator

with [Operator go RLH from Instructions] ahead. Our Please Ross Haberman next question Investments. comes

Ross Haberman

How gentlemen. are you

loan quick is retail from on one or the Just exposure your two questions. today? What total book

Tim Schneider

talking shopping you're retail centers, the centers strip thing. that's Retail about,

Ross Haberman

exactly. Yes,

Tim Schneider

but exact know We've relative insignificant It's pretty concentration a but don't few, to or the I a it's anything. minimal. many. percentage, got not

Ross Haberman

on loans. of and or and Okay. collateralized And the them land and/or then it by would land ag most so forth? facilities, be so Are warehouses on

Tim Schneider

feed, asset entire it's facilities, their their their and equipment, have When in client all land, without their collateralized. Everything. take exception, their their we as collateral, crops, ag all base we the almost it's an all cattle, all

Ross Haberman

year? sales if weakness so, the seen any in been you there what side? land significant have there in Has last the And

Tim Schneider

out. where been the liquidating No, they've their pockets be may values maintained. to is have as continued the but land, land not for there the the that situations competition Obviously, in much -- farmers have remain in land, strong assets values have been in particular, there

Ross Haberman

Okay. then last question particularly just regarding new emphasis loans adjusted forward. And parameters sort loans making going -- ag in terms of and your one of today, additional or What's in dairy? your

Tim Schneider

book obviously are still occurring, there made we're and price cycle there've have this a -- money we isn't relationships. out that producers expansion but selective. entire are deals much Well, lower that there are brand-new being been through that milk few very There

on vast make generally growth our deals where those we XX or spread, servicing those the that nice pretty occurring a so. we're overall of over been and organic But a hasn't lot books, participating to exposure tightly. We're managing majority or the last but there definitely can the of selling relationships manage months

Ross Haberman

And of not terms your... in your final question. we you but non-performers peaked a think Do the

Tim Schneider

Classified assets?

Ross Haberman

correct. yes, classified, Your

Tim Schneider

my $XX that had breakeven February futures to $XX this The some on that alluded that XXXX the so in I and to closer early prices mean, January year right low year for milk in seems milk part in be reality quite may is point. and of $XX.XX though range. $XX, average now price with say, earlier, Hard the or even to I comments

$XX, seeing the out price. months over next hundredweight even we're their is much base approaching all $XX pretty six a and for What

about points this better our and be hold will feeling at we're money. whether to are able there stage those milk So the the out that operations majority breakeven prices make the in if operators that fact of

Ross Haberman

you. Thank luck. of Best guys. Okay,

Tim Schneider

Okay. Thank you.

Operator

go from Reevey Please Our with ahead. next is a question Kevin follow-up D.A. Davidson.

Kevin Reevey

last from you there had your any if you changes stress if have stress been updated earnings that quarter. shared you haven't curious analysis? Just effectiveness call analysis when us an with that to And

Glen Stiteley

Kevin, No. this is Glen.

that a balance leveraging it that earnings only continued going help once doesn't year. than is we'll do cushion. probably do that of to only The more our off we And sheet So it to and that. what call pay

So if -- take, so. hope -- continue it's to you to going we improve it's

Kevin Reevey

for that? $XX what's average? Is pricing your then you -- for And if I than farmers lastly, higher -- what's the understand breakeven it your did I is on correctly, around or milk it

Tim Schneider

every think that's and that I with range average was efficiency that's earlier kind out breakeven. there, and reasonable the in of probably price probably if vary, you that the No, all ballpark referencing the management, upon that's depending it Obviously, we've base said CME. I a they but the that's operation for

bases are farmers of anywhere a dairy receiving on for components. top that of from to additional $X The $X hundredweight

hundredweight. call year, price, So that's $XX final of that making And dairy them price add the milk they balance if lot mailbox we the from you it the at plant. $XX, to receive on a be will of the $XX we're price, the a looking

Kevin Reevey

That’s you. thank Appreciate. Great, helpful.

Operator

question Sandler is a Nosal O'Neill follow-up Partners. The Please ahead. Brendan go with next and from

Brendan Nosal

just couple guys Hey, more here. a me from

you on in can be TDRs color this identified Were and dairy just not credits build quarter? restructure? the elaborate these First, would you just Or review great. throughout there any the

Tim Schneider

noticed restructuring some slid performing we Well, into morning your more couple that primarily, quite in bit elevated. slid And NPA of there was -- mill. into relationships this with did that were substandard substandard They're that a your and a number there note them. I

the making and believe business these interest-only operators We've done changes have it cycle, in we the some viability their could they're especially models. make for of periods through these they with if

trying definition, on TDR been we've conservative So unfortunately with to that. stay the

have those again, TDRs, maybe number. and unfortunately, of some elevated, that we feel And referencing you're good but about performing the numbers that's where

Glen Stiteley

that -- because is Brendan, the And -- -- are had -- the of impairments TDRs, you aren't in this haven't mentioned two Tim Glen, material we process so those seen those impairment I through the that to their go two we and so. mean don't

Brendan Nosal

it. Got

$XX last say hold long see let's if in classified course you to average kind $XX year, I take then non-accruals? in of a range, decline for either to will And on of milk a one this it Okay. or for how mean, me. assets in meaningful prices the

Tim Schneider

those if see think movement this both for some we in our if are -- months, cycle, prices get worse we're XX numbers. think the another and I at next withstand of this Well, year we'll I and milk XX% next watch and point again, meaningful through review

Glen Stiteley

but year-over-year. end, kind the By it's of

Tim Schneider

X/XX/XXXX.

Brendan Nosal

Okay. But and prices. through happens have work milk we assuming year really taken a noise, it sounds process, another stable which that to we've again, once review

Tim Schneider

between point to We which milk looks will talked is of in was will finish a generally price appears it earlier to fall think the XXXX that pretty milk years, last the should classifications little some Yeah. we've $XX, about a add-on. score haven't the going and years of help average to strong for and benefit kind our here low prices us and I moved that's off as four and three-year

that the on help score So classification should side. our

Brendan Nosal

taking Perfect. follow-up. Thanks the for

Tim Schneider

Yep.

Operator

Honold question comes Patriot. go David next with Our Please ahead. from

David Honold

Good afternoon guys.

Tim Schneider

Good David. afternoon,

David Honold

So wholesale do selling can deleveraging funding How just relates reducing sheet. the of think to work side during a and on quarter. off the follow-up do sort on as much Nice other you participations more it you balance from the here?

Glen Stiteley

Glen. is this Dave, so, Yes,

be loans. maturities those flow We've this now, using we're here to with able but take essentially cash of securities to right So growth quarter, up got payments on payoff anything should decent that just cash principal and chunks care deposits of comes coming due. we and

So should we're okay I be -- there. we think

that we participations have participations we will than as do anything do shouldn't drastic to as so. anyway normal other So far

David Honold

you. Thank

Operator

I Tim Schneider any for like session. conference remarks. to turn now over question-and-answer the to closing our would Concludes back

Tim Schneider

about feel overall. call quarter the jumping We appreciate good all you pretty of the We today. on

were classified solid. earnings cycle. anticipated also dairy core elevated think that get Unfortunately, We're little helping encouraged the farmers we forward, sustain. got bit, the -- through a but and that our is think price futures on of I we pretty now prices CME as review I right assets if help the the some will the through by moving this

feeling news got call you days and overall, joining like our arms now reporting hopefully, be around So, be from on all for wrapped good we're us. Thank this we'll we've again. things, and XX

Operator

presentation. conference for now you attending has The Thank concluded. today's

You may disconnect. now