Community Bankers Trust Corporation Reports Results for Fourth Quarter and Year 2017

RICHMOND, Va., Jan. 30, 2018 /PRNewswire/ -- Community Bankers Trust Corporation (the "Company") ESXB, the holding company for Essex Bank (the "Bank"), today reported unaudited results for the fourth quarter and year ended December 31, 2017.

OPERATING HIGHLIGHTS

• Gross loans, excluding purchase credit impaired (PCI) loans, grew $52.0 million, or 5.8%, during the fourth quarter of 2017 and $105.7 million, or 12.6%, since year-end 2016.
• Commercial loans grew $22.4 million, or 16.4%, during the fourth quarter of 2017.
• Noninterest bearing deposits grew $24.1 million, or 18.7%, during 2017.
• Noninterest bearing deposits were 14.0% of total deposits at December 31, 2017 compared with 12.4% at December 31, 2016.
• Essex Bank opened three full-service banking facilities during 2017 in strong metropolitan areas.

FINANCIAL HIGHLIGHTS

• Fourth quarter 2017 net loss was $640,000, or $0.03 per common share, after recording a one-time charge of $3.5 million to income tax expense due to the new 21% tax rate established by the Tax Cuts and Jobs Act of 2017 (the "Act") enacted in December 2017.
• For the year ended December 31, 2017, net income was $7.2 million, or $0.33 per common share basic and $0.32 fully diluted, compared with net income of $9.9 million, or $0.45 per common share basic and fully diluted for 2016.
• Pre-tax income was $3.6 million for the fourth quarter of 2017 compared with $3.3 million in the third quarter of 2017, an increase of $241,000, or 7.2%.
• For the year ended December 31, 2017, pre-tax income was $14.1 million, an increase of $368,000, or 2.7%, over pre-tax net income of $13.7 million for the year ended December 31, 2016.
• There was a provision for loan losses of $400,000 in the fourth quarter of 2017 to support strong loan growth. This compares with a provision for loan losses of $150,000 in the third quarter of 2017 and a credit of $284,000 to the provision in the fourth quarter of 2016.
• A reconciliation of net income and earnings per share before and after the effect of the Act are presented in a non-GAAP presentation at the end of this release.

MANAGEMENT COMMENTS

Rex L. Smith, III, President and Chief Executive Officer, stated, "I am pleased with the overall results of both the fourth quarter and the full year 2017.  Our patience and diligence allowed us to grow loan and deposit relationships in the types of products and rate structures that make sense for the anticipated rising rate environment.  This allowed us to finish with a strong net income number, prior to the one-time write-down of our deferred tax asset (DTA). This is especially encouraging since it also includes opening three branches in 2017. Both loans and retail deposits finished the year with double digit growth and, without regard to the DTA adjustment, net income would have been $10.8 million, or $0.49 a share, while return on assets and return on equity would have been 0.84% and 8.82%, respectively.  Additionally, we continue to see improvement in our credit quality as evidenced by our total non-performing assets as a percentage of total assets."

"For 2017, we continued to create significant value through a combination of de novo branching strategy, diversified loan growth and a substantial change in the core deposit mix.  The new offices we opened in the past several years continue to give us the opportunity to grow low cost deposits and thus lower our overall cost of funds and dependence on non-core funding.  Combined with our discipline in loan pricing, this should allow us to continue our income growth for 2018."

RESULTS OF OPERATIONS

The Company recorded a net loss of $640,000 for the fourth quarter of 2017, compared with linked quarter net income of $2.4 million in the third quarter of 2017 and year-over-year net income of $2.7 million in the fourth quarter of 2016.  Earnings per common share, basic and fully diluted, were $(0.03) per share, $0.11 per share and $0.12 per share for the three months ended December 31, 2017, September 30, 2017 and December 31, 2016, respectively.  For the year ended December 31, 2017, net income was $7.2 million, or $0.33 per common share basic and $0.32 fully diluted, compared with December 31, 2016, net income of $9.9 million, or $0.45 per common share.  

Net income in 2017 was affected by the charge of $3.5 million to income tax expense in the fourth quarter of 2017 related to the re-measurement of net deferred tax assets resulting from the new 21% tax rate established by the Act.

The following table presents summary income statements for the three months ended December 31, 2017, September 30, 2017 and December 31, 2016, and the years ended December 31, 2017 and December 31, 2016.

In this earnings release, the results reported for loans and loan growth do not include PCI loans, unless otherwise specifically stated.

Net Interest Income

Linked Quarter Basis

Net interest income was $11.2 million for the quarter ended December 31, 2017 compared with $11.0 million for the quarter ended September 30, 2017.  This is an increase of $223,000, or 2.0%. 

Interest income on a linked quarter basis increased $369,000, or 2.8%, to $13.8 million for the fourth quarter of 2017. This resulted in a tax-equivalent yield on earning assets of 4.52%, an increase of one basis point on a linked quarter basis. Interest and fees on loans increased $498,000, or 4.9%, during the fourth quarter of 2017 when compared with the third quarter of 2017.  This increase was attributable to a full quarter of earnings from $25.9 million in loan growth generated in the third quarter of 2017 coupled with a partial quarter of earnings from loan growth of $52.0 million in the fourth quarter of 2017.  Interest income with respect to PCI loans was $1.4 million in each of the third and fourth quarters of 2017. 

Securities income equaled $1.7 million in the fourth quarter of 2017, a decline of $71,000 on a linked quarter basis.  On a tax equivalent basis, securities income was $2.0 million for the fourth quarter of 2017, a decline of $74,000 from the third quarter of 2017.  The tax equivalent yield on the securities portfolio, based on a 34% tax rate, was 3.07% in the fourth quarter of 2017, a decline from 3.10% in the third quarter of 2017.

Interest expense was $2.5 million for the fourth quarter of 2017, an increase of $146,000, or 6.2%, over the third quarter of 2017 as interest bearing liabilities increased $19.7 million, or 1.9%, on average, in the fourth quarter.   The Company's cost of interest bearing liabilities increased from 0.92% in the third quarter of 2017 to 0.96% in the current quarter.  The cost of FHLB borrowings was 1.68% in the fourth quarter of 2017 compared with 1.57% for the third quarter of 2017.  During the fourth quarter of 2017, the average balance of FHLB borrowings was $88.3 million compared with $77.6 million in the third quarter of 2017.  The increase in interest bearing liabilities in the fourth quarter of 2017, noted above, enabled the Bank to fund the strong net loan growth of $50.6 million realized in the fourth quarter.  

With the changes in net interest income noted above, the tax equivalent net interest margin decreased and was 3.72% in the fourth quarter of 2017 compared with 3.74% in the third quarter of 2017. Likewise, the interest spread was 3.56% in the fourth quarter of 2017, down from 3.59% in the third quarter of 2017.

Yearly Comparison 2017 versus 2016

For the year 2017, net interest income increased $2.6 million, or 6.4%, and was $44.1 million. The tax equivalent yield on earning assets was 4.54% for 2017 compared with 4.50% for 2016. Interest and fees on loans of $40.3 million in 2017 was an increase of $4.3 million, or 12.0%, compared with $36.0 million for 2016.  Interest and fees on PCI loans declined $497,000 over this same time frame.  Securities income increased $139,000 for 2017 compared with the same period in 2016 and the tax-equivalent yield on the portfolio was 3.12% in 2017 and 3.11% in 2016.

Interest expense of $9.2 million for 2017 represented an increase of $1.4 million, or 17.6%, compared with 2016. Total average interest bearing liabilities increased $53.0 million, as loan growth has been fueled by this increase and an average balance increase of 17.6%, or $20.5 million, in noninterest bearing deposits.

The tax equivalent net interest margin was 3.78% for the year ended December 31, 2017 versus 3.80% for the year ended December 31, 2016.  The net interest spread was 3.64% for 2017 versus 3.69% for 2016.

Year-Over-Year Quarter

Net interest income increased $623,000, or 5.9%, from the fourth quarter of 2016 to the fourth quarter of 2017 and was $11.2 million. The tax equivalent yield on earning assets of 4.52% in the fourth quarter of 2017 was an increase of 11 basis points from 4.41% for the fourth quarter of 2016. The yield on loans increased from 4.56% to 4.63% and was coupled with a loan volume increase.  The average balance of loans increased by $91.9 million, or 11.2%, from the fourth quarter of 2016 to the fourth quarter of 2017. Interest income on loans was $10.6 million, an increase of $1.2 million over fourth quarter 2016 interest income of $9.4 million. Interest on PCI loans was $1.4 million in the fourth quarter of 2017, a decrease of $148,000 year-over-year.  The return on PCI loans increased over this time frame, from 11.46% to 12.08%. The tax-equivalent income on securities was $2.0 million in each of the third and fourth quarters of 2017 as the average balance was stable over the comparison periods.  The tax-equivalent yield on securities was 3.07% in the fourth quarter of 2017 and 3.09% for the same period one year ago. 

Interest expense increased $418,000, or 20.0%, when comparing the fourth quarter of 2017 and the fourth quarter of 2016. The increase in interest expense was a result of an average balance increase of $49.4 million in total interest bearing deposits year-over-year and an increase in the rate paid on those deposits from 0.77% in the fourth quarter of 2016 to 0.89% in the fourth quarter of 2017. Overall, the Bank's cost of interest bearing liabilities of 0.96% increased 13 basis points from 0.83% in the fourth quarter of 2016.

The tax equivalent net interest margin increased two basis points from 3.70% in the fourth quarter of 2016 to 3.72% in the fourth quarter of 2017.  However, the interest spread decreased from 3.58% to 3.56% over the same time period.  The increase in margin was precipitated by an increase in the level of the average balance of noninterest bearing deposits, from $129.5 million in the fourth quarter of 2016 to $148.0 million in the fourth quarter of 2017. This caused the level of average earning assets to average interest bearing liabilities to increase from 116.9% in the fourth quarter of 2016 to 119.0% in the fourth quarter of 2017.

The following table compares the Company's net interest margin, on a tax-equivalent basis, for the three months ended December 31, 2017, September 30, 2017 and December 31, 2016 and for the years ended December 31, 2017 and December 31, 2016.

Provision for Loan Losses

The Company records a provision for loan losses for its loan portfolio, excluding PCI loans, and a separate provision for the PCI loan portfolio.  There was a provision for loan losses of $400,000 on the non-PCI loan portfolio during the fourth quarter of 2017.  Total provision for loan losses on that loan portfolio was $550,000 for the year ended December 31, 2017. The fourth quarter 2017 provision was recorded to support loan growth of $52.0 million during the quarter.  There was no provision for loan losses, excluding PCI loans, in the fourth quarter of 2016 and a provision for loan losses of $450,000 for the year ended December 31, 2016. 

There was no provision for loan losses recorded on the PCI loan portfolio in 2017. Due to continued improved performance in the PCI loan portfolio during 2016, there was a credit of $284,000 to its provision in the fourth quarter of 2016, which also reflects total provision activity for the year ended December 31, 2016.

Noninterest Income

Linked Quarter Basis

Noninterest income was $1.2 million for each of the third and fourth quarters of 2017.  Service charges on deposit accounts represent the largest component of noninterest income and was $670,000 in the fourth quarter of 2017, a linked quarter decrease of $8,000. Other noninterest income of $177,000 for the fourth quarter of 2017 was an increase of $32,000 over the prior quarter.  Mortgage loan income was $79,000 for the fourth quarter of 2017, a linked quarter increase of $20,000. Securities gains of $30,000 was $18,000 lower in the fourth quarter of 2017 than in the prior quarter.

Yearly Comparison 2017 versus 2016

Noninterest income was $4.7 million for the year ended December 31, 2017, a decrease of $482,000, or 9.3%, from $5.2 million for the year ended December 31, 2016.  Securities gains were $210,000 in 2017 compared with $634,000 for 2016. Likewise, mortgage loan income declined by $364,000 from 2016 to 2017 and was $242,000. The Bank instituted a lower cost mortgage platform beginning in 2017, which resulted in a steady improvement in results during the year. Offsetting these decreases for 2017 compared with 2016 was an increase of $261,000 in service charges on deposit accounts, which were $2.7 million for the year ended December 31, 2017.

Year-Over-Year Quarter

Noninterest income increased $73,000, or 6.5%, from $1.1 million in the fourth quarter of 2016 to $1.2 million in the fourth quarter of 2017. Mortgage loan income increased by $72,000 year-over-year as a result of the mortgage operation change noted above. Service charges on deposit accounts increased $35,000 year-over-year and were $670,000 in the fourth quarter of 2017.  Offsetting these increases was a decrease of $33,000 in other noninterest income, which was $177,000 in the fourth quarter of 2017.

Noninterest Expense

Linked Quarter Basis

Noninterest expenses totaled $8.5 million for the fourth quarter of 2017, as compared with $8.7 million for the third quarter of 2017, a decrease of $242,000, or 2.8%. Notable differences between the third quarter of 2017 and the fourth quarter of 2017 included a decrease of $172,000 in credit expenses, which were $75,000 in the fourth quarter of 2017, a decrease of $56,000 in occupancy expenses, and a decrease of $44,000 in each of professional fees and data processing fees. Offsetting these decreases were increases of $147,000 in other noninterest expenses, $40,000 in salaries and employee benefit costs and $27,000 in each of other real estate and director expenses.

Yearly Comparison 2017 versus 2016

Noninterest expenses were $34.2 million for the year ended December 31, 2017, as compared with $32.8 million for the year ended December 31, 2016.  This is an increase of $1.4 million, or 4.3%. Salaries and employee benefits increased $1.2 million in 2017 compared with 2016 as three new branches were opened during each of 2016 and 2017. These new branch banking facilities also impacted the 2017 increase in occupancy expenses, which were $393,000 higher in 2017 than the previous year. Data processing, advertising, equipment expenses and supplies all also were affected by the new branches as they increased $249,000, $157,000, $145,000 and $112,000, respectively. Offsetting these increases was a reduction of amortization of intangible assets, which was $1.9 million in 2016 and $898,000 in 2017.  The Company has no intangible assets that are being amortized as of December 31, 2017.

Year-Over-Year Quarter

Noninterest expenses increased $253,000 in the fourth quarter of 2017 compared with the same period in 2016. Salaries and employee benefits increased $474,000, or 10.4%, year-over-year. FDIC assessment increased $109,000 due to greater deposit balances, and occupancy expenses, due to the new banking facilities, increased $107,000.  Offsetting these increases were decreases year-over-year in amortization of intangibles, which declined by $457,000, and in other real estate expenses, which were lower by $200,000.

The following table compares the Company's other operating expenses included in noninterest expenses for the three months ended December 31, 2017, September 30, 2017 and December 31, 2016 and for the years ended December 31, 2017 and December 31, 2016.

Income Taxes

Income tax expense was $4.2 million for the three months ended December 31, 2017 compared with income tax expense of $919,000 in the third quarter of 2017 and $1.1 million in the fourth quarter of 2016. The effective tax rate was 48.9% for the year ended December 31, 2017 and 27.8% for the year ended December 31 2016. Excluding the $3.5 million charge related to the re-measurement of net deferred tax assets, the effective tax rate for the fourth quarter of 2017 would have been 18.7%.  Based on the new corporate income tax rates effective January 1, 2018, the Company's effective tax rate in 2018 and future years is expected to be significantly lower than in 2017 and previous years. The tax charge was estimated by the Company as of December 31, 2017 based on an initial analysis of the Act and may be adjusted in future periods following completion of the Company's 2017 federal income tax return. 

FINANCIAL CONDITION

Total assets increased $86.4 million, or 6.9%, to $1.336 billion at December 31, 2017 as compared with $1.250 billion at December 31, 2016.  Total loans were $942.0 million at December 31, 2017, increasing $105.7 million, or 12.6%, from year-end 2016.   Total PCI loans were $44.3 million at December 31, 2017 versus $52.0 million at year-end 2016.

During 2017, commercial loans grew $29.7 million, or 23.0%, and totaled $159.0 million at December 31, 2017.  Multifamily loans grew $19.9 million, or 51.0%, and were $59.0 million at year-end 2017. Residential 1 – 4 family loans increased $19.7 million, or 9.5%, and totaled $227.5 million at December 31, 2017. In all, total real estate secured loans increased by $76.5 million, or 10.9%.

The following table shows the composition of the Company's loan portfolio at December 31, 2017, September 30, 2017 and December 31, 2016.

The Company's securities portfolio, excluding equity securities, declined $11.7 million, or 4.5%, from $262.7 million at December 31, 2016 to $251.0 million at December 31, 2017.  Net realized gains of $210,000 were recognized during 2017 through sales and call activity, as compared with $634,000 recognized during 2016.  The decline in the volume of securities was a strategic decision by management to fund strong loan growth with securities sales, normal securities amortization, call activity, sales and maturities.

The Company had cash and cash equivalents of $22.0 million at December 31, 2017 compared with $21.1 million at December 31, 2016.  There were federal funds purchased of $4.8 million at December 31, 2017 compared with federal funds purchased of $4.7 million at December 31, 2016.

The following table shows the composition of the Company's securities portfolio, excluding equity securities, at December 31, 2017, September 30, 2017 and December 31, 2016.

Interest bearing deposits at December 31, 2017 were $942.7 million, an increase of $34.3 million, or 3.8%, from $908.4 million at December 31, 2016.  MMDA increased $32.0 million, or 28.8%, during 2017, primarily the result of new deposit accounts opened at two of the new branch locations that began operations during the year.  NOW accounts increased $19.7 million, or 14.3%, and were $157.0 million at December 31, 2017. Savings accounts increased by $3.6 million, or 4.0%.  Total time deposits declined $21.0 million, or 3.7%.  While retail time deposits increased by $18.8 million, or 3.6%, the level of brokered deposits declined by $39.8 million, or 74.5%, and were $13.6 million at December 31, 2017. Excluding brokered deposits, retail interest bearing deposits increased in 2017 by $74.1 million, or 8.7%.

The following table compares the mix of interest bearing deposits at December 31, 2017, September 30, 2017, June 30, 2017 and December 31, 2016.

FHLB advances were $101.4 million at December 31, 2017, compared with $81.9 million at December 31, 2016. The increase in FHLB advances was offset by the decline in brokered deposits. Long term debt was $0 at December 31, 2017 and totaled $1.7 million at December 31, 2016.

Shareholders' equity was $124.0 million at December 31, 2017 compared with $114.5 million at December 31, 2016. Shareholders' equity increased $9.5 million, or 8.3%, from year end 2016. 

Asset Quality – non-PCI loans

Nonaccrual loans were $9.0 million at December 31, 2017, decreasing $3.7 million during the fourth quarter of 2017 and $1.2 million from December 31, 2016. The level of total classified and criticized assets has consistently declined over the last five quarters.  Total classified and criticized assets were $25.6 million at December 31, 2017 compared with $37.4 million at December 31, 2016.  This is a decline of $11.8 million, or 31.5%.

The following chart shows the level of nonaccrual loans, classified loans and criticized loans over the last five quarters.

Total nonperforming assets totaled $11.8 million at December 31, 2017 compared with $14.7 million at December 31, 2016, a decline of $2.9 million. Total nonperforming assets decreased $3.6 million since September 30, 2017.  There were net charge-offs of $1.1 million during 2017. 

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

The allowance for loan losses equaled 99.4% of nonaccrual loans at December 31, 2017, compared with 68.4% at September 30, 2017 and 92.7% at December 31, 2016. The ratio of nonperforming assets to loans and OREO was 1.3% at December 31, 2017 compared with 1.7% at September 30, 2017 and 1.7% at December 31, 2016.

The following table sets forth selected asset quality data and ratios, excluding PCI loans, for the dates indicated.

A further breakout of nonaccrual loans at December 31, 2017, September 30, 2017 and December 31, 2016 is below.

Capital Requirements

The Company's ratio of total risk-based capital was 12.7% at December 31, 2017 compared with 13.2% at December 31, 2016.  The tier 1 risk-based capital ratio was 11.9% at December 31, 2017 and 12.2% at December 31, 2016. The Company's tier 1 leverage ratio was 9.7% at December 31, 2017 and 9.6% at December 31, 2016.  All capital ratios exceed regulatory minimums to be considered well capitalized.  BASEL III introduced the common equity tier 1 capital ratio, which was 11.5% at December 31, 2017 and 11.8% at December 31, 2016.

Earnings Conference Call and Webcast

The Company will host a conference call for interested parties on Tuesday, January 30, 2018, at 10:00 a.m. Eastern Time to discuss the financial results for the fourth quarter and the year 2017. The public is invited to listen to this conference call by dialing 866-374-8379 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 12:00 noon Eastern Time on January 30, 2018, until 9:00 a.m. Eastern Time on February 13, 2018. The replay will be available by dialing 877-344-7529 and entering access code 10115502 or through the internet by accessing the "Corporate Overview – Corporate Profile" page of the Company's internet site at www.cbtrustcorp.com.

About Community Bankers Trust Corporation and Essex Bank

Community Bankers Trust Corporation is the holding company for Essex Bank, a Virginia state bank with 26 full-service offices, 20 of which are in Virginia and six of which are in Maryland.  The Bank also operates one loan production office in Virginia.  

Additional information on the Bank is available on the Bank's website at www.essexbank.com.  For information on Community Bankers Trust Corporation, please visit its website 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 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 performance of vendors or other parties with which the Company does business; time and costs associated with de novo branching, acquisitions, dispositions and similar transactions; the realization of gains and expense savings from acquisitions, dispositions and similar transactions; consumer profiles and spending and savings habits; levels of fraud in the banking industry; the level of attempted cyber-attacks in the banking industry; the securities and credit markets; costs associated with the integration of banking and other internal operations; 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, 2016 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.

 

 

 

 

 

 

 

 

 

The information below presents certain financial information determined by methods other than in accordance with accounting principles generally accepted in the United States of America (GAAP).  These measures are a supplement to GAAP used to prepare the Company's financial statements and should not be viewed as a substitute for GAAP measures. In addition, the Company's non-GAAP measures may not be comparable to non-GAAP measures of other companies. The tables that follow reconcile these non-GAAP measures from their respective GAAP basis measures, as noted.

As discussed above, the new 21% tax rate that the Tax Cut and Jobs Act established created the need for the Company to re-measure its net deferred tax assets.  This re-measurement resulted in a write-down of such assets and a corresponding charge to income tax expense in the amount of $3.5 million.  The Company believes that presenting both GAAP earnings and non-GAAP earnings to reflect the one-time charge is meaningful to investors when reviewing the Company's earnings over various periods, as shown below, as it provides a more meaningful comparison of net income and earnings per share and related ratios for the Company's core banking operations.  The following information is a reconciliation of GAAP earnings measures to the same earnings measures without adjusting net deferred tax assets to the new statutory tax rate.

 

 

Common tangible book value equals total shareholders' equity less identifiable intangible assets, and common tangible book value per share is computed by dividing common tangible book value by the number of common shares outstanding.  Common tangible assets equal total assets less identifiable intangible assets.  Management believes that common tangible book value and the ratio of common tangible book value to common tangible assets are meaningful because they are some of the measures that the Company and investors use to assess capital adequacy. Management believes that presenting the change in common tangible book value per share, the change in stock price to common tangible book value per share, and the change in the ratio of common tangible book value to common tangible assets provide meaningful period-to-period comparisons of these measures.  The following information presents a calculation of these measures.

 

 

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SOURCE Community Bankers Trust Corporation