Porter Bancorp Reports 2nd Quarter 2017 Net Income of $1.7 million or $0.27 per Diluted Share

LOUISVILLE, Ky.--()--Porter Bancorp, Inc. (NASDAQ: PBIB) (“the Company”), parent company of PBI Bank, today reported unaudited results for the second quarter of 2017. Net income available to common shareholders for the second quarter of 2017 was $1.7 million, or $0.27 per basic and diluted common share, compared with $979,000, or $0.17 per basic and diluted share, for the second quarter of 2016. Net income available to common shareholders for the six months ended June 30, 2017, was $3.3 million, or $0.54 per diluted common share, compared with net income available to common shareholders of $2.4 million, or $0.43 per diluted share, for the six months ended June 30, 2016.

As compared to the same period in 2016, the Company’s performance for the quarter and six months ended June 30, 2017, reflected several positive developments, including:

  • Improved net interest income and net interest margin
  • Continued improvement in asset quality trends and growth in the loan portfolio
  • Improved deposit service charges and interchange fee income
  • Continued reductions in non-interest expenses
  • Completion of a $10.0 million senior debt transaction and capital contribution of $9.0 million to PBI Bank

Net Interest Income – Net interest income before provision expense increased to $7.6 million for the second quarter of 2017, compared with $7.2 million in the second quarter of 2016. Average loans increased to $654.8 million for the second quarter of 2017, compared with $619.3 million in the second quarter of 2016. Net interest margin increased to 3.42% in the second quarter of 2017, compared with 3.34% in the second quarter of 2016.

Our yield on earning assets increased to 4.11% in the second quarter of 2017, compared to 4.03% in the second quarter of 2016. Our cost of funds was 0.80% in the second quarter of 2017, compared to 0.79% in the second quarter of 2016.

Loan Loss Provision and Allowance for Loan Losses – There was no provision for loan losses in the first or second quarter of 2017. Ongoing improvements in asset quality and management’s assessment of risk in the loan portfolio led to a negative provision for loan losses of $600,000 for the second quarter of 2016.

The allowance for loan losses to total loans was 1.36% at June 30, 2017, compared to 1.62% at June 30, 2016. The reduced level of the allowance in 2017 compared to 2016 was primarily driven by declining charge-off levels, growth in the portfolio, and improving trends in credit quality. Net loan charge-offs were $82,000 for the first six months of 2017, compared to $787,000 for the first six months of 2016. The allowance for loan losses for loans evaluated collectively for impairment was 1.33% at June 30, 2017, and 1.66% at June 30, 2016.

Non-performing Assets – Non-performing assets, which include loans past due 90 days and still accruing, loans on nonaccrual, and other real estate owned (“OREO”), decreased to $12.8 million, or 1.34% of total assets at June 30, 2017, compared with $14.7 million, or 1.56% of total assets at March 31, 2017, and $23.9 million, or 2.61% of total assets at June 30, 2016.

Non-performing loans decreased to $6.5 million, or 0.99% of total loans at June 30, 2017, compared with $8.1 million, or 1.22% of total loans at March 31, 2017, and decreased from $11.6 million, or 1.86% of total loans at June 30, 2016. The decrease from the previous quarter was primarily driven by $1.9 million in principal payments received on nonaccrual loans. OREO at June 30, 2017, decreased to $6.3 million, compared with $6.6 million at March 31, 2017, and $12.3 million at June 30, 2016. The Company acquired $40,000 in OREO and sold $320,000 in OREO during the second quarter of 2017. There were no fair value write-downs arising from lower marketing prices or new appraisals in the first six months of 2017, compared with $650,000 in the first six months of 2016.

The following table details past due loans and non-performing assets as of:

                 
  June 30,

2017

  March 31,

2017

December 31,

2016

September 30,

2016

June 30,

2016

(in thousands)
Past due loans:
30 – 59 days $ 1,328 $ 972 $ 2,302 $ 2,335 $ 2,401
60 – 89 days 765 289 315 273 336
90 days or more
Nonaccrual loans   6,509   8,102   9,216   10,099   11,599

Total past due and nonaccrual loans

$

8,602

$

9,363 $ 11,833 $ 12,707 $ 14,336
 

Loans past due 90 days or more

$

$

$ $ $
Nonaccrual loans 6,509 8,102 9,216 10,099 11,599
OREO 6,318 6,571 6,821 7,098 12,322
Other repossessed assets          

Total non-performing Assets

$

12,827

$

14,673   $ 16,037 $ 17,197 $ 23,921
 

In addition to nonaccrual loans and OREO, loans classified as Troubled Debt Restructures (TDRs) and on accrual totaled $1.2 million at both June 30, 2017 and March 31, 2017, compared to $13.9 million at June 30, 2016.

Non-interest Income – Non-interest income for the second quarter of 2017 decreased $45,000 to $1.1 million compared with $1.2 million for the second quarter of 2016. The decrease from the second quarter of 2016 was primarily due to reductions in OREO income of $149,000 as income producing OREO has been sold and no income was collected in the second quarter of 2017. This reduction was partially offset by increases in service charges on deposit accounts and bank card interchange fees of $75,000 and $34,000, respectively, compared to the second quarter of 2016.

Non-interest Expense – Non-interest expense decreased $950,000 to $7.0 million for the second quarter of 2017, compared with $7.9 million for the second quarter of 2016. The decrease from the second quarter of 2016 was primarily due to a reduction in OREO expenses of approximately $297,000, a reduction of professional fees of $251,000, a reduction of litigation and loan collection expenses of $231,000, and a reduction of FDIC insurance expense of $136,000.

Capital – On June 30, 2017, the Company entered into a $10.0 million senior secured loan agreement with a commercial bank. The loan matures on June 30, 2022. Interest is payable quarterly at a rate of three-month LIBOR plus 250 basis points through June 30, 2020, at which time quarterly principal payments of $250,000 plus interest will commence. The loan is secured by a first priority pledge of 100% of the issued and outstanding stock of PBI Bank. The Company may prepay any amount due under the promissory note at any time without premium or penalty.

The Company contributed $9.0 million of the borrowing proceeds to PBI Bank as Common Equity Tier 1 Capital. The remaining $1.0 million of the borrowing proceeds were retained by the lender in escrow to service quarterly interest payments.

At June 30, 2017, PBI Bank’s Tier 1 leverage ratio was 7.54%, compared with 6.37% at March 31, 2017, and its Total risk-based capital ratio was 11.50% at June 30, 2017, compared with 9.89% at March 31, 2017, which are below the minimums of 9.0% and 12.0% required by the Bank’s Consent Order.

At June 30, 2017, Porter Bancorp’s leverage ratio was 5.65%, compared with 5.43% at March 31, 2017, and its Total risk-based capital ratio was 10.44%, compared with 10.15% at March 31, 2017. At June 30, 2017, PBI Bank’s Common equity Tier I risk-based capital ratio was 9.97%, and Porter Bancorp’s Common equity Tier I risk-based capital ratio was 5.58%.

Deferred Tax Assets and Liabilities – The Company has a net deferred tax asset of $52.4 million at June 30, 2017, which is currently subject to a 100% valuation allowance. Deferred tax assets and liabilities were due to the following as of:

       
June 30, December 31,
2017 2016
(in thousands)
Deferred tax assets:
Net operating loss carry-forward $ 44,211 $ 42,094
Allowance for loan losses 3,110 3,139
Other real estate owned write-down 3,366 3,366
Other   3,092     7,607  
  53,779     56,206  
 
Deferred tax liabilities:
FHLB stock dividends 928 928
Other   485     1,229  
  1,413     2,157  
Net deferred tax assets before valuation allowance   52,366     54,049  
Valuation allowance   (52,366 )   (54,049 )
Net deferred tax asset $   $  
 

Our ability to utilize deferred tax assets depends upon generating sufficient future levels of taxable income. The determination to restore a deferred tax asset and eliminate a valuation allowance depends upon the evaluation of both positive and negative evidence regarding the likelihood of achieving sufficient future taxable income levels. We established a valuation allowance for all deferred tax assets as of December 31, 2011, and the valuation allowance remains in effect as of June 30, 2017.

Under Section 382 of the Internal Revenue Code, as amended (“Section 382”), the Company’s net operating loss carryforwards (“NOLs”) and other deferred tax assets can generally be used to offset future taxable income and therefore reduce federal income tax obligations. However, the Company's ability to use its NOLs would be limited if there was an “ownership change” as defined by Section 382. This would occur if shareholders owning (or deemed to own under the tax rules) 5% or more of the Company's voting and non-voting common shares increase their aggregate ownership of the Company by more than 50 percentage points over a defined period of time.

In 2015, the Company took two measures to preserve the value of its NOLs. First, we adopted a tax benefits preservation plan designed to reduce the likelihood of an “ownership change” occurring as a result of purchases and sales of the Company's common shares. Any shareholder or group that acquires beneficial ownership of 5% or more of the Company (an “acquiring person”) could be subject to significant dilution in its holdings if the Company's Board of Directors does not approve such acquisition. Existing shareholders holding 5% or more of the Company will not be considered acquiring persons unless they acquire additional shares, subject to certain exceptions described in the plan. In addition, the Board of Directors has the discretion to exempt certain transactions and certain persons whose acquisition of securities is determined by the Board not to jeopardize the Company's deferred tax assets. The rights will expire upon the earlier of (i) June 29, 2018, (ii) the beginning of a taxable year with respect to which the Board of Directors determines that no tax benefits may be carried forward, (iii) the repeal or amendment of Section 382 or any successor statute, if the Board of Directors determines that the plan is no longer needed to preserve the tax benefits, and (iv) certain other events as described in the plan.

On September 23, 2015, our shareholders approved an amendment to the Company’s articles of incorporation to further help protect the long-term value of the Company’s NOLs. The amendment provides a means to block transfers of our common shares that could result in an ownership change under Section 382. The transfer restrictions will expire on the earlier of (i) September 23, 2018, (ii) the beginning of a taxable year with respect to which the Board of Directors determines that no tax benefit may be carried forward, (iii) the repeal of Section 382 or any successor statute if our Board determines that the transfer restrictions are no longer needed to preserve the tax benefits of our NOLs, or (iv) such date as the Board otherwise determines that the transfer restrictions are no longer necessary.

Forward-Looking Statements

Statements in this press release relating to Porter Bancorp’s plans, objectives, expectations or future performance are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The words “believe,” “may,” “should,” “anticipate,” “estimate,” “expect,” “intend,” “objective,” “possible,” “seek,” “plan,” “strive” or similar words, or negatives of these words, identify forward-looking statements. These forward-looking statements are based on management’s current expectations. Porter Bancorp’s actual results in future periods may differ materially from those indicated by forward-looking statements due to various risks and uncertainties, including our ability to reduce our level of higher risk loans such as commercial real estate and real estate development loans, reduce our level of non-performing loans and other real estate owned, and increase net interest income in a low interest rate environment, as well as our need to increase capital. These and other risks and uncertainties are described in greater detail under “Risk Factors” in the Company’s Form 10-K and subsequent periodic reports filed with the Securities and Exchange Commission. The forward-looking statements in this press release are made as of the date of the release and Porter Bancorp does not assume any responsibility to update these statements.

Additional Information

Unaudited supplemental financial information for the second quarter ending June 30, 2017, follows.

                   

PORTER BANCORP, INC.

Unaudited Financial Information

(in thousands, except share and per share data)

 
Three Three Three Six Six
Months Months Months Months Months
Ended Ended Ended Ended Ended
6/30/17 3/31/17 6/30/16 6/30/17 6/30/16

 

 

 

Income Statement Data
Interest income $ 9,134 $ 9,225 $ 8,705 $ 18,359 $ 17,890
Interest expense   1,546   1,484   1,509   3,030   3,043
Net interest income 7,588 7,741 7,196 15,329 14,847
Provision (negative provision) for loan losses       (600 )     (1,150 )
Net interest income after provision 7,588 7,741 7,796 15,329 15,997
 
Service charges on deposit accounts 548 501 473 1,049 902
Bank card interchange fees 255 213 221 468 423
Other real estate owned income 149 405
Bank owned life insurance income 104 102 119 206 215
Gain (loss) on sales and calls of securities, net (5 ) (5 ) 203
Other   205   252   190   457   395
Non-interest income 1,107 1,068 1,152 2,175 2,543
 
Salaries & employee benefits 3,803 3,947 3,857 7,750 7,679
Occupancy and equipment 844 821 808 1,665 1,662
Professional fees 241 303 492 544 877
FDIC insurance 357 342 493 699 1,016
Data processing expense 318 292 295 610 592
State franchise and deposit tax 225 225 255 450 510
Other real estate owned expense (3 ) (16 ) 294 (19 ) 962
Litigation and loan collection expense 40 3 271 43 353
Other   1,161   1,212   1,171   2,373   2,376
Non-interest expense 6,986 7,129 7,936 14,115 16,027
 
Income before income taxes 1,709 1,680 1,012 3,389 2,513
Income tax expense           21
Net income 1,709 1,680 1,012 3,389 2,492
Less:
Earnings allocated to participating securities   42   44   33   88   84
Net income available to common $ 1,667 $ 1,636 $ 979 $ 3,301 $ 2,408
 
Weighted average shares – Basic 6,096,981 6,063,026 5,877,961 6,076,112 5,538,815
Weighted average shares – Diluted 6,096,981 6,063,026 5,877,961 6,076,112 5,538,815
 
Basic earnings per common share $ 0.27 $ 0.27 $ 0.17 $ 0.54 $ 0.43
Diluted earnings per common share $ 0.27 $ 0.27 $ 0.17 $ 0.54 $ 0.43
Cash dividends declared per common share $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
 

           

PORTER BANCORP, INC.

Unaudited Financial Information

(in thousands, except share and per share data)

 
Three Three Three Six Six
Months Months Months Months Months
Ended Ended Ended Ended Ended
6/30/17 3/31/17 6/30/16 6/30/17 6/30/16

 

 

 

Average Balance Sheet Data
Assets $ 941,982 $ 937,616 $ 936,000 $ 939,811 $ 936,689
Loans 654,801 649,325 619,253 652,078 619,665
Earning assets 899,393 892,292 876,721 895,862 879,178
Deposits 870,138 853,556 858,849 861,893 861,987
Long-term debt and advances 29,759 35,956 27,649 32,840 27,841
Interest bearing liabilities 773,301 767,461 766,712 770,397 773,075
Stockholders’ equity 37,018 33,732 39,214 35,384 36,380
 
 
Performance Ratios
Return on average assets 0.73 % 0.73 % 0.43 % 0.73 % 0.54 %
Return on average equity 18.52 20.20 10.38 19.31 13.78
Yield on average earning assets (tax equivalent) 4.11 4.23 4.03 4.17 4.13
Cost of interest bearing liabilities 0.80 0.78 0.79 0.79 0.79
Net interest margin (tax equivalent) 3.42 3.55 3.34 3.49 3.44
Efficiency ratio 80.30 80.93 95.06 80.62 93.25
 
 
Loan Charge-off Data
Loans charged-off $ (307 ) $ (326 ) $ (928 ) $ (633 ) $ (1,677 )
Recoveries   226   325   292   551   890
Net recoveries (charge-offs) $ (81 ) $ (1 ) $ (636 ) $ (82 ) $ (787 )
 
 
Nonaccrual Loan Activity
Nonaccrual loans at beginning of period $ 8,102 $ 9,216 $ 11,119 $ 9,216 $ 14,087
Net principal pay-downs (1,944 ) (1,452 ) (731 ) (3,396 ) (3,443 )
Charge-offs (242 ) (229 ) (344 ) (471 ) (988 )
Loans foreclosed and transferred to OREO (40 ) (100 ) (135 ) (140 ) (576 )
Loans returned to accrual status (63 ) (136 ) (265 ) (199 ) (349 )
Loans placed on nonaccrual during the period   696   803   1,955   1,499   2,868
Nonaccrual loans at end of period $ 6,509 $ 8,102 $ 11,599 $ 6,509 $ 11,599
 
Troubled Debt Restructurings (TDRs)
Accruing $ 1,235 $ 1,244 $ 13,936 $ 1,235 $ 13,936
Nonaccrual   1,967   3,374   3,453   1,967   3,453
Total $ 3,202 $ 4,618 $ 17,389 $ 3,202 $ 17,389
 
Other Real Estate Owned (OREO) Activity
OREO at beginning of period $ 6,571 $ 6,821 $ 17,861 $ 6,821 $ 19,214
Real estate acquired 40 100 135 140 576
Valuation adjustment write-downs (150 ) (650 )
Proceeds from sales of properties (320 ) (388 ) (5,638 ) (708 ) (6,987 )
Gain (loss) on sales, net   27   38   114   65   169
OREO at end of period $ 6,318 $ 6,571 $ 12,322 $ 6,318 $ 12,322
 

   

PORTER BANCORP, INC.

Unaudited Financial Information

(in thousands, except share and per share data)

 
As of
6/30/17     3/31/17     12/31/16     9/30/16     6/30/16
 
Assets
Loans $ 654,938 $ 664,183 $ 639,236 $ 621,697 $ 624,136
Allowance for loan losses   (8,885 )   (8,966 )   (8,967 )   (9,489 )   (10,104 )
Net loans 646,053 655,217 630,269 612,208 614,032
Loans held for sale 134
Securities held to maturity 41,635 41,752 41,818 41,883 41,948
Securities available for sale 154,993 156,001 152,790 142,433 143,145
Federal funds sold & interest bearing deposits 51,413 32,329 56,867 57,578 49,313
Cash and due from financial institutions 9,297 5,456 9,449 6,266 8,289
Premises and equipment 17,164 17,687 17,848 18,481 18,618
Bank owned life insurance 15,033 14,935 14,838 14,741 14,646
FHLB Stock 7,323 7,323 7,323 7,323 7,323
Other real estate owned 6,318 6,571 6,821 7,098 12,322
Accrued interest receivable and other assets   5,228   5,083   7,154   7,135   6,916
Total Assets $ 954,457 $ 942,354 $ 945,177 $ 915,280 $ 916,552
 
Liabilities and Equity
Certificates of deposit $ 458,068 $ 470,029 $ 444,639 $ 454,742 $ 461,183
Interest checking 97,169 104,811 103,876 88,386 90,806
Money market 153,700 122,434 142,497 140,995 135,643
Savings   36,363   36,380   34,518   33,816   34,616
Total interest bearing deposits 745,300 733,654 725,530 717,939 722,248
Demand deposits   129,518   127,049   124,395   119,005   117,843
Total deposits 874,818 860,703 849,925 836,944 840,091
FHLB advances 2,158 17,313 22,458 2,619 2,775
Junior subordinated debentures 23,700 23,925 24,150 24,375 24,600
Senior debt 10,000
Accrued interest payable and other liabilities   5,388   4,908   15,911   7,721   7,651
Total liabilities 916,064 906,849 912,444 871,659 875,117
 
Preferred stockholders’ equity 2,771 2,771 2,771 2,771 2,771
Common stockholders’ equity   35,622   32,734   29,962   40,850   38,664
Total stockholders’ equity   38,393   35,505   32,733   43,621   41,435
Total Liabilities and Stockholders’ Equity $ 954,457 $ 942,354 $ 945,177 $ 915,280 $ 916,552
 
Ending shares outstanding 6,259,864 6,247,520 6,224,533 6,222,994 6,223,661
Book value per common share $ 5.69 $ 5.24 $ 4.81 $ 6.56 $ 6.21
Tangible book value per common share 5.69 5.23 4.79 6.53 6.16
 

   

PORTER BANCORP, INC.

Unaudited Financial Information

(in thousands, except share and per share data)

 
As of
6/30/17     3/31/17     12/31/16     9/30/16     6/30/16
Asset Quality Data
Loan 90 days or more past due still on accrual $ $ $ $ $
Nonaccrual loans   6,509   8,102   9,216   10,099   11,599
Total non-performing loans 6,509 8,102 9,216 10,099 11,599
Real estate acquired through foreclosures 6,318 6,571 6,821 7,098 12,322
Other repossessed assets          
Total non-performing assets $ 12,827 $ 14,673 $ 16,037 $ 17,197 $ 23,921
 
Non-performing loans to total loans 0.99 % 1.22 % 1.44 % 1.62 % 1.86 %
Non-performing assets to total assets 1.34 1.56 1.70 1.88 2.61
Allowance for loan losses to non-performing loans 136.50 110.66 97.30 93.96 87.11
 
Allowance for loans evaluated individually $ 254 $ 332 $ 399 $ 339 $ 146
Loans evaluated individually for impairment 8,273 9,891 15,131 16,214 25,535
Allowance as % of loans evaluated individually 3.07 % 3.36 % 2.64 % 2.09 % 0.57 %
 
Allowance for loans evaluated collectively $ 8,631 $ 8,634 $ 8,568 $ 9,150 $ 9,958
Loans evaluated collectively for impairment 646,665 654,292 624,105 605,483 598,601
Allowance as % of loans evaluated collectively 1.33 % 1.32 % 1.37 % 1.51 % 1.66 %
 
Allowance for loan losses to total loans 1.36 % 1.35 % 1.40 % 1.53 % 1.62 %
 
Loans by Risk Category
Pass $ 610,356 $ 617,361 $ 586,430 $ 551,075 $ 547,853
Watch 29,433 26,442 30,431 46,049 50,024
Special Mention 604 492 497 603 622
Substandard 14,545 19,888 21,878 23,970 25,637
Doubtful          
Total $ 654,938 $ 664,183 $ 639,236 $ 621,697 $ 624,136
 
Risk-based Capital Ratios - Company
Tier I leverage ratio 5.65 % 5.43 % 5.27 % 6.21 % 5.87 %
Common equity Tier I risk-based capital ratio 5.58 5.29 5.20 6.37 6.11
Tier I risk-based capital ratio 7.46 7.09 6.99 8.48 8.16
Total risk-based capital ratio 10.44 10.15 10.21 11.57 11.31
 
Risk-based Capital Ratios – PBI Bank
Tier I leverage ratio 7.54 % 6.37 % 6.24 % 6.97 % 6.65 %
Common equity Tier I risk-based capital ratio 9.97 8.33 8.28 9.53 9.22
Tier I risk-based capital ratio 9.97 8.33 8.28 9.53 9.22
Total risk-based capital ratio 11.50 9.89 9.88 11.18 10.87
 
FTE employees 221 230 238 233 239
 

Non-GAAP Financial Measures Reconciliation

Tangible book value per common share is a non-GAAP financial measure derived from GAAP-based amounts. We calculate tangible book value per common share by excluding the balance of intangible assets from common stockholders’ equity. We calculate tangible book value per common share by dividing tangible common equity by common shares outstanding, as compared to book value per common share, which we calculate by dividing common stockholders’ equity by common shares outstanding. We believe this is consistent with bank regulatory agency treatment, which excludes tangible assets from the calculation of risk-based capital.

The efficiency ratio is a non-GAAP measure of expense control relative to revenue from net interest income and fee income. We calculate the efficiency ratio by dividing total non-interest expenses as determined under GAAP by net interest income and total non-interest income, but excluding net gains on the sale of securities from the calculation. We believe this provides a reasonable measure of primary banking expenses relative to primary banking revenue.

    As of
6/30/17     3/31/17       12/31/16       9/30/16     6/30/16
Tangible Book Value Per Share (in thousands, except share and per share data)
 
Common stockholder’s equity $ 35,622 $ 32,734 $ 29,962 $ 40,850 $ 38,664
Less: Intangible assets     42   140   239   337
Tangible common equity 35,622 32,692 29,822 40,611 38,327
 
Shares outstanding   6,259,864   6,247,520   6,224,533   6,222,994   6,223,661
Tangible book value per common share $ 5.69 $ 5.23 $ 4.79 $ 6.53 $ 6.16
Book value per common share 5.69 5.24 4.81 6.56 6.21
 
 
Three Months Ended Six Months Ended
6/30/17 3/31/17 6/30/16 6/30/17 6/30/16
Efficiency Ratio (in thousands)
 
Net interest income $ 7,588 $ 7,741 $ 7,196 $ 15,329 $ 14,847
Non-interest income 1,107 1,068 1,152 2,175 2,543
Less: Net gain (loss) on securities   (5 )       (5 )   203
Revenue used for efficiency ratio   8,700   8,809   8,348   17,509   17,187
Non-interest expense 6,986 7,129 7,936 14,115 16,027
 
Efficiency ratio 80.30 % 80.93 % 95.06 % 80.62 % 93.25 %

Contacts

Porter Bancorp, Inc.
John T. Taylor, 502-499-4800
Chief Executive Officer

$Cashtags

Contacts

Porter Bancorp, Inc.
John T. Taylor, 502-499-4800
Chief Executive Officer