PBIB Porter Bancorp, Inc. (delisted)

Non-Performing Assets Reduced by $23.7 Million or 33.9% in Third Quarter

Porter Bancorp, Inc. (NASDAQ: PBIB), parent company of PBI Bank, today reported unaudited results for the third quarter of 2015.

The Company reported net loss attributable to common shareholders for the third quarter of 2015 of $1.0 million, or ($0.04) per basic and diluted common share, compared with net loss attributable to common shareholders of $1.5 million, or ($0.12) per basic and diluted share, for the third quarter of 2014. Net loss attributable to common shareholders for the nine months ended September 30, 2015, was $2.3 million, or ($0.10) per diluted common share, compared with net loss attributable to common shareholders of $8.8 million, or ($0.73) per diluted share, for the nine months ended September 30, 2014.

“We are pleased to report that during the third quarter we were able to buy back and retire $4.0 million of junior subordinated debt and $330,000 of accrued unpaid interest at a $2.6 million discount by issuing a total of 1.2 million common shares,” said John T. Taylor, Chief Executive Officer of the Company. In the transaction, $2.67 million of the debt was exchanged for equity with related parties and transferred directly to common equity and $1.33 million of the debt was exchanged for equity with an unrelated third party resulting in a gain on extinguishment of the debt totaling $883,000.

“Additionally, we have continued to make significant progress in reducing our non-performing assets. In this quarter alone, we reduced non-performing assets by $23.7 million or 33.9% from $69.9 million at June 30, 2015 to $46.2 million at September 30, 2015,” said Taylor.

Net Interest Income – Net interest income before provision increased to $7.48 million for the third quarter of 2015 compared to $7.34 million in the second quarter of 2015 and $7.34 million in the third quarter of 2014. While average loans decreased slightly to $640.0 million for the third quarter of 2015 compared with $641.6 million in the second quarter of 2015, and were consistent with the third quarter of 2014, net interest margin increased to 3.33% in the third quarter of 2015 compared to 3.21% in the second quarter of 2015 and 3.10% in the third quarter of 2014. The increase in net interest margin was primarily driven by the continued reduction in cost of funds, which declined to 0.83% in the third quarter of 2015 compared with 0.87% in the second quarter of 2015 and 1.13% in the third quarter of 2014.

Allowance for Loan Losses and Recovery of Provision – The allowance for loan losses to total loans was 2.27% at September 30, 2015, compared to 2.59% at June 30, 2015, and 3.79% at September 30, 2014. The allowance for loan losses for loans evaluated collectively for impairment was 2.33% at September 30, 2015, compared with 2.66% at June 30, 2015 and 4.00% at September 30, 2014.

The reduced level of the allowance and the $2.2 million recovery of provision in the third quarter were primarily driven by declining historical loss rates, improving trends in loan category risk ratings, and management’s assessment of lower risk in the portfolio. Substandard loans decreased by $21.5 million or 31.2% over the past quarter and $44.0 million or 48.1% over the first nine months of 2015, net charge-offs were $3.0 million for the first nine months of 2015 compared to $10.2 million for the first nine months of 2014, and non-accrual loans decreased by $13.2 million or 43.8% over the past quarter and $30.2 million or 64.0% over the first nine months of 2015.

Net loan charge-offs decreased to $411,000 for the third quarter of 2015 compared to $1.8 million for the second quarter of 2015 and $935,000 for the third quarter of 2014.

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 considerably to $46.2 million, or 4.85% of total assets at September 30, 2015, compared with $69.9 million, or 7.13% of total assets at June 30, 2015, and $99.2 million, or 9.62% of total assets at September 30, 2014.

Non-performing loans decreased to $17.0 million, or 2.72% of total loans, at September 30, 2015, compared with $30.3 million, or 4.67% of total loans at June 30, 2015, and $44.7 million, or 7.00% of total loans at September 30, 2014. The decrease from the previous quarter was primarily driven by $9.0 million in principal payments received on nonaccrual loans, $3.5 million of nonaccrual loans migrating to OREO, and $1.3 million of charge-offs.

OREO at September 30, 2015 decreased to $29.2 million, compared with $39.5 million at June 30, 2015 and $54.5 million at September 30, 2014. The Company acquired $3.5 million in OREO and sold $9.4 million in OREO during the third quarter of 2015. Fair value write-downs arising from reductions in listing prices for certain properties, updated appraisals, and certain properties liquidated through auctions near and after the end of the third quarter totaled $4.5 million in the third quarter of 2015 compared with $2.3 million in the second quarter of 2015 and $600,000 in the third quarter of 2014. Progress continues in the disposition of OREO. At quarter end, $6.5 million of OREO property was subject to a contract for sale or letter of intent.

 

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

      September 30,

2015

    June 30,

2015

    March 31,

2015

    December 31,

2014

    September 30,

2014

(in thousands)

Past due loans: 30 – 59 days $ 1,972 $         1,941 $         4,370 $ 3,960 $ 3,507 60 – 89 days 578 650 1,769 980 3,333 90 days or more — 92 18 151 — Nonaccrual loans   16,987           30,215           36,500   47,175   44,670

Total past due and nonaccrual loans

$

19,537

$

       

32,898

$         42,657 $ 52,266 $ 51,510  

Loans past due 90 days or more

$

—

$

92

$ 18 $ 151 $ — Nonaccrual loans 16,987 30,215 36,500 47,175 44,670 OREO 29,177 39,545 43,618 46,197 54,507 Other repossessed assets   —           —           —   —   —

Total non-performing assets

$

46,164

$

       

69,852

$         80,136 $ 93,523 $ 99,177  

In addition to nonaccrual loans and OREO, loans classified as Troubled Debt Restructures (TDRs) and on accrual totaled $17.7 million at September 30, 2015, compared to $18.5 million at June 30, 2015, and $28.1 million at September 30, 2014.

Non-interest Income – Non-interest income increased $645,000 to $2.2 million for the third quarter of 2015 compared with $1.6 million for the second quarter of 2015, and increased $1.2 million compared with $1.1 million for the third quarter of 2014. The increase in non-interest income was driven primarily by a gain of $883,000 recognized in relation to the extinguishment of our junior subordinated debt, offset by a reduction in gains on the sales of securities which totaled $199,000 in the second quarter of 2015, with no sales in the third quarter. The increase from the third quarter of 2014 was primarily due to an increase in OREO rental income of $375,000, as well as the gain on debt extinguishment noted above.

Non-interest Expense – Non-interest expense increased $1.9 million to $13.0 million for the third quarter of 2015 compared with $11.0 million for the second quarter of 2015, and increased $3.7 million compared with $9.3 million for the third quarter of 2014. The increase from the second quarter of 2015 was primarily due to an increase in OREO expenses of approximately $2.2 million, partially offset by decreases in professional fees and other non-interest expenses. OREO expenses increased quarter over quarter primarily due to an increase in fair value write-downs of $2.0 million resulting from declines in the fair value of the real estate based upon reductions in listing prices for certain properties, updated appraisals, and certain properties liquidated through auctions near and after the end of the third quarter 2015. The increase from the third quarter of 2014 was also due to an increase in OREO expenses from $560,000 to $5.1 million, primarily due to declines in fair value as noted above. For the third quarter 2015, the second quarter 2015, and the third quarter 2014, non-interest expense before OREO expenses totaled $7.8 million, $8.1 million, and $8.7 million, respectively and $13.0 million, $11.0 million, and $9.3 million after OREO expenses, respectively.

Capital – At September 30, 2015, PBI Bank’s Tier 1 leverage ratio improved slightly to 6.01% compared with 5.95% at June 30, 2015, and its Total risk-based capital ratio was 10.50% at September 30, 2015 compared with 10.34% at June 30, 2015. Both are below the minimums of 9.0% and 12.0% required by the Bank’s Consent Order. At September 30, 2015, Porter Bancorp’s leverage ratio was 4.73% compared with 4.25% at June 30, 2015, and its Total risk-based capital ratio was 10.40%, compared with 10.25% at June 30, 2015. At September 30, 2015, PBI Bank’s Common equity Tier I risk-based capital ratio was 8.73% compared with 8.43% at June 30, 2015. Porter Bancorp’s Common equity Tier I risk-based capital ratio was 5.07% compared with 4.42% at June 30, 2015.

Management and the Board of Directors remain committed to evaluating and implementing appropriate strategies for increasing the Company’s capital in order to meet the requirements of the Consent Order.

Forward-Looking StatementsStatements 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 InformationUnaudited supplemental financial information for the quarter ending September 30, 2015 follows.

 

PORTER BANCORP, INC.

Unaudited Financial Information

(in thousands, except share and per share data)

      Three     Three     Three     Nine     Nine Months Months Months Months Months Ended Ended Ended Ended Ended 9/30/15 6/30/15 9/30/14 9/30/15 9/30/14

 

 

 

Income Statement Data Interest income $ 9,179 $ 9,167 $ 9,814 $ 27,549 $ 29,877 Interest expense   1,697     1,828     2,477     5,438     7,626   Net interest income 7,482 7,339 7,337 22,111 22,251 Provision for loan losses   (2,200 )   —     —     (2,200 )   6,300   Net interest income after provision 9,682 7,339 7,337 24,311 15,951   Service charges on deposit accounts 492 475 535 1,376 1,490 Bank card interchange fees 212 229 209 644 575 Other real estate owned income 380 372 5 1,109 30 Gains (losses) on sales of securities, net — 199 46 1,696 92 Gain on extinguishment of debt 883 — — 883 — Other   243     290     262     763     734   Non-interest income 2,210 1,565 1,057 6,471 2,921   Salaries & employee benefits 3,920 4,028 4,041 11,795 11,731 Occupancy and equipment 815 828 857 2,513 2,645 Professional fees 620 714 361 2,313 1,134 FDIC insurance 539 564 571 1,673 1,682 Data processing expense 278 278 269 860 818 State franchise and deposit tax 285 285 405 855 1,235 Other real estate owned expense 5,131 2,932 560 8,796 1,996 Loan collection expense 321 291 858 895 2,646 Other   1,059     1,114     1,359     3,694     3,700   Non-interest expense 12,968 11,034 9,281 33,394 27,587   Income (loss) before income taxes (1,076 ) (2,130 ) (887 ) (2,612 ) (8,715 ) Income tax expense (benefit)   —     —     (38 )   —     (1,345 ) Net income (loss) (1,076 ) (2,130 ) (849 ) (2,612 ) (7,370 ) Less: Dividends on preferred stock — — 786 — 2,361 Earnings (loss) allocated to participating securities   (45 )   (91 )   (162 )   (338 )   (928 ) Net income (loss) attributable to common $ (1,031 ) $ (2,039 ) $ (1,473 ) $ (2,274 ) $ (8,803 )   Weighted average shares – Basic 24,681,547 24,589,507 12,086,843 22,313,501 12,044,858 Weighted average shares – Diluted 24,681,547 24,589,507 12,086,843 22,313,501 12,044,858   Basic earnings (loss) per common share $ (0.04 ) $ (0.08 ) $ (0.12 ) $ (0.10 ) $ (0.73 ) Diluted earnings (loss) per common share $ (0.04 ) $ (0.08 ) $ (0.12 ) $ (0.10 ) $ (0.73 ) 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     Nine     Nine Months Months Months Months Months Ended Ended Ended Ended Ended 9/30/15 6/30/15 9/30/14 9/30/15 9/30/14

 

 

 

Average Balance Sheet Data Assets $ 968,471 $ 1,003,507 $ 1,033,818 $ 994,355 $ 1,054,592 Loans 639,954 641,587 640,011 641,489 671,733 Earning assets 903,857 930,415 954,217 923,318 988,031 Deposits 893,262 924,840 947,989 916,459 965,975 Long-term debt and advances 32,769 33,208 35,202 33,289 35,269 Interest bearing liabilities 813,753 846,892 873,520 838,207 892,738 Stockholders’ equity 30,920 33,770 31,101 32,876 35,213     Performance Ratios Return on average assets (0.44 )% (0.85 )% (0.33 )% (0.35 )% (0.93 )% Return on average equity (13.81 ) (25.30 ) (10.83 ) (10.62 ) (27.98 ) Yield on average earning assets (tax equivalent) 4.07 4.00 4.13 4.03 4.09 Cost of interest bearing liabilities 0.83 0.87 1.13 0.87 1.14 Net interest margin (tax equivalent) 3.33 3.21 3.10 3.25 3.06 Efficiency ratio 133.80 126.75 111.18 124.21 110.00     Loan Charge-off Data Loans charged-off $ (1,580 ) $ (2,264 ) $ (1,824 ) $ (5,171 ) $ (13,229 ) Recoveries   1,169     476     889     2,205     3,003   Net charge-offs $ (411 ) $ (1,788 ) $ (935 ) $ (2,966 ) $ (10,226 )     Nonaccrual Loan Activity Nonaccrual loans at beginning of period $ 30,215 $ 36,500 $ 44,375 $ 47,175 $ 101,767 Net principal pay-downs (9,028 ) (5,336 ) (3,229 ) (25,118 ) (25,669 ) Charge-offs (1,333 ) (2,082 ) (1,217 ) (4,370 ) (11,814 ) Loans foreclosed and transferred to OREO (3,495 ) (608 ) (797 ) (4,440 ) (31,023 ) Loans returned to accrual status (902 ) (620 ) (57 ) (1,600 ) (3,289 ) Loans placed on nonaccrual during the period   1,530     2,361     5,595     5,340     14,698   Nonaccrual loans at end of period $ 16,987   $ 30,215   $ 44,670   $ 16,987   $ 44,670     Troubled Debt Restructurings (TDRs) Accruing $ 17,656 $ 18,548 $ 28,114 $ 17,656 $ 28,114 Nonaccrual   3,788     15,006     21,415     3,788     21,415   Total $ 21,444 $ 33,554 $ 49,529 $ 21,444 $ 49,529   Other Real Estate Owned (OREO) Activity (Net of Allowance) OREO at beginning of period $ 39,545 $ 43,618 $ 56,882 $ 46,197 $ 30,892 Real estate acquired 3,495 608 797 4,450 31,663 Valuation adjustment write-downs (4,450 ) (2,330 ) (600 ) (7,080 ) (1,250 ) Proceeds from sales of properties (9,397 ) (2,391 ) (2,973 ) (14,417 ) (7,253 ) Gain (loss) on sales, net   (16 )   40     401     27     455   OREO at end of period $ 29,177   $ 39,545   $ 54,507   $ 29,177   $ 54,507      

PORTER BANCORP, INC.

Unaudited Financial Information

(in thousands, except share and per share data)

      As of 9/30/15     6/30/15     3/31/15     12/31/14     9/30/14     6/30/14   Assets Loans $ 624,414 $ 648,321 $ 632,428 $ 624,999 $ 638,360 $ 643,030 Allowance for loan losses   (14,198 )   (16,809 )   (18,597 )   (19,364 )   (24,198 )   (25,133 ) Net loans 610,216 631,512 613,831 605,635 614,162 617,897 Loans held for sale 71 125 — 8,926 — 280 Securities held to maturity 42,138 42,202 42,263 42,325 42,386 43,488 Securities available for sale 146,837 151,758 157,290 190,791 192,146 180,723 Federal funds sold & interest bearing deposits 73,940 63,987 101,872 66,011 73,494 95,353 Cash and due from financial institutions 6,540 7,403 7,899 14,169 11,336 6,913 Premises and equipment 19,109 19,167 19,323 19,507 19,649 19,788 Bank owned life insurance 9,381 9,320 9,231 9,167 9,103 9,039 FHLB Stock 7,323 7,323 7,323 7,323 7,323 7,323 Other real estate owned 29,177 39,545 43,618 46,197 54,507 56,882 Accrued interest receivable and other assets   6,748     6,998     7,056     7,938     6,608     7,181   Total Assets $ 951,480   $ 979,340   $ 1,009,706   $ 1,017,989   $ 1,030,714   $ 1,044,867     Liabilities and Equity Certificates of deposit $ 534,031 $ 564,253 $ 597,117 $ 574,681 $ 609,682 $ 631,110 Interest checking 83,247 84,627 86,614 91,086 76,431 76,625 Money market 119,324 110,529 102,349 109,734 100,890 95,946 Savings   35,131     35,942     36,418     36,430     36,364     37,178   Total interest bearing deposits 771,733 795,351 822,498 811,931 823,367 840,859 Demand deposits   106,160     108,800     108,011     114,910     110,165     109,956   Total deposits 877,893 904,151 930,509 926,841 933,532 950,815 Federal funds purchased & repurchase agreements — 1,265 1,145 1,341 1,817 2,451 FHLB advances 3,255 3,430 3,597 15,752 16,940 14,134 Junior subordinated debentures 25,275 29,500 29,725 29,950 30,175 30,400 Accrued interest payable and other liabilities   11,249     10,949     10,758     10,640     18,922     16,453   Total liabilities 917,672 949,295 975,734 984,524 1,001,386 1,014,253   Preferred stockholders’ equity 2,771 2,771 2,771 8,552 38,283 38,283 Common stockholders’ equity (deficit)   31,037     27,274     31,201     24,913     (8,955 )   (7,669 ) Total stockholders’ equity   33,808     30,045     33,972     33,465     29,328     30,614   Total Liabilities and Stockholders’ Equity $ 951,480   $ 979,340   $ 1,009,706   $ 1,017,989   $ 1,030,714   $ 1,044,867     Ending shares outstanding 26,949,205 25,759,223 25,663,495 14,890,514 13,099,400 13,104,853 Book value per common share $ 1.15 $ 1.06 $ 1.22 $ 1.67 $ (0.68 ) $ (0.59 ) Tangible book value per common share 1.13 1.03 1.18 1.61 (0.76 ) (0.67 )    

PORTER BANCORP, INC.

Unaudited Financial Information

(in thousands, except share and per share data)

      As of 9/30/15     6/30/15     3/31/15     12/31/14     9/30/14     6/30/14 Asset Quality Data Loan 90 days or more past due still on accrual $ — $ 92 $ 18 $ 151 $ — $ — Nonaccrual loans   16,987     30,215     36,500     47,175     44,670     44,375   Total non-performing loans 16,987 30,307 36,518 47,326 44,670 44,375 Real estate acquired through foreclosures 29,177 39,545 43,618 46,197 54,507 56,882 Other repossessed assets   —     —     —     —     —     —   Total non-performing assets $ 46,164   $ 69,852   $ 80,136   $ 93,523   $ 99,177   $ 101,257     Non-performing loans to total loans 2.72 % 4.67 % 5.77 % 7.57 % 7.00 % 6.90 % Non-performing assets to total assets 4.85 7.13 7.94 9.19 9.62 9.69 Allowance for loan losses to non-performing loans 83.58 55.46 50.93 40.92 54.17 56.64   Allowance for loans evaluated individually $ 469 $ 842 $ 254 $ 752 $ 1,788 $ 1,753 Loans evaluated individually for impairment 34,895 49,011 55,299 71,993 78,695 79,742 Allowance as % of loans evaluated individually 1.34 % 1.72 % 0.46 % 1.04 % 2.27 % 2.20 %   Allowance for loans evaluated collectively $ 13,729 $ 15,967 $ 18,343 $ 18,612 $ 22,410 $ 23,380 Loans evaluated collectively for impairment 589,519 599,310 577,129 553,006 559,665 563,288 Allowance as % of loans evaluated collectively 2.33 % 2.66 % 3.18 % 3.37 % 4.00 % 4.15 %   Allowance for loan losses to total loans 2.27 % 2.59 % 2.94 % 3.10 % 3.79 % 3.91 %   Loans by Risk Category Pass $ 508,470 $ 509,843 $ 480,545 $ 461,126 $ 446,166 $ 434,853 Watch 66,726 67,712 76,876 68,200 83,711 91,208 Special Mention 1,700 1,718 1,110 4,189 4,431 3,223 Substandard 47,518 69,048 73,897 91,484 104,052 113,746 Doubtful   —     —     —     —     —     —   Total $ 624,414 $ 648,321 $ 632,428 $ 624,999 $ 638,360 $ 643,030   Risk-based Capital Ratios - Company Tier I leverage ratio 4.73 % 4.25 % 4.13 % 4.51 % 4.02 % 4.10 % Common equity Tier I risk-based capital ratio 5.07 4.42 4.68 N/A N/A N/A Tier I risk-based capital ratio 6.86 6.02 5.85 6.70 5.93 6.19 Total risk-based capital ratio 10.40 10.25 10.00 10.61 10.05 10.27   Risk-based Capital Ratios – PBI Bank Tier I leverage ratio 6.01 % 5.95 % 5.84 % 5.78 % 6.09 % 5.96 % Common equity Tier I risk-based capital ratio 8.73 8.43 8.32 N/A N/A N/A Tier I risk-based capital ratio 8.73 8.43 8.32 8.59 8.99 9.00 Total risk-based capital ratio 10.50 10.34 10.26 10.57 11.01 11.06   FTE employees 246 253 258 264 268 275  

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