Your Community Bankshares, Inc. Reports 2nd Quarter Net Income Available to Common Shareholders of $3.5 Million, or $0.64 Per Diluted Common Share and 3rd Quarter Dividend

NEW ALBANY, Ind.--()--Your Community Bankshares, Inc. (YCB) (NASDAQ:YCB) reported second quarter net income available to common shareholders of $3.5 million and earnings per diluted common share of $0.64. Excluding merger and integration expenses resulting from the acquisition of First Financial Service Corporation of Elizabethtown, Kentucky (“FFKY”), net income available to common shareholders for the quarter would have been $3.6 million, or $0.65 per share, compared to $2.0 million, or $0.59 per share, for the same period in 2014 (for a reconciliation of non-GAAP financial information, see “Regulation G Disclosure” below). The Company also announced that on July 21, 2015 its board of directors declared a quarterly cash dividend on the Company’s common stock of $0.12 per share payable on August 27, 2015 to shareholders of record on August 10, 2015.

“We are pleased with the reduction in non-performing assets that our experienced credit administration team realized during the second quarter. Total acquired non-performing assets were down 48% during the second quarter while legacy non-performing assets were down 17%,” stated James Rickard, President and Chief Executive Officer. “We are very proud of the credit administration team we have in place and the job they have done in resolving both our legacy and acquired problem assets.”

“We recorded a larger provision for loan losses during the second quarter because of one large commercial relationship, which is one of the last large legacy problem loan situations remaining,” Mr. Rickard continued. “Negotiations with the borrower revealed new information that caused us to re-evaluate the collectability of the remaining loan principal. The results of this re-evaluation resulted in most of the $2.2 million in provision we recognized during the quarter.”

The following points summarize significant financial information for the second quarter of 2015:

  • Net income for the second quarter of 2015 was $3.6 million while net income available to common shareholders was $3.5 million. Excluding merger and integration expenses of $156,000 ($101,000, net of tax), net income would have been $3.7 million.
  • Non-performing assets to total assets declined to 1.31% at June 30, 2015 from 2.06% at March 31, 2015. Non-accrual loans declined from $16.8 million at March 31, 2015 to $12.2 million at June 30, 2015. Foreclosed and repossessed assets declined from $15.8 million to $8.4 million over the same period.
  • Tangible book value per common share was $19.31 as of June 30, 2015 as compared to $20.55 at 12/31/2014 and $18.99 at June 30, 2014.
  • Net interest income increased to $13.9 million from $13.5 million in the first quarter of 2015 due primarily to a change in asset mix that resulted in an increase in the yield on earning assets from 4.22% in the first quarter of 2015 to 4.37% in the second quarter. Average tax-exempt securities and total loans increased by $15.2 million and $7.3 million respectively, while taxable securities and interest-bearing deposits with banks declined by $30.3 million and $15.1 million.
  • Fully tax equivalent net interest margin was 4.04%, an increase from 3.87% for the first quarter of 2015. The increase in the margin was attributable to the same factors that drove the increase in net interest income.
  • Provision for loan losses was $2.2 million, an increase from $190,000 for the same quarter in 2014. The increase in provision was mostly due to one large commercial borrower relationship. Non-interest income increased to $2.7 million compared to $2.4 million for the first quarter of 2015. The increase was mostly attributable to lower non-interest income in the first quarter caused by disruption related to the conversion of FFKY customer data to YCB systems.
  • Non-interest expense was $10.5 million as compared to $17.9 million for the first quarter of 2015. The decrease was due to merger and integration expenses in the first quarter of $3.8 million compared to $156,000 in the second quarter of 2015 related to the acquisition of FFKY. In addition to the reduction in merger and integration expenses, salaries and benefits declined because of attrition in financial centers acquired from FFKY and the reduction of non-customer contact support staff. Due to higher than budgeted provision for loan losses, the Company reduced its incentive compensation, which is accrued for based on net income relative to its budget excluding incentive compensation expense.
  • The Company’s effective tax rate was 9.43% during the quarter due to the recognition of $438,000 in low-income housing tax credits acquired from FFKY during the period, $219,000 of which were attributable to the first quarter. Excluding the amount attributable to the first quarter, the effective tax rate would have been 15.00%.
  • Beginning March 31, 2015, the Company and its subsidiaries were subject to the new Basel III capital standards and met the definition of well-capitalized under the revised rules as of June 30, 2015.
  • Selected performance ratios for the company are set out in the following table.
       
Three Months Ended Six Months Ended
June     March     December     September   June June     June
30, 31, 31, 30, 30, 30, 31,
2015 2015 2014 2014 2014 2015 2014
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
 
Return on average assets 0.89 % (0.23 )% 1.11 % 1.07 % 1.00 % 0.33 % 1.01 %
Return on average assets, excluding merger and integration expenses, net of income taxes 0.92 % 0.37 % 1.17 % 1.12 % 1.07 % 0.64 % 1.05 %
Return on average equity 9.75 % (2.57 )% 9.83 % 9.59 % 9.25 % 3.60 % 9.36 %
Return on average equity, excluding merger and integration expenses, net of income taxes 10.02 % 4.16 % 10.46 % 10.11 % 9.88 % 7.10 % 9.75 %
Net interest margin, fully tax equivalent 4.04 % 3.87 % 4.52 % 4.28 % 4.24 % 3.95 % 4.18 %

Efficiency ratio (1)

58.85 % 82.07 % 57.15 % 66.15 % 62.02 % 70.18 % 64.48 %
 

(1)  Net interest income on a fully taxable equivalent basis.  Excludes gains or losses on sales of securities, foreclosed asset expenses, amortization of intangibles, and merger and integration expenses.

 
                   

Your Community Bankshares, Inc.

Consolidated Balance Sheets

 

 

June 30,

2015

March 31,

2015 (1)

December 31,

2014

September 30,

2014

June 30,

2014

(Unaudited) (Unaudited) (Unaudited) (Unaudited)
(As Recast)
ASSETS (In thousands)
Cash and due from financial institutions $ 28,947 $ 45,784 $ 12,872 $ 14,540 $ 19,350
Interest-bearing deposits in other financial institutions 32,383 56,290 6,808 5,655 18,727
Securities available for sale 398,292 385,498 202,177 202,174 199,071
Loans held for sale 390 221 - - 246
Loans 1,005,016 1,001,708 603,575 593,124 588,160
Allowance for loan losses (8,045 ) (7,120 ) (6,465 ) (7,784 ) (8,481 )
Federal Home Loan Bank and Federal Reserve stock 3,807 5,451 4,964 5,964 5,964
Accrued interest receivable 5,083 4,802 3,152 3,028 3,144
Premises and equipment, net 31,462 31,793 18,124 17,986 18,204
Premises and equipment held for sale 5,635 5,655 - - -
Company owned life insurance 33,348 33,095 22,058 21,887 21,718
Goodwill 6,375 6,375 - - -
Core deposit intangible 5,634 5,951 682 759 839
Foreclosed and repossessed assets 8,354 15,945 4,431 4,677 6,029
Other assets   30,647     29,170     16,368     3,945     2,945  
Total Assets $ 1,587,328   $ 1,620,618   $ 888,746   $ 865,955   $ 875,916  
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits
Non-interest bearing $ 293,179 $ 285,634 $ 200,142 $ 187,592 $ 201,259
Interest-bearing   1,014,357     1,052,089     450,802     467,619     482,356  
Total deposits 1,307,536 1,337,723 650,944 655,211 683,615
Short-term borrowings 42,989 39,228 45,818 37,070 37,459
Subscription agreement proceeds in escrow - - 20,774 - -
Other borrowings 83,000 83,874 67,000 72,000 57,000
Accrued interest payable 703 462 158 87 87
Other liabilities   8,741     14,059     4,504     5,099     3,566  
Total liabilities 1,442,969 1,475,346 789,198 769,467 781,727
 
SHAREHOLDERS’ EQUITY
Preferred stock (2) 28,000 28,000 28,000 28,000 28,000
Common stock 578 578 386 386 386
Additional paid-in capital 89,791 89,342 44,421 44,085 43,948
Retained earnings 32,228 30,419 32,110 30,196 28,403
Accumulated other comprehensive income 150 3,788 1,809 1,035 754
Treasury stock   (6,388 )   (6,855 )   (7,178 )   (7,214 )   (7,302 )
Total shareholders’ equity   144,359     145,272     99,548     96,488     94,189  
Total Liabilities and Shareholders’ Equity $ 1,587,328   $ 1,620,618   $ 888,746   $ 865,955   $ 875,916  
 
Book value per common share $ 21.53   $ 21.81   $ 20.75   $ 19.88   $ 19.24  
Tangible book value per common share $ 19.31   $ 19.51   $ 20.55   $ 19.66   $ 18.99  
 

(1)  Management obtained information subsequent to the issuance of the March 31, 2015 financial statements about the fair value of assets acquired from First Financial Service Corporation which resulted in an adjustment to the initial fair values established. The table below details the adjustments to the March 31, 2015 consolidated balance sheet; there were no adjustments to the consolidated statement of operations for the period ending March 31, 2015.

 
     

 

March 31, 2015

As Previously Reported   Recast Adjustments     As Recast

 

(In thousands)

Loans $ 999,906 $ 1,802 $ 1,001,708
Premises and equipment held for sale 6,155 (500 ) 5,655
Foreclosed and repossessed assets 15,818 127 15,945
Other assets (deferred tax asset) 29,430 (260 ) 29,170
Goodwill 7,544 (1,169 ) 6,375

(2) On September 15, 2011, as part of the Small Business Lending Fund (“SBLF”) program, the Company sold $28.0 million of Non-Cumulative Perpetual Preferred Stock, Series B (the “SBLF Preferred Stock”), to the Secretary of the Treasury (the “Secretary”), and used the proceeds from the sale of the SBLF Preferred Stock to redeem the 19,468 shares of the Company’s Fixed Rate Cumulative Perpetual Preferred Stock, Series A (the “CPP Preferred Stock”), issued in 2009 to the Treasury under the CPP, plus the accrued and unpaid dividends owed on the CPP Preferred Stock. The Company will be subject to all terms, conditions and other requirements for participation in SBLF for as long as any SBLF Preferred Stock remains outstanding.

       

Your Community Bankshares, Inc.

Consolidated Statements of Operations

 
Three Months Ended Six Months Ended  
June     March     December     September     June June     June  
30, 31, 31, 30, 30, 30, 30,  
2015 2015 2014 2014 2014 2015 2014  
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
(In thousands)
Interest and dividend income
Loans, including fees $ 12,787 $ 12,523 $ 7,911 $ 7,317 $ 7,098 $ 25,310 $ 13,722
Investment securities and other   2,319     2,233     1,322     1,313     1,312     4,552     2,689  
Interest and dividend income   15,106     14,756     9,233     8,630     8,410     29,862     16,411  
 
Interest expense
Deposits 580 574 245 255 267 1,154 520
Borrowed funds   612     698     291     201     206     1,310     429  
Total interest expense   1,192     1,272     536     456     473     2,464     949  
Net interest income 13,914 13,484 8,697 8,174 7,937 27,398 15,462
Provision for loan losses   2,155     106     637     166     190     2,261     472  
Net interest income after provision for loan losses   11,759     13,378     8,060     8,008     7,747     25,137     14,990  
 
Non-interest income
Service charges on deposit accounts 1,669 1,391 854 874 835 3,060 1,627
Interchange income 476 444 287 281 330 920 600
Earnings on company owned life insurance 253 252 170 169 168 505 332
Net gain on sales of available for sale securities - 51 - 172 1 51 296
Mortgage banking income 74 117 42 40 28 191 44
Commission income 50 47 48 50 48 97 96
Other income   130     110     128     113     130     240     222  
Non-interest income   2,652     2,412     1,529     1,699     1,540     5,064     3,217  
 
Non-interest expense
Salaries and employee benefits 5,086 9,119 3,276 3,869 3,366 14,205 6,733
Occupancy & equipment 1,672 2,208 966 971 850 3,880 1,877
Data processing 921 1,814 670 618 663 2,735 1,329
Core deposit intangible amortization 318 397 78 80 81 715 164
Foreclosed assets, net (95 ) 344 118 (148 ) 53 249 191
Other expense   2,573     4,042     1,444     1,467     1,516     6,615     2,786  
Total non-interest expense   10,475     17,924     6,552     6,857     6,529     28,399     13,080  

Income (loss) before income taxes

3,936 (2,134 ) 3,037 2,850 2,758 1,802 5,127
Income tax expense (benefit)   371     (1,198 )   600     534     610     (827 )

867

 
Net income (loss) 3,565 (936 ) 2,437 2,316 2,148 2,629 4,260
 
Preferred stock dividend   (109 )   (110 )   (110 )   (110 )   (109 )   (219 )   (219 )
Net income (loss) available (attributable) to common shareholders $ 3,456   $ (1,046 ) $ 2,327   $ 2,206   $ 2,039   $ 2,410   $ 4,041  
 
Earnings (loss) per basic share $ 0.64 $ (0.19 ) $ 0.68 $ 0.64 $ 0.59 $ 0.45 $ 1.18
Earnings (loss) per diluted share $ 0.64 $ (0.19 ) $ 0.66 $ 0.63 $ 0.59 $ 0.44 $ 1.17
Dividend per common share $ 0.12 $ 0.12 $ 0.12 $ 0.12 $ 0.12 $ 0.24 $ 0.24
Average number of basic shares 5,383,887 5,374,819 3,446,486 3,443,787 3,438,794 5,379,379 3,430,025
Average number of dilutive shares 5,437,602 5,374,819 3,499,951 3,480,816 3,468,424 5,426,509 3,461,288
 
Merger and integration expenses contained in:
Salaries and employee benefits 60 2,105 - - - 2,165 -
Occupancy & equipment - 310 - - - 310 -
Data processing 27 719 - - - 746 -
Other expense   69     633     238     190     223     702     269  
Total merger and integration expenses 156 3,767 238 190 223 3,923 269
Total merger and integration expenses, net of income taxes 101 2,486 157 125 147 2,550 177
   

 

Your Community Bankshares, Inc.

Average Balances, Interest Yields and Costs

 
Three Months Ending,
6/30/2015       03/31/2015       12/31/2014       09/30/2014       06/30/2014  
Average

Balance

    Average

Yield/ Cost

Average

Balance

    Average

Yield/ Cost

Average

Balance

    Average

Yield/ Cost

Average

Balance

    Average

Yield/ Cost

Average

Balance

    Average Yield/ Cost
ASSETS (In thousands)
Earning assets:
Interest-bearing deposits with banks $ 48,008 0.41 % $ 63,092 0.36 % $ 6,113 0.39 % $ 14,424 0.51 % $ 13,433 0.26 %
Taxable securities 288,420 1.84 318,695 1.71 117,961 1.78 109,297 1.76 112,139 1.75
Tax-exempt securities 98,423 5.52 83,217 5.57 80,416 5.49 80,809 5.50 81,619 5.59
Total loans and fees 1,000,865 5.17 993,536 5.15 595,578 5.34 592,327 4.97 583,345 4.94
FHLB and Federal Reserve stock   4,860   5.69   6,484   5.94   5,768   3.71   5,964   4.78   5,962   4.24
Total earning assets 1,440,576 4.37 1,465,024 4.22 805,836 4.78 802,621 4.50 796,498 4.47
Less: Allowance for loan losses (7,532 ) (6,838 ) (7,743 ) (8,505 ) (8,501 )
Non-earning assets:
Cash and due from banks 35,902 38,987 22,388 16,032 16,788
Bank premises and equipment, net 37,778 38,135 17,959 18,143 18,376
Other assets   96,967     124,855     40,034     38,889     39,963  
Total assets $ 1,603,691   $ 1,660,163   $ 878,474   $ 867,180   $ 863,124  
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
Interest-bearing liabilities:
Savings and other $ 688,831 0.15 % $ 697,094 0.15 % $ 338,104 0.18 % $ 338,092 0.18 % $ 329,190 0.20 %
Time deposits 352,394 0.36 377,230 0.33 133,684 0.28 138,573 0.28 144,331 0.29
Short-term borrowings 39,033 0.24 38,253 0.23 42,819 0.24 35,879 0.21 39,813 0.23
Other borrowings   83,170   2.84   87,999   3.12   71,837   1.46   57,707   1.25   60,187   1.22
Total interest-bearing liabilities 1,163,428 0.41 1,200,576 0.43 586,444 0.36 570,251 0.32 573,521 0.33
 
Non-interest bearing liabilities:
Non-interest demand deposits 283,101 279,879 185,844 195,011 191,466
Accrued interest payable and other liabilities 10,453 32,251 7,800 6,127 4,968
Shareholders’ equity   146,709     147,457     98,386     95,791     93,169  
Total liabilities and shareholders’ equity $ 1,603,691   $ 1,660,163   $ 878,474   $ 867,180   $ 863,124  
 
Net interest spread 3.96 % 3.79 % 4.42 % 4.18 % 4.14 %
Net interest margin 4.04 3.87 4.52 4.28 4.24
   

Accretion and Amortization of Fair Value Adjustments

 
Three Months Ending,
6/30/2015       03/31/2015       12/31/2014       09/30/2014       06/30/2014  
Fair Value Accretion     Impact on Net Interest Margin Fair Value Accretion     Impact on Net Interest Margin Fair Value Accretion     Impact on Net Interest Margin Fair Value Accretion     Impact on Net Interest Margin Fair Value Accretion     Impact on Net Interest Margin
(In thousands)
Loans $ 1,016 0.28 % $ 601 0.17 % $ 775 0.38 % $ 126 0.06 % $ 61 0.03 %
Interest-bearing deposits 475 0.13 542 0.15 - 0.00 - 0.00 - 0.00
FHLB advances 62 0.02 62 0.02 - 0.00 - 0.00 - 0.00
Subordinated debentures   36 0.01   33 0.01   - 0.00   - 0.00   - 0.00
Total fair value accretion $ 1,589 0.44 % $ 1,238 0.34 % $ 775 0.38 % $ 126 0.06 % $ 61 0.03 %
                   

Your Community Bankshares, Inc.

Selected Loan Information

 

 

June 30,

2015

March 31,

2015 (1)

December 31,

2014

September 30,

2014

June 30,

2014

(Unaudited) (Unaudited) (Unaudited) (Unaudited)
(As recast)
ACQUIRED LOANS (In thousands)
Loans on non-accrual status $ 6,168 $ 10,368 $ 96 $ 178 $ 400
Loans past due 90 days or more and still accruing - - - - -
Foreclosed and repossessed assets   4,849     12,409     254     126     820  
Total non-performing assets 11,017 22,777 350 304 1,220
 

Non-accretable yield on acquired loans

16,246 16,752 571 849 878
 
LEGACY LOANS
Loans on non-accrual status 6,016 7,354 7,439 9,031 9,189
Loans past due 90 days or more and still accruing 220 803 - 55 -
Foreclosed and repossessed assets   3,505     3,535     4,177     4,551     5,209  
Total non-performing assets 9,741 11,692 11,616 13,637 14,398
 
Total Legacy Loans 625,624 588,076 570,864 556,525 549,192
Allowance for loan losses 8,045 7,120 6,465 7,784 8,481
 
Allowance for loan losses to legacy loans 1.29 % 1.21 % 1.13 % 1.40 % 1.54 %
 
TOTAL LOANS
Loans on non-accrual status $ 12,184 $ 17,722 $ 7,535 $ 9,209 $ 9,589
Loans past due 90 days or more and still accruing 220 803 - 55 -
Foreclosed and repossessed assets   8,354     15,944     4,431     4,677     6,029  
Total non-performing assets 20,759 34,469 11,966 13,941 15,618
 
Non-performing assets to total assets 1.31 % 2.13 % 1.35 % 1.60 % 1.78 %
Allowance for loan losses to total loans 0.81 % 0.72 % 1.07 % 1.31 % 1.44 %
 

(1) Management obtained information subsequent to the issuance of the March 31, 2015 financial statements about the fair value of assets acquired from First Financial Service Corporation which resulted in an adjustment to the initial fair values established.  The adjustments are reflected in the selected loan information reported as March 31, 2015 above.

 
                   

Reconciliation of Fully Tax Equivalent Adjustments to GAAP Net Interest Income

 
6/30/2015   3/31/2015   12/31/2014   9/30/2014   6/30/2014  
Net

Interest

Income

    Yield Net

Interest

Income

    Yield Net

Interest

Income

    Yield Net

Interest

Income

  Yield Net

Interest

Income

    Yield
(In thousands)
GAAP net interest income $ 13,914 3.87 % $ 13,484 3.73 % $ 8,697 4.28 % $ 8,174 4.04 % $ 7,937 4.00 %
 
Tax equivalent adjustment
Investment securities 474 0.14 400 0.11 379 0.19 381 0.19 387 0.20
Loans   115 0.03     102 0.03     100 0.05     100 0.05     88 0.04  
Total tax equivalent adjustment 589 0.17 502 0.14 479 0.24 481 0.24 475 0.24
 
Tax equivalent net interest income 14,503 4.04 % 13,986 3.87 % 9,176 4.52 % 8,655 4.28 % 8,412 4.24 %

Regulation G Disclosure

This press release contains non-GAAP financial measures within the meaning of Regulation G promulgated by the Securities and Exchange Commission (the “SEC”). The Company believes that these non-GAAP financial measures provide information that is useful to the users of its financial information regarding the Company’s financial condition and results of operations. Additionally, the Company uses these non-GAAP measures to evaluate its past performance and prospects for future performance. The Company believes that this non-GAAP financial information is helpful in understanding the results of operations separate and apart from items that may, or could, have a disproportional positive or negative impact in any particular period.

While the Company believes that these non-GAAP financial measures are useful in evaluating Company performance, this information should be considered as supplemental in nature and not as a substitute for or superior to the related financial information prepared in accordance with U.S. GAAP. Further, these non-GAAP financial measures may differ from similar measures presented by other companies.

The Company recognized expenses associated with its acquisition of First Financial Service Corporation during the three months ended June 30, 2015 which substantially impacts the reported financial results for those periods. The Company believes excluding the charge provides investors and other interested parties with an additional meaningful measure to evaluate the Company’s results of operations.

       

Net income available to common shareholders reconciliation:

Three Months Ended June 30, 2015 Earnings per common share impact
(In thousands)
Net income available to common shareholders as reported $ 3,456 $ 0.64
Less: Merger and integration expenses reported in non-interest expense 156 0.02
Less: Tax effect of merger and integration charges   (55 )   (0.01 )
Net income available to common shareholders excluding merger and integration expense and related tax effect $ 3,557   $ 0.65  
 

Net income reconciliation:

Net income as reported $ 3,565
Less: Merger and integration expenses reported in non-interest expense 156
Less: Tax effect of merger and integration charges   (55 )
Net income excluding merger and integration expense and related tax effect $ 3,776  
 

Non-interest expense reconciliation:

Non-interest expenses as reported $ 10,475
Less: Merger and integration charges   (156 )
Non-interest expense excluding merger and integration expense and related tax effect $ 10,319  

About Your Community Bankshares, Inc.

Your Community Bankshares, Inc. is a bank holding company headquartered in New Albany, Indiana. It includes two wholly owned, state-chartered subsidiary banks, Your Community Bank and The Scott County State Bank. The Company operates 41 financial centers in Indiana and Kentucky. The Banks are engaged primarily in the business of attracting deposits from the general public and using such funds for the origination of commercial business and real estate loans and secured consumer loans such as home equity lines of credit, automobile loans, and recreational vehicle loans. Additionally, the Banks originate and sell into the secondary market mortgage loans for the purchase of single-family homes. For more information visit www.yourcommunitybank.com and www.scottcountystatebank.com.

Statements in this press release relating to the Company’s plans, objectives, or future performance are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are based on management's current expectations. The Company’s actual strategies and results in future periods may differ materially from those currently expected due to various risks and uncertainties, including those discussed in the Company’s 2014 Form 10-K and subsequent 10-Q filed with the Securities and Exchange Commission.

Contacts

Your Community Bankshares, Inc.
Paul Chrisco, CFO, 812-981-7375

Contacts

Your Community Bankshares, Inc.
Paul Chrisco, CFO, 812-981-7375