Community Bankers Trust Corporation Reports 3rd Quarter 2012 Results

Oct 26, 2012, 08:30 ET from Community Bankers Trust Corporation

GLEN ALLEN, Va., Oct. 26, 2012 /PRNewswire/ -- Community Bankers Trust Corporation (the "Company") (NYSE Amex: BTC), the holding company for Essex Bank (the "Bank"), today reported third quarter 2012 net income of $1.8 million. This compares with net income of $1.4 million in the third quarter of 2011 and net income of $1.2 million in the second quarter of 2012.  Net income available to common stockholders was $1.5 million in the third quarter of 2012 compared with net income available to common stockholders of $1.2 million in the third quarter of 2011 and net income available to common stockholders of $934,000 in the second quarter of 2012.  For the nine months ended September 30, 2012, the Company reported net income of $4.0 million and net income available to common stockholders of $3.2 million.  Net income for the nine month period ended September 30, 2011 was $748,000 and net loss available to common stockholders for the same period was $70,000.

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Rex L. Smith, III, President and Chief Executive Officer of the Company and the Bank, stated,  "We crossed a significant threshold by bringing our five previously deferred TARP payments current in the third quarter, and we did so by increasing our core earnings.  This allows us to consider utilizing future earnings for potential principal payments, as our goal is to pay our TARP principal back without dilution to our stockholders.  This may take some time, but it is a better alternative to potentially pay the higher dividend rate, when it takes effect in 2014, than to suffer any dilution.  We continue to grow in loans and reduce our non-interest expenses, both of which have a substantial positive impact on the future growth of earnings and our ability to enhance franchise value."

Smith continued, "While I am pleased that the trends we have highlighted for you continue to be positive for the Company, we still have work to do to lower our non-performing loans.  We have strong coverage in our allowance for loan losses.  Additionally, we had loan recoveries of $1.6 million during the quarter.  As we go forward, we continue to look at all aspects of our operations, to enhance income or cut costs, whether it involves moving into new products or out of old ones, or putting more resources into a particular market. We will ensure that we can maximize our strengths to enhance the value for our stockholders."  

Key highlights for the third quarter of 2012 include the following:

  • In August, the Company received regulatory approvals to pay its TARP dividend payment due in August, all five of its then remaining deferred TARP dividend payments and its current interest payment due on its trust preferred securities.  The total amount of the payments was $1.4 million, plus interest that had accrued.  The Company is current on its dividend and interest obligations.
  • Recoveries of $1.6 million on previously charged-off loans were received during the third quarter of 2012.  This resulted in net recoveries for the third quarter of $777,000.
  • The ratio of the allowance for loan losses to total loans was 2.56% at September 30, 2012, an increase from 2.46% at June 30, 2012.
  • Noninterest expenses decreased 7.0% on a linked quarter basis, 7.4% year-over-year for the third quarter and 7.8% year-over-year when comparing nine month periods.
  • The ratio of the allowance for loan losses to nonaccrual loans increased to 55.59% and the ratio of the allowance for loan losses to nonperforming assets increased to 37.93% at September 30, 2012.
  • The Company's stock price to common tangible book value was 72.3% at September 30, 2012, up from 46.6% at June 30, 2012.

RESULTS OF OPERATIONS Net income available to common stockholders was $1.5 million, or $0.07 per common share on a diluted basis, for the quarter ended September 30, 2012 compared with net income available to common stockholders of $1.2 million, or $0.05 per common share on a diluted basis, for the quarter ended September 30, 2011. Net income was driven by an increase in noninterest income of $814,000, or 123.0%, and a reduction in noninterest expenses of $643,000, or 7.4%, offset by a decrease in net interest income after provision for loan losses of $765,000, or 6.8%.

Noninterest income was $152,000 for the quarter ended September 30, 2012 compared with negative $662,000 for the third quarter of 2011.  Reduced loss on sale of OREO increased noninterest income $904,000, or 54.1%, from losses and write-downs of $1.7 million in the third quarter of 2011 to losses and write-downs of $767,000 in the third quarter of 2012.  Indemnification asset amortization, which reduces noninterest income, improved $780,000, from $2.4 million in the third quarter of 2011 to $1.6 million in the third quarter of 2012.  Service charges on deposit accounts increased $73,000, from $643,000 in the third quarter of 2011 to $716,000 in the third quarter of 2012, the result of a new fee service structure. 

These increases were offset by a decrease in gains on securities sales of $545,000, from $1.7 million in the third quarter of 2011 to $1.2 million in the third quarter of 2012.  Other noninterest income decreased $398,000, or 39.8%, from $1.0 million in the third quarter of 2011 to $602,000 in the third quarter of 2012, the result of fewer billable losses from charge-offs of loans covered and write-downs and losses on loans under FDIC shared-loss agreements.  Loans charged-off under FDIC shared-loss agreements are recovered at 80% of their contractual value plus collection expense through other noninterest income.

Noninterest expenses were $8.0 million for third quarter of 2012 compared with $8.7 million for the third quarter of 2011.  Legal fees exhibited the largest decrease when comparing the two quarters, $238,000, followed by a reduction in FDIC assessment expense of $212,000 and a decrease in other operating expenses of $170,000.  The decreases in legal fees and other operating expenses are the direct result of an improvement in asset quality as fewer assets migrate to a nonperforming status.

Net interest income after provision for loan losses was $10.5 million for the third quarter of 2012 compared with $11.3 million for the third quarter of 2011.  Margin pressure is increasing as a result of the competitive market for quality credits and a lower volume of liabilities to reprice at lower rates.  Total interest income decreased $1.4 million from the third quarter of 2011 to the third quarter of 2012.  This was partially offset by reduced interest expense of $635,000, from $3.0 million in the third quarter of 2011 to $2.3 million in the third quarter of 2012.

The following table presents summary income statements for the three months ended September 30, 2012, June 30, 2012 and September 30, 2011, and nine months ended September 30, 2012 and 2011.

 

  SUMMARY INCOME STATEMENT

(Dollars in thousands)

For the three months ended

For the nine months ended

September 30,  2012

June 30,  2012

September 30, 2011

September 30, 2012

September 30, 2011

Interest income

$    12,872

$  14,119

$    14,272

$    40,800

$    42,159

Interest expense

2,339

2,587

2,974

7,638

9,364

Net interest income 

10,533

11,532

11,298

33,162

32,795

Provision for loan losses

-

500

-

750

1,498

Net interest income after provision

  for loan losses

10,533

11,032

11,298

32,412

31,297

Noninterest income

152

(704)

(662)

(1,609)

(3,498)

Noninterest expense

8,039

8,645

8,682

25,094

27,229

Net income before income taxes

2,646

1,683

1,954

5,709

570

Income tax (expense) benefit

(837)

(473)

(532)

(1,700)

178

Net income

1,809

1,210

1,422

4,009

748

Dividends on preferred stock

221

221

221

663

663

Accretion of preferred stock discount

55

55

51

165

155

Net income (loss) available to

  common stockholders

$      1,533

$    934

$      1,150

$      3,181

$        (70)

 Net income (loss) per share available

    to common stockholders:

Basic

$        0.07

$   0.04

$        0.05

$        0.15

$     (0.00)

Diluted

$        0.07

$   0.04

$        0.05

$        0.15

$     (0.00)

 

Interest Income Interest income was $12.9 million for the third quarter of 2012, a decrease of $1.2 million, or 8.8%, from interest income of $14.1 million in the second quarter of 2012.  A decrease in interest and fees on FDIC covered loans was the driver of this decrease, down $1.4 million on a linked quarter basis, to $2.9 million for the third quarter of 2012. Interest and fees on FDIC covered loans in the second quarter of 2012 was higher due to a $678,000 cash payment on a loan in the acquisition, development and construction (ADC) portfolio. This portfolio has a zero carrying value, and payments, which are unpredictable, are credited to income when received.  Additionally, FDIC covered loans are a self-liquidating business line and will consistently exhibit declining balances as the carrying value of these loans is reduced.  The carrying value of FDIC covered loans was $89.1 million at September 30, 2012 and $92.9 million at June 30, 2012. 

Year over year, interest income declined $1.4 million, or 9.8%, when comparing the third quarters of 2012 and 2011.  Interest income was $14.3 million in the third quarter of 2011 and declined to $12.9 million in the third quarter of 2012.  Interest and fees on FDIC covered loans declined $1.7 million when comparing the third quarter of 2012 to the third quarter of 2011.  This was due to volume decreases of $10.8 million on the average balance of FDIC covered loans when comparing the third quarter of 2012 to the same period in 2011.  Partially offsetting this decrease was improved interest and fees on loans, which increased $396,000, from $7.3 million in the third quarter of 2011 to $7.7 million in the third quarter of 2012.  This was the result of an increase of $58.2 million, or 11.7%, in the average balance of non-covered loans from the third quarter of 2011 to the third quarter of 2012.

Interest income was $40.8 million for the nine months ended September 30, 2012, a decrease of $1.4 million from interest income of $42.2 million for the nine months ended September 30, 2011.  Interest and fees on FDIC covered loans declined $2.1 million, from $13.3 million for the first nine months of 2011 to $11.2 million for the first nine months of 2012.  Additionally, securities income declined $325,000, from $6.9 million for the nine months ended September 30, 2011 to $6.6 million for the nine months ended September 30, 2012. The yield on investment securities declined from 3.35% in the third quarter of 2011 to 3.03% for the nine months ended September 30, 2012 as management repositioned a large portion of the portfolio into variable rate securities.  Offsetting these decreases was an increase of $1.1 million in interest and fees on loans, from $21.9 million for the first nine months of 2011 to $23.0 million for the first nine months of 2012.  The average balance of non-covered loans increased $45.7 million, or 9.0%, for the first nine months of 2012 compared with the same period in 2011.   

Interest Expense Interest expense was $2.3 million for the third quarter of 2012 compared with interest expense of $2.6 million in the second quarter of 2012.  Average interest bearing liabilities increased $2.7 million, or 0.3% during the quarter.  However, the cost of interest bearing liabilities declined from 1.13% in the second quarter of 2012 to 1.02% in the third quarter of 2012.  This resulted in a decrease of $248,000, or 9.6%, in the cost of interest bearing liabilities on a linked quarter basis.  The continued decline in interest expense is the result of higher than projected demand deposit balances, which has allowed management to reprice certificate of deposit maturities at lower rates, and the renewal of $22.0 million in maturing FHLB advances at lower rates.

Year over year, interest expense declined $635,000, from $3.0 million in the third quarter of 2011 to $2.3 million in the third quarter of 2012. The 21.4% decrease resulted from decreases in cost.  The cost of interest bearing liabilities declined from 1.34% in the third quarter of 2011 to 1.02% in the third quarter of 2012.  The cost of deposits declined from 1.24% in the third quarter of 2011 to 0.95% for the third quarter of 2012.  The cost of FHLB and other borrowings also exhibited improvement, from 3.43% in the third quarter of 2011 to 2.56% in the third quarter of 2012.

Interest expense declined $1.7 million from $9.4 million for the nine months ended September 30, 2011 to $7.6 million for the nine months ended September 30, 2012.  This decline of 18.4% was driven by a reduction in the cost of interest bearing liabilities from 1.39% for the first nine months of 2011 to 1.12% for the first nine months in 2012.

Net Interest Income Net interest income was $10.5 million for the quarter ended September 30, 2012, compared with $11.5 million for the quarter ended June 30, 2012.  This represents a decrease of $1.0 million, or 8.7%.  Of this decrease, $678,000 was directly attributable to the payment on an ADC loan previously discussed. On a tax equivalent basis, net interest income was $10.6 million for the third quarter of 2012 compared with tax equivalent net interest income of $11.6 million for the second quarter of 2012.  The tax equivalent net interest margin decreased from 4.78% in the second quarter of 2012 to 4.32% in the third quarter of 2012. This was due to a decline in net interest spread, from 4.71% to 4.25%, on a linked quarter basis. 

Year over year, net interest income decreased $765,000, or 6.8%, from $11.3 million in the third quarter of 2011 to $10.5 million in the third quarter of 2012.  This was primarily the result of a decrease in the Company's interest spread, from 4.85% in the third quarter of 2011 to 4.25% in the third quarter of 2012.  This decreased the Company's net interest margin from 4.91% in the third quarter of 2011 to 4.32% for the same period in 2012. 

Net interest income was $33.2 million for the nine months ended September 30, 2012, compared with $32.8 million for the nine months ended September 30, 2011.  The increase in net interest income was $367,000.  A decline of $1.6 million in the tax-equivalent yield on earning assets was virtually offset by a decline of $1.7 million in the cost of interest bearing liabilities, which resulted in the increase of 1.1% in net interest income.  The tax equivalent net interest margin decreased from 4.73% in the first nine months of 2011 to 4.58% in the first nine months of 2012. 

The following table compares the Company's net interest margin, on a tax-equivalent basis, for the three months ended September 30, 2012 and 2011, and June 30, 2012, and for the nine months ended September 30, 2012 and 2011.  

 

NET INTEREST MARGIN

(Dollars in thousands)

For the three months ended

September 30, 2012

September 30,

2011

June 30,

2012

Average interest earning assets

$      981,090

$      928,574

$      971,151

Interest Income

$        12,872

$        14,272

$        14,119

Interest income - tax equivalent

$        12,932

$        14,377

$        14,180

Yield on interest earning assets

5.27%

6.19%

5.84%

Average interest bearing liabilities

$      915,514

$      888,366

$      912,831

Interest expense

$          2,339

$          2,974

$          2,587

Cost of interest bearing liabilities

1.02%

1.34%

1.13%

Net interest income

$        10,533

$        11,298

$        11,532

Net interest income - tax equivalent

$        10,593

$        11,403

$        11,593

Interest Spread

4.25%

4.85%

4.71%

Net interest margin

4.32%

4.91%

4.78%

For the nine months ended

September 30,

2012

September 30,

2011

Average interest earning assets

$      970,701

$      935,873

Interest Income

$        40,800

$        42,159

Interest income - tax equivalent

$        40,982

$        42,593

Yield on interest earning assets

5.63%

6.07%

Average interest bearing liabilities

$      912,070

$      901,404

Interest expense

$          7,638

$          9,364

Cost of interest bearing liabilities

1.12%

1.39%

Net interest income

$        33,162

$        32,795

Net interest income - tax equivalent

$        33,344

$        33,229

Interest Spread

4.51%

4.68%

Net interest margin

4.58%

4.73%

 

Provision for Loan Losses There was no provision for loan losses for the quarters ended September 30, 2012 and September 30, 2011.  The provision for loan losses was $750,000 for the nine months ended September 30, 2012 compared with $1.5 million for the nine months ended September 30, 2011.

The Company records a separate provision for loan losses for its non-covered loan portfolio and its FDIC covered loan portfolio.  Neither portfolio had a provision for the third quarter of 2012 or 2011.  The provision for loan losses on non-covered loans was $1.0 million for the nine months ended September 30, 2012 compared with $1.5 million for the nine months ended September 30, 2011.  The provision for loan losses on covered loans was a $250,000 credit for the first nine months of 2012, which was the result of improvement in expected losses on the Company's FDIC covered portfolio, which the Company recognized in the first quarter of the year.  There was no provision for the covered loan portfolio for the nine months ended September 30, 2011.

For the nine months ended September 30, 2012, net charge-offs were $1.5 million compared with $6.7 million for the same period in 2011.  Total charge-offs were $3.5 million for the first nine months of 2012 and $7.2 million for the same period in 2011.  Recoveries for the nine month comparison period were $2.0 million in 2012, including $1.6 million in the third quarter, and $453,000 in 2011. Management's aggressive strategy to work nonperforming loans and other real estate owned is evidenced in the volume of charge-offs as well as the level of the loan loss reserve.

Noninterest Income Noninterest income was $152,000 for the third quarter of 2012 compared with negative $704,000 for the second quarter of 2012. Noninterest income in both periods is negatively affected by two factors--FDIC indemnification asset amortization and loss on OREO.  The largest component of noninterest income was FDIC indemnification asset amortization, which reduces noninterest income, and was $1.6 million in the third quarter of 2012 and $2.0 million in the second quarter of 2012. By amortizing the FDIC indemnification asset, the Company is reducing the asset and recognizing interest income from borrowers of loans covered by FDIC shared loss agreements.  Loss on OREO was $767,000 in the third quarter of 2012 ($254,000 covered and $512,000 non-covered) and $229,000 in the second quarter of 2012. Management proactively assesses other real estate owned and as a result wrote down values by $477,000 in the third quarter of 2012.

Noninterest income was positively affected by $1.2 million in net gain on sale of securities recognized in the third quarter of 2012 and $290,000 in similar gain the second quarter of 2012.  Also positively affecting noninterest income on a linked quarter basis was an increase in other noninterest income of $58,000, from $544,000 in the second quarter of 2012 to $602,000 in the third quarter of 2012.  Service charges on deposit accounts were $716,000 and $674,000, respectively, in the third quarter and second quarter of 2012.

Year over year, noninterest income increased $814,000, from negative $662,000 in the third quarter of 2011, to $152,000 in the third quarter of 2012.  Gain/(loss) on sale of OREO was the largest contributor to this increase and improved from a loss of $1.7 million in the third quarter of 2011 to a loss of $767,000 in the third quarter of 2012. Indemnification asset amortization also improved, from $2.4 million in the third quarter of 2011 to $1.6 million in the third quarter of 2011.  Service charges on deposit accounts increased $73,000 from the third quarter of 2011 to the same period in 2012.  Offsetting these increases was a reduction of $545,000 in gain/(loss) on sale of securities and a reduction in other noninterest income of $398,000 when comparing the two quarters.

For the nine months ended September 30, 2012, noninterest income equaled negative $1.6 million, compared with negative $3.5 million for the nine months ended September 30, 2011. This change was due primarily to a reduction in FDIC indemnification asset amortization of $2.3 million, from $7.8 million for the first nine months of 2011 to $5.4 million for the same period in 2012.  Also improving noninterest income performance was a $1.3 million reduction in  gain/(loss) on sale of OREO, from a loss of $2.5 million for the first nine months of 2011 to $1.2 million for the same period in 2012.  Service charges on deposit accounts increased 8.1%, or $151,000, from $1.9 million for the first nine months of 2011 to $2.0 million for the same period in 2012.  Offsetting these increases was a decrease in gain on sale of securities of $1.2 million, from $2.6 million for the first nine months of 2011 to $1.4 million for the same period in 2012.  Other noninterest income declined in the nine month period ended September 30, 2012 compared with the same period in 2011.  Other noninterest income was $1.6 million for the nine months ended September 30, 2012 and $2.4 million for the nine months ended September 30, 2011.  This decrease reflects fewer reimbursable loss events in FDIC covered loans.

Noninterest Expense On a linked quarter basis, noninterest expenses totaled $8.0 million for the three months ended September 30, 2012 compared with $8.6 million for the quarter ended June 30, 2012, a decrease of $606,000, or 7.0%.  Other operating expenses exhibited the largest decline, $236,000, or 13.2%.  Salaries and employee benefits declined $149,000, or 3.6%, and were $4.0 million in the third quarter of 2012 compared with $4.2 million for the second quarter of 2012.  FDIC assessment declined $128,000, on a linked quarter basis, and was $368,000 in the third quarter of 2012 compared with $496,000 in the second quarter of 2012.  The decrease is related to an adjustment in the amortization of the FDIC's 2010 prepaid assessment.  Professional fees declined by 50.0%, on a linked quarter basis, and were $74,000 in the third quarter of 2012 compared with $148,000 in the second quarter of 2012.  All expense categories declined, on a linked quarter basis, with the exception of occupancy expenses, as management continues to search for further operating efficiencies.

Noninterest expenses declined $643,000, or 7.4%, when comparing the third quarter of 2012 to the same period in 2011.  Legal fees were the largest category decrease and were $3,000 in the third quarter of 2012 compared with $241,000 in the third quarter of 2011.  Also seeing significant declines were FDIC assessment expenses, which declined $212,000, from $580,000 in the third quarter of 2011 to $368,000 in the third quarter of 2012.

For the nine months ended September 30, 2012, noninterest expenses declined $2.1 million, or 7.8%, when compared with the same period in 2011.  Noninterest expenses were $27.2 million for the first nine months of 2011 and declined to $25.1 million for the first nine months in 2012.  FDIC assessment was the largest category decrease, which declined from $2.2 million for the first nine months in 2011 to $1.4 million for the same period in 2012, a decrease of $764,000, or 34.5%.  Other operating expenses declined $664,000, or 12.1%, and were $4.8 million for the third quarter of 2012, down from $5.5 million for the same period in 2011.  Legal fees declined $339,000, or 89.0%, and were $42,000  for the nine months ended September 30, 2012, down from $381,000 for the same period in  2011.  Occupancy declined $210,000, or 9.4%, and were $2.0 million for the first nine months of 2012, down from $2.2 million for the same period in 2011.  Professional fees declined $150,000, or 32.8%, and were $307,000 for the first nine months of 2012 compared with $457,000 for the same period in 2011.  Reducing these improvements in noninterest income were an increase of $82,000, or 5.8%, in data processing expenses and an increase of $18,000 in salaries and employee benefits from the first nine months of 2011 to the first nine months of 2012.

Income Taxes Income tax expense was $837,000 for the three months ended September 30, 2012, compared with income tax expense of $473,000 in the second quarter of 2012.  Income tax was $532,000 in the third quarter of 2011. For the nine months ended September 30, 2012, income tax expense was $1.7 million compared with income tax benefit of $178,000 for the nine months ended September 30, 2011.

FINANCIAL CONDITION At September 30, 2012, the Company had total assets of $1.112 billion, an increase of $19.8 million, or 1.8%, from total assets of $1.092 billion at December 31, 2011. Total loans were $648.7 million at September 30, 2012, increasing $6.4 million, or 1.0%, from $642.3 million at December 31, 2011.   The carrying value of FDIC covered loans declined $8.4 million, or 8.7%, from December 31, 2011 and were $89.1 million at September 30, 2012. Non-covered loans equaled $559.5 million at September 30, 2012, increasing $14.8 million, or 2.7%, since December 31, 2011.  

Non-covered loans, net of unearned income, increased $10.5 million, or 1.9%, during the third quarter of 2012, and were $559.5 million at September 30, 2012.  Multifamily loans exhibited the largest percentage increase, 8.4%, or $1.7 million, and were $22.0 million at September 30, 2012.  Commercial loans increased 5.4%, or $3.7 million, and were $73.4 million at September 30, 2012.  Residential 1-4 family mortgage loans increased 2.3%, or $2.9 million, and commercial real estate loans grew 2.0%, or $4.6 million during the third quarter of 2012.

The following table shows the composition of the Company's non-covered loan portfolio at September 30, 2012, June 30, 2012 and December 31, 2011.

 

NON-COVERED LOANS

(Dollars in thousands)

September 30, 2012

June 30, 2012

December 31, 2011

Amount

% of Non-Covered Loans

Amount

% of Non-Covered Loans

Amount

% of Non-Covered Loans

Mortgage loans on real estate:

Residential 1-4 family

$131,192

23.44%

$128,256

23.36%

$127,200

23.34%

Commercial

241,692

43.18%

237,070

43.18%

220,471

40.46%

Construction and land development

64,304

11.49%

65,044

11.85%

75,691

13.89%

Second mortgages

7,569

1.35%

8,519

1.55%

8,129

1.49%

Multifamily

22,018

3.93%

20,308

3.70%

19,746

3.62%

Agriculture

10,527

1.88%

10,663

1.93%

11,444

2.10%

   Total real estate loans

477,302

85.27%

469,860

85.57%

462,681

84.90%

Commercial loans

73,415

13.12%

69,682

12.69%

72,149

13.24%

Consumer installment loans

7,442

1.33%

7,975

1.45%

8,461

1.55%

All other loans

1,565

0.28%

1,567

0.29%

1,659

0.31%

   Gross loans

559,724

100.00%

549,084

100.00%

544,950

100.00%

Allowance for loan losses

(14,303)

(13,526)

(14,835)

Net unearned income on

     loans

(192)

(66)

(232)

Non-covered loans, net of unearned income

$545,229

$535,492

$529,883

 

The Company's securities portfolio, excluding equity securities, increased $7.9 million, or 2.7%, during the first nine months of 2012 to $305.1 million, with realized gains of $1.4 million, through sales activity. These net gains were taken during the year in a portfolio repositioning strategy to mitigate interest rate risk in a higher rate environment.  In a higher rate environment, the liquidity of fixed rate securities is compromised and interest rate risk increases.  Management has shifted from mortgage-backed securities balances to floating rate securities issued by the Small Business Administration (SBA) and high quality state, county and municipalities.

The Company had cash and cash equivalents of $37.4 million at September 30, 2012, compared with $21.8 million at December 31, 2011.  There were $5.0 million in Federal funds sold at September 30, 2012, compared with no Federal funds sold at December 31, 2010. 

On a linked quarter basis, the Company's securities portfolio, excluding equity securities, decreased $7.6 million, from $312.6 million at June 30, 2012 to $305.1 million at September 30, 2012, and $1.2 million in gains were realized during the third quarter.  Available-for-sale mortgage backed securities declined by $12.7 million and balances in available-for-sale state, county and municipal balances decreased by $10.0 million.  Balances in U.S. Treasury and other U.S. Government agencies increased by $20.7 million as management continued its strategy of buying SBA floating rate securities as a tool to mitigate interest and liquidity risks in a higher rate environment.

The following table shows the composition of the Company's securities portfolio, excluding equity securities, at September 30, 2012, June 30, 2012 and December 31, 2011.

 

SECURITIES PORTFOLIO

(Dollars in thousands)

September 30, 2012

June 30, 2012

December 31, 2011

 Amortized Cost

 Fair Value

 Amortized Cost

 Fair Value

 Amortized Cost

 Fair Value

Securities Available for Sale

U.S. Treasury issue and other

      U.S. Government agencies

$      111,523

$110,899

$  90,316

$    90,159

$     7,255

$    7,414

U.S. Government sponsored agencies

502

509

502

514

1,005

1,033

State, county and municipal

100,847

105,738

110,069

115,742

58,183

62,043

Corporate and other bonds

6,535

6,608

7,767

7,698

4,801

4,631

Mortgage backed securities (MBS)

16,888

17,236

19,113

19,418

73,616

74,093

MBS - U.S. Government sponsored agencies

15,422

15,404

25,840

25,896

82,966

83,550

  Total securities available for sale

$      251,717

$ 256,394

$  253,607

$  259,427

$  227,826

$  232,764

September 30, 2012

June 30, 2012

December 31, 2011

 Amortized Cost

 Fair Value

 Amortized Cost

 Fair Value

 Amortized Cost

 Fair Value

Securities Held to Maturity

State, county and municipal

$        11,832

$   13,054

$  12,154

$    13,393

$    12,168

$    13,479

Mortgage backed securities (MBS)

10,099

10,820

11,218

11,974

12,743

13,565

MBS - U.S. Government sponsored agencies

26,758

28,139

29,835

31,305

39,511

41,541

  Total securities held to maturity

$        48,689

$   52,013

$  53,207

$    56,672

$    64,422

$    68,585

 

Interest bearing deposits at September 30, 2012 were $862.4 million, a decrease of $6.2 million from December 31, 2011. Time deposits less than $100,000 declined $34.0 million during the first nine months of 2012 as management kept rates low among all regions as loan demand remained tepid and covered loans continued to decline in volume. NOW accounts declined $11.6 million and money market deposit accounts declined $2.1 million during the first nine months of 2012.  During the third quarter of 2012, the Company obtained a short-term, low cost public fund deposit of $20 million, which resulted in an increase in time deposits greater than $100,000 of $35.0 million during the first nine months of 2012. Savings accounts increased $6.6 million during the first nine months of 2012.  The Company's total loan-to-deposit ratio was 69.0% at September 30, 2012 compared with 68.8% at December 31, 2011.

The following table compares the mix of interest bearing deposits for September 30, 2012, December 31, 2011 and September 30, 2011.

 

INTEREST BEARING DEPOSITS

(Dollars in thousands)

September 30, 2012

December 31, 2011

September 30, 2011

NOW

$                   117,120

$                  128,758

$                   110,538

MMDA

113,288

115,397

117,910

Savings

76,499

69,872

68,349

Time deposits less than $100,000

292,374

326,383

329,395

Time deposits $100,000 and over

263,087

228,128

221,395

   Total interest bearing deposits

$                   862,368

$                  868,538

$                   847,587

 

The Company had Federal Home Loan Bank (FHLB) advances of $50.0 million at September 30, 2012 and $37.0 million at December 31, 2011.  During the third quarter of 2012 the Company obtained an additional $13.0 million in FHLB advances, as well as rolling over $22.0 million in maturing advances at much lower rates than was being carried prior to their maturities during the quarter.   At June 30, 2012 the Company's blended rate on its $37.0 million in advances was 3.21% and at September 30, 2012 the blended rate on the $50.0 million in advances is 1.25%.  The Company anticipates that the repricing on the $37.0 million will result in approximately $480,000 in after tax savings and net after tax savings on total FHLB borrowings will be approximately $370,000.

Stockholders' equity was $113.1 million at September 30, 2012 and $111.1 million at December 31, 2011, both periods reflecting ratios that were 10.2% of total assets. Stockholders' equity was $110.7 million, or 10.3% of total assets, at September 30, 2011.

Since September 30, 2010, the Company, through its balance sheet management strategy, has increased its common tangible equity to common tangible asset ratio from 6.74% at September 30, 2010 to 7.62% at September 30, 2011 to 7.74% at September 30, 2012.  Additionally, the common tangible book value increased from $3.59 at September 30, 2010 to 3.67% at September 30, 2011 to $3.87 at September 30, 2012.  See the "Non-GAAP Financial Measures" table for additional information.

Asset Quality – non-covered assets Nonaccrual loans were $25.7 million at September 30, 2012, compared with $25.2 million at June 30, 2012 and $36.2 million at September 30, 2011. The increase from June 30, 2012 was comprised of $3.4 million in additions to nonaccrual loans, $1.1 million of loans removed from nonaccrual status and $1.8 million in payments on loans in nonaccrual. Total nonperforming assets increased $674,000, from $37.0 million at June 30, 2012 to $37.7 million at September 30, 2012. Total nonperforming assets have decreased $7.4 million, or 16.4%, from total nonperforming assets of $45.1 million at September 30, 2011.  There were net recoveries of $777,000 for the third quarter of 2012, primarily the result of recoveries of $1.6 million of previously charged-off loans.  Total charge-offs for the third quarter of 2012 were $819,000 and recoveries were $1.6 million.  Non-covered other real estate owned increased slightly, $27,000, and was $11.9 million at September 30, 2012.  Non-covered other real estate owned was $497,000 higher at September 30, 2011, or $12.4 million. The change in non-covered other real estate owned during the third quarter of 2012 was reflected in additions of $1.0 million and reductions by sales of $483,000, write-downs of $477,000.

The allowance for loan losses equaled 55.59% of non-covered nonaccrual loans at September 30, 2012, compared with 53.74% of non-covered nonaccrual loans at June 30, 2012 and 43.57% at September 30, 2011. The ratio of allowance for loan losses to total non-covered loans was 37.93% at September 30, 2012, compared with 36.52% at June 30, 2012 and 34.94% at September 30, 2011.  Nonperforming assets to loans and other real estate has declined from 8.78% at September 30, 2011 to 6.60% at September 30, 2012.

The following table reconciles the activity in the Company's non-covered allowance for loan losses, by quarter, for the past six quarters.

 

CREDIT QUALITY

(Dollars in thousands)

2012

2012

2012

2011

2011

2011

Third

Second

First

Fourth

Third

Second

Quarter

Quarter

Quarter

Quarter

Quarter

Quarter

Allowance for non-covered loan losses:

Beginning of period

$     13,526

$     13,935

$      14,835

$     15,764

$      16,803

$      21,542

Provision for loan losses

-

500

500

-

-

-

Charge-offs

(819)

(1,147)

(1,557)

(969)

(1,366)

(4,825)

Recoveries

1,596

238

157

40

327

86

 (Charge-offs)/recoveries

777

(909)

(1,400)

(929)

(1,039)

(4,739)

End of period

$     14,303

$     13,526

$     13,935

$     14,835

$     15,764

$    16,803

 

The following table sets forth selected asset quality data, excluding FDIC covered assets, and ratios for the dates  indicated:

 

ASSET QUALITY (NON-COVERED)

(Dollars in thousands)

2012

2011

September 30

June 

30

March 31

December 31

September 30

June

 30

Nonaccruing loans

$25,730

$25,168

$25,601

$28,542

$36,177

$37,736

Loans past due over 90 days and accruing interest

85

-

403

2,005

80

-

Total nonperforming non-covered loans

$25,815

$25,168

$26,004

$30,547

$36,257

$37,736

Other real estate owned non-covered

11,896

11,869

12,696

10,252

8,858

12,393

Total nonperforming non-covered assets

$37,711

$37,037

$38,700

$40,799

$45,115

$50,129

Allowance for loan losses to loans

2.56%

2.46%

2.54%

2.72%

3.12%

3.35%

Allowance for loan losses to nonperforming assets

37.93%

36.52%

36.01%

36.36%

34.94%

33.52%

Allowance for loan losses to nonaccrual loans

55.59%

53.74%

54.43%

51.98%

43.57%

44.53%

Nonperforming assets to loans and other real

   estate

6.60%

6.60%

6.89%

7.35%

8.78%

9.76%

Net charge-offs/(recovery) for quarter to average

   loans, annualized

(0.56%)

0.66%

1.02%

0.71%

0.83%

3.74%

 

A further breakout of nonaccrual loans, excluding covered loans, at September 30, 2012, June 30, 2012 and December 31, 2011 is below:

 

NON-COVERED NONACCRUAL LOANS

(Dollars in thousands)

September 30, 2012

June 30, 2012

December 31, 2011

Amount

% of Non-Covered Loans

Amount

% of Non-Covered Loans

Amount

% of Non-Covered Loans

Mortgage loans on real estate:

Residential 1-4 family

$  5,474

0.98%

$  6,577

1.20%

$  5,320

0.98%

Commercial

8,916

1.59%

7,768

1.41%

9,187

1.69%

Construction and land development

10,318

1.84%

9,759

1.78%

12,718

2.33%

Second mortgages

140

0.03%

140

0.03%

189

0.03%

Multifamily

-

-

-

-

-

-

Agriculture

54

0.01%

54

0.01%

53

0.01%

   Total real estate loans

24,902

4.45%

24,298

4.43%

27,467

5.04%

Commercial loans

703

0.13%

695

0.13%

1,003

0.18%

Consumer installment loans

125

0.02%

175

0.03%

72

0.01%

All other loans

-

-

-

-

-

-

   Gross loans

25,730

4.60%

25,168

4.59%

28,542

5.23%

 

Capital Requirements Total Stockholders' equity was $113.1 million at September 30, 2012.  The Company's ratio of total risk-based capital was 16.8% at September 30, 2012 compared to 16.2% at December 31, 2011.  The tier 1 risk-based capital ratio was 15.6% at September 30, 2012 and 15.0% at December 31, 2011. The Company's tier 1 leverage ratio was 9.3% at September 30, 2012 and 8.9% at December 31, 2011.  All capital ratios exceed regulatory minimums.

About Community Bankers Trust Corporation The Company is the holding company for Essex Bank, a Virginia state bank with 24 full-service offices, 13 of which are in Virginia, seven of which are in Maryland and four of which are in Georgia.  The Company also operates one loan production office.  Additional information is available on the Company's website at www.cbtrustcorp.com.

Earnings Conference Call and Webcast The Company will host a conference call for the financial community on Friday, October 26, 2012, at 11:00 a.m. Eastern Time to discuss the third quarter 2012 financial results. The public is invited to listen to this conference call by dialing 800-860-2442 at least five minutes prior to the call.  Interested parties may also listen to this conference call through the internet by accessing the "Corporate Overview – Corporate Profile" page of the Company's internet site at www.cbtrustcorp.com.

A replay of the conference call will be available from 1:00 p.m. Eastern Time on October 26, 2012 until 9:00 a.m. Eastern Time on November 5, 2012. The replay will be available by dialing 877-344-7529 and entering access code 10019727 or through the internet by accessing the "Corporate Overview – Corporate Profile" page of the Company's internet site at www.cbtrustcorp.com.

Forward-Looking Statements This release contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that are subject to risks and uncertainties. These forward-looking statements include, without limitation, statements with respect to the Company's operations, performance, future strategy and goals. Actual results may differ materially from those included in the forward-looking statements due to a number of factors, including, without limitation, the effects of and changes in the following: the quality or composition of the Company's loan or investment portfolios, including collateral values and the repayment abilities of borrowers and issuers; assumptions that underlie the Company's allowance for loan losses; general economic and market conditions, either nationally or in the Company's  market areas; the ability of the Company to comply with regulatory actions, and the costs associated with doing so; the interest rate environment; competitive pressures among banks and financial institutions or from companies outside the banking industry; real estate values; the demand for deposit, loan, and investment products and other financial services; the demand, development and acceptance of new products and services; the Company's compliance with, and the timing of future reimbursements from the FDIC to the Company under, the shared loss agreements; assumptions and estimates that underlie the accounting for loan pools under the shared loss agreements; consumer profiles and spending and savings habits; the securities and credit markets; costs associated with the integration of banking and other internal operations; management's evaluation of goodwill and other assets on a periodic basis, and any resulting impairment charges, under applicable accounting standards; the soundness of other financial institutions with which the Company does business; inflation; technology; and legislative and regulatory requirements. Many of these factors and additional risks and uncertainties are described in the Company's Annual Report on Form 10-K for the year ended December 31, 2011 and other reports filed from time to time by the Company with the Securities and Exchange Commission. This press release speaks only as of its date, and the Company disclaims any duty to update the information in it.

 

 

Consolidated Statements of Financial Condition Unaudited Condensed (Dollars in thousands)

September 30, 2012

December 31, 2011

September 30, 2011

     Assets

Cash and due from banks

$                15,116

$               11,078

$               16,138

Interest bearing bank deposits

17,298

10,763

37,250

Federal funds sold

5,000

-

-

  Total cash and cash equivalents

37,414

21,751

53,388

Securities available for sale, at fair value

256,394

232,764

216,545

Securities held to maturity

48,689

64,422

68,342

Equity securities, restricted, at cost

7,351

6,872

6,954

  Total securities

312,434

304,058

291,841

Loans held for resale

1,736

580

-

Loans not covered by FDIC shared loss    agreements

559,532

544,718

505,165

Loans covered by FDIC loss share agreements

89,121

97,561

100,044

Allowance for loan losses (non-covered)

(14,303)

(14,835)

(15,764)

Allowance for loan losses (covered)

(456)

(776)

(776)

  Net loans

633,894

626,668

588,669

Bank premises and equipment

34,002

35,084

35,436

Other real estate owned

11,896

10,252

8,858

Covered FDIC other real estate owned

2,943

5,764

7,235

FDIC receivable

715

1,780

3,037

Bank owned life insurance

15,008

14,592

7,027

Core deposit intangibles, net

10,862

12,558

13,123

FDIC indemnification asset

36,191

42,641

46,962

Other assets

15,182

16,768

16,992

    Total assets

$            1,112,277

$           1,092,496

$           1,072,568

     Liabilities

Deposits:

    Noninterest bearing

78,388

64,953

68,029

    Interest bearing

862,368

868,538

847,587

      Total deposits

940,756

933,491

915,616

Federal Home Loan Bank advances

50,000

37,000

37,000

Trust preferred capital notes

4,124

4,124

4,124

Other liabilities

4,259

6,701

5,102

    Total liabilities

999,139

981,316

961,842

     Stockholders' Equity

Preferred stock (5,000,000 shares authorized $0.01 par value) 17,680 shares issued and outstanding

17,680

17,680

17,680

Discount on preferred stock

(289)

(454)

(505)

Warrants on preferred stock

1,037

1,037

1,037

Common stock (200,000,000 shares authorized $0.01 par value; 21,656,951 shares, 21,627,549 shares, and 21,627,549 shares, issued and outstanding, respectively)

217

216

216

Additional paid in capital

144,351

144,243

144,181

Accumulated deficit

(51,906)

(53,761)

(54,406)

Accumulated other comprehensive income

2,048

2,219

2,523

   Total stockholders' equity

$               113,138

$              111,180

$              110,726

   Total liabilities and stockholders' equity

$            1,112,277

$           1,092,496

$           1,072,568

 

Consolidated Statements of Operations Unaudited Condensed (Dollars in thousands)

Three months ended

Nine months ended

September 30,

2012

June 30,

2012

September 30,

2011

September 30,

2012

September 30,

2011

 Interest and dividend income

 Interest and fees on loans

$    7,710

$    7,574

$    7,314

$  22,971

$  21,877

 Interest and fees on FDIC covered loans

2,931

4,366

4,667

11,211

13,325

 Interest on federal funds sold

-

3

1

4

5

 Interest on deposits in other banks

9

19

28

40

53

 Investments (taxable)

2,103

2,039

2,058

6,219

6,055

 Investments (nontaxable)

119

118

204

355

844

 Total interest income

12,872

14,119

14,272

40,800

42,159

 Interest expense

 Interest on deposits

2,056

2,241

2,621

6,650

8,312

 Interest on federal funds purchased

3

3

-

6

1

 Interest on other borrowed funds

280

343

353

982

1,051

 Total interest expense

2,339

2,587

2,974

7,638

9,364

 Net interest income

10,533

11,532

11,298

33,162

32,795

 Provision for loan losses

-

500

-

750

1,498

 Net interest income after provision    for loan losses

10,533

11,032

11,298

32,412

31,297

 Noninterest income

 Loss on sale of OREO

(767)

(229)

(1,671)

(1,173)

(2,532)

 FDIC indemnification asset amortization

(1,579)

(1,983)

(2,359)

(5,444)

(7,762)

 Gain on sale of securities

1,180

290

1,725

1,354

2,563

 Service charges on deposit accounts

716

674

643

2,007

1,856

 Other 

602

544

1,000

1,647

2,377

 Total Non Interest Income

152

(704)

(662)

(1,609)

(3,498)

 Noninterest expense

 Salaries and employee benefits

4,028

4,177

4,050

12,443

12,425

 Occupancy expenses

708

685

687

2,024

2,234

 Equipment expenses

266

270

289

831

938

 Legal fees

3

15

241

42

381

 Professional fees

74

148

68

307

457

 FDIC assessment

368

496

580

1,448

2,212

 Data processing fees

473

499

478

1,489

1,407

 Amortization of intangibles

565

565

565

1,695

1,696

 Other operating expenses

1,554

1,790

1,724

4,815

5,479

 Total noninterest expense

8,039

8,645

8,682

25,094

27,229

 Net income before income taxes

2,646

1,683

1,954

5,709

570

 Income tax (expense)/benefit

(837)

(473)

(532)

(1,700)

178

 Net income

$    1,809

$    1,210

$      1,422

$     4,009

$       748

 Dividends  on preferred stock

221

221

221

663

663

 Accretion of discount on preferred stock

55

55

51

155

155

 Net income/(loss) available to common

    stockholders

$  1,533

$      934

$  1,150

$  3,181

$      (70)

 

Income Statement Trend Analysis Unaudited Condensed (Dollars in thousands)

Three months ended

Three months ended

September 30,

June

30,

March 31,

December 31,

September 30,

2012

2012

2012

2011

2011

Interest and dividend income

Interest and fees on loans

$     7,710

$   7,574

$  7,687

$   7,396

$     7,314

Interest and fees on FDIC covered 

   loans

2,931

4,366

3,914

4,251

4,667

Interest on federal funds sold

-

3

1

1

1

Interest on deposits in other banks

9

19

12

13

28

Investments (taxable)

2,103

2,039

2,077

2,036

2,058

Investments (nontaxable)

119

118

118

180

204

Total interest income

12,872

14,119

13,809

13,877

14,272

Interest expense

Interest on deposits

2,056

2,241

2,353

2,504

2,621

Interest on federal funds purchased

3

3

-

-

-

Interest on other borrowed funds

280

343

359

360

353

Total interest expense

2,339

2,587

2,712

2,864

2,974

Net interest income

10,533

11,532

11,097

11,013

11,298

Provision for loan losses

-

500

250

-

-

Net interest income after provision for loan  

     losses                          

10,533

11,032

10,847

11,013

11,298

Noninterest income

Loss on sale of OREO

(767)

(229)

(177)

(337)

(1,671)

FDIC indemnification asset

   amortization

(1,579)

(1,983)

(1,882)

(2,603)

(2,359)

Gains/(loss) on sale of securities

1,180

290

(116)

306

1,725

Service charges on deposit accounts

716

674

617

647

643

Other

602

544

501

535

1,000

Total noninterest income

152

(704)

(1,057)

(1,452)

(662)

Noninterest expense

Salaries and employee benefits

4,028

4,177

4,238

4,178

4,050

Occupancy expenses

708

685

631

660

687

Equipment expenses

266

270

295

298

289

Legal fees

3

15

24

63

241

Professional fees

74

148

85

126

68

FDIC assessment

368

496

584

575

580

Data processing fees

473

499

517

459

478

Amortization of intangibles

565

565

565

565

565

Other operating expenses

1,554

1,790

1,471

1,703

1,724

Total noninterest expense

8,039

8,645

8,410

8,627

8,682

Net income before income

   tax

2,646

1,683

1,380

934

1,954

Income tax (expense) benefit

(837)

(473)

(390)

(239)

(532)

Net income

$     1,809

$   1,210

$    990

$       695

$     1,422

  Dividends on preferred stock

221

221

221

221

221

  Accretion of discount on preferred stock

55

55

55

51

51

Net income available to common stockholders

$     1,533

$      934

$    714

$       423

$     1,150

 

 

Three months ended September 30, 2012

Three months September 30, 2011

Average

Average

Average

Interest

Rates

Average

Interest

Rates

Balance

Income/

Earned/

Balance

Income/

Earned/

Sheet

Expense

Paid

Sheet

Expense

Paid

ASSETS:

Loans, including fees

$         556,355

$        7,710

5.54%

$         498,201

$        7,314

5.87%

Loans covered by FDIC loss share

91,036

2,931

12.88%

101,828

4,667

18.33%

   Total loans

647,391

10,641

6.57%

600,029

11,981

7.99%

Interest bearing bank balances

16,057

9

0.23%

48,462

28

0.23%

Federal funds sold

842

-

0.10%

4,000

1

0.13%

Investments (taxable)

304,075

2,103

2.77%

254,869

2,058

3.23%

Investments (tax exempt)(1)

12,725

179

5.66%

21,214

309

5.81%

   Total earning assets

981,090

12,932

5.27%

928,574

14,377

6.19%

Allowance for loan losses

(14,129)

(17,237)

Non-earning assets

140,065

156,669

   Total assets

$      1,107,026

$      1,068,006

LIABILITIES AND

STOCKHOLDERS' EQUITY

Demand - interest bearing

$         239,089

$           190

0.32%

232,743

$           345

0.59%

Savings

74,785

56

0.30%

68,714

93

0.54%

Time deposits

555,894

1,810

1.30%

545,731

2,183

1.60%

   Total deposits

869,768

2,056

0.95%

847,188

2,621

1.24%

Fed funds purchased

1,872

3

0.72%

54

-

0.61%

FHLB and other borrowings

43,874

280

2.56%

41,124

353

3.43%

   Total interest-bearing liabilities

915,514

2,339

1.02%

888,366

2,974

1.34%

Non-interest bearing deposits

72,300

64,706

Other liabilities

4,623

5,049

   Total liabilities

992,437

958,121

Stockholders' equity

114,589

109,885

   Total liabilities and

   stockholders' equity

$      1,107,026

$      1,068,006

Net interest earnings

$      10,593

$      11,403

Interest spread

4.25%

4.85%

Net interest margin

4.32%

4.91%

(1)  Income and yields are reported on a tax equivalent basis assuming a federal tax rate of 34%.

 

 

Net Interest Margin Analysis Average Balance Sheet (Dollars in thousands)

Nine months ended September 30, 2012

Nine months  ended September 30, 2011

Average

Average

Average

Interest

Rates

Average

Interest

Rates

Balance

Income/

Earned/

Balance

Income/

Earned/

Sheet

Expense

Paid

Sheet

Expense

Paid

ASSETS:

Loans, including fees

$          553,154

$      22,971

5.54%

$         507,484

$    21,877

5.75%

Loans covered by FDIC loss share

93,192

11,211

16.04%

106,672

13,325

16.65%

   Total loans

646,346

34,182

7.05%

614,156

35,202

7.64%

Interest bearing bank balances

22,019

40

0.24%

25,246

53