Community Bankers Trust Corporation Reports Results for First Quarter of 2018

RICHMOND, Va., April 26, 2018 /PRNewswire/ -- Community Bankers Trust Corporation (the "Company") (NASDAQ: ESXB), the holding company for Essex Bank (the "Bank"), today reported results for the first quarter of 2018.

OPERATING HIGHLIGHTS

• Loans, excluding purchased credit impaired (PCI) loans, grew $22.3 million, or 2.4%, during the first quarter of 2018 and grew $112.1 million, or 13.2%, since March 31, 2017.
• Noninterest bearing deposits grew $21.0 million, or 16.3%, year-over-year.
• There was no provision for loan losses in the first quarter of 2018 compared with a provision of $400,000 in the fourth quarter of 2017.
• Net interest margin increased from 3.72% in the fourth quarter of 2017 to 3.76% in the first quarter of 2018, the result of higher yields and volumes on earning assets.

FINANCIAL HIGHLIGHTS

• Net income was $2.6 million for the quarter ended March 31, 2018, compared with a loss of $640,000 in the fourth quarter of 2017 and net income of $2.5 million in the first quarter of 2017.
• Fully diluted earnings per common share was $0.12 for the quarter ended March 31, 2018, compared with ($0.03) per share and $0.11 per share for the quarters ended December 31, 2017 and March 31, 2017, respectively. 
• Interest and fees on loans was $10.9 million in the first quarter of 2018, an increase of $1.3 million, or 13.3%, over the first quarter of 2017.

MANAGEMENT COMMENTS 

Rex L. Smith, III, President and Chief Executive Officer, stated, "The core operating metrics of the Company continue to show positive growth.  We have structured the balance sheet to be risk averse for interest rate changes, as well as other economic factors.  To that end, I am pleased with the diversity of the loan types in the portfolio and the continued growth rate of our variable rate loans, which increased our net interest margin for the quarter. Net interest income increased over $200,000 on a linked quarter basis."

Smith added, "As we move forward, I believe it is important for us to resist the temptation of growth for growth's sake, especially if it means irrational pricing on either side of the balance sheet, or relaxing our credit standards in any way.  We can and will sustain an appropriate growth rate for the balance sheet that will translate to the earnings that we want to achieve for our shareholders."

Smith concluded, "Noninterest expense was up for the quarter, mainly due to a timing issue on our benefits cost. While this cost reduced earnings per share by two and a half cents on both a linked quarter and year-over-year basis, it will not be an on-going concern.  Management is confident that we can continue to produce appropriate returns for the Company."

RESULTS OF OPERATIONS

Net income was $2.6 million for the first quarter of 2018, compared with a net loss of $640,000 in the fourth quarter of 2017 and net income of $2.5 million in the first quarter of 2017.  Earnings per common share, basic and fully diluted, were $0.12 per share, ($0.03) per share and $0.11 per share for the three months ended March 31, 2018, December 31, 2017, and March 31, 2017, respectively.

The increase of $101,000, or 4.1%, in net income, for the first quarter of 2018 compared with the first quarter of 2017 was primarily the result of a $1.1 million increase in interest income and a reduction of $536,000 in income tax expense. Offsetting these increases was an increase of $531,000 in interest expense and an increase of $1.1 million in noninterest expenses, including an increase of $703,000 in group benefit costs. Details on the drivers of these year-over-year changes are presented below.

The increase of $3.2 million in net income on a linked quarter basis was driven by a decrease of $3.7 million in income tax expense. In the fourth quarter of 2017, the Company recorded a one-time charge of $3.5 million to income tax expense due to the re-measurement of its net deferred tax asset resulting from the new 21% tax rate established by the Tax Cuts and Jobs Act of 2017 enacted in December.  Provision for loan losses improved net income on a linked quarter basis as no provision was recorded in the current quarter compared with $400,000 in the fourth quarter of 2017. Also, positively affecting net income was an increase in net interest income, which increased $218,000 on a linked quarter basis. Offsetting these increases to net income was an increase of $1.0 million, or 12.5%, in noninterest expenses, including an increase of $703,000 in group benefit costs. Linked quarter details are also provided below.

The following table presents summary income statements for the three months ended March 31, 2018, December 31, 2017 and March 31, 2017.

Net Interest Income

Linked Quarter Basis
Net interest income was $11.5 million for the quarter ended March 31, 2018 compared with $11.2 million for the quarter ended December 31, 2017.  This is an increase of $218,000, or 1.9%.

Interest income on a linked quarter basis increased $321,000, or 2.3%, to $14.1 million for the first quarter of 2018.  Interest income with respect to loans, excluding PCI loans, increased $251,000, or 2.4%, during the first quarter when compared with the fourth quarter of 2017.  This increase was partially attributed to continued loan growth, excluding PCI loans, coupled with higher rates.  The yield on loans increased from 4.63% in the fourth quarter of 2017 to 4.68% in the first quarter of 2018. The average balance of loans, excluding PCI loans, increased $32.2 million, or 3.5%, on a linked quarter basis. Interest income with respect to PCI loans was $1.4 million in each of the fourth quarter of 2017 and the first quarter of 2018.  Interest income on securities increased $62,000 on a linked quarter basis.

Securities income equaled $1.9 million on a tax-equivalent basis for the first quarter of 2018, which was a decrease of $90,000 from the fourth quarter of 2017.  Actual income increased $62,000 while tax-equivalent income decreased $90,000 as a result of the decreased tax benefit derived from bank-qualified tax-exempt municipal securities from the implementation of the Tax Cut and Jobs Act. The overall tax-equivalent yield on the securities portfolio was 2.98% in the first quarter of 2018, based on a 21% tax rate, and 3.07% in the fourth quarter of 2017, based on a 34% tax rate.

Interest expense of $2.6 million in the first quarter of 2018 was an increase of $103,000 on a linked quarter basis.  Interest on deposits only increased $22,000, or 1.0%.  However, interest on borrowed funds increased by $81,000, or 20.9%.  Average interest bearing balances of Federal Home Loan Bank and other borrowings increased by $17.3 million from the fourth quarter of 2017 to the first quarter of 2018.  The cost on these borrowings increased from 1.68% in the fourth quarter of 2017 to 1.74% in the first quarter of 2018. The Company's cost of interest bearing liabilities of 1.00% in the first quarter of 2018 was an increase of four basis points from the prior quarter. 

With the changes in interest income noted above, the tax-equivalent net interest margin improved from 3.72% in the fourth quarter of 2017 to 3.76% in the first quarter of 2018. Likewise, the interest spread increased from 3.56% to 3.60% on a linked quarter basis.

Year-Over-Year
Net interest income increased $600,000, or 5.5%, from the first quarter of 2017 to the first quarter of 2018. Net interest income was $11.5 million in the first quarter of 2018 compared with $10.9 million for the same period in 2017.  Interest income increased $1.1 million, or 8.7%, over this time period.  The increase in interest income was generated by an increase of $86.7 million, or 7.4%, in the level of earning assets.  The yield on earning assets decreased from 4.61% in the first quarter of 2017 to 4.60% in the first quarter of 2018. The average balance of loans, excluding PCI loans, increased $104.2 million, or 12.4%, from $839.2 million in the first quarter of 2017 to $943.4 million in the first quarter of 2018.  Interest income on securities was $1.8 million in each of the first quarter of 2018 and first quarter of 2017. On a tax-equivalent basis, the yield on investment securities was 2.98% in the first quarter of 2018, based on a 21% tax rate, and 3.22% in the first quarter of 2017, based on a 34% tax rate. 

Interest on PCI loans was $1.4 million in the first quarter of 2018 compared with $1.5 million in the first quarter of 2017.  The average balance of the PCI portfolio declined $7.4 million during the year-over-year comparison period.

Interest expense increased $531,000, or 25.5%, when comparing the first quarter of 2017 and the first quarter of 2018. Interest expense on deposits increased $364,000, or 20.5%, as the average balance of interest bearing deposits increased $41.3 million, or 4.6%.  The increase in deposit cost was driven by an increase in NOW and MMDA average balances, which increased a combined $62.5 million year-over-year. Likewise, the cost of these balances increased $189,000, from 0.24% to 0.45%, over the same time frame. Higher cost time deposit balances declined over the comparison period by $22.4 million; however, expense on this category increased by $176,000, resulting in an increase in cost from 1.11% to 1.29%. FHLB and other borrowings increased, on average, $15.6 million year-over-year, and there was an increase in the rate paid, from 1.33% in the first quarter of 2017 to 1.74% in the first quarter of 2018. This resulted in an increase in the expense of $162,000, to $458,000 in the first quarter of 2018.  The average balance of FHLB and other borrowings was $105.5 million in the first quarter of 2018. Overall, the Bank's cost of interest bearing liabilities increased 15 basis points, from 0.85% in the first quarter of 2017 to 1.00% in the first quarter of 2018.

The tax-equivalent net interest margin decreased 12 basis points, from 3.88% in the first quarter of 2017 to 3.76% in the first quarter of 2018.  Likewise, the interest spread decreased from 3.76% to 3.60% over the same time period.  The decrease in the margin was precipitated by the increase in the cost of interest bearing liabilities without a corresponding increase in the yield on earning assets.

The following table compares the Company's net interest margin, on a tax-equivalent basis, for the three months ended March 31, 2018, December 31, 2017 and March 31, 2017.

Provision for Loan Losses

The Company records a separate provision for loan losses for its loan portfolio, excluding PCI loans, and the PCI loan portfolio.  There was no provision for loan losses on the loan portfolio, excluding PCI loans, during either of the first quarter of 2018 or the first quarter of 2017. The absence of a provision in the first quarter of 2018 was the direct result of nominal charge-offs and stable asset quality. There was a provision for loan losses of $400,000 in the fourth quarter of 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 on the PCI loan portfolio during the first quarter of 2018, the fourth quarter of 2017 or the first quarter of 2017.  Additional discussion of loan quality is presented below.

Noninterest Income

Linked Quarter Basis
Noninterest income was $1.1 million for the first quarter of 2018, an $11,000 decrease compared with $1.1 million for the fourth quarter of 2017.  Other noninterest income of $128,000 was a decrease of $49,000 from the fourth quarter of 2017. The linked quarter change was primarily attributable to a decrease of $28,000 in commission income and a decrease of $23,000 in dividend income. Partially offsetting the decrease in other noninterest income was an increase of $32,000, or 40.5%, in mortgage loan income, which was $111,000 in the first quarter of 2018, compared with $79,000 in the fourth quarter of 2017. Nominal changes on a linked quarter basis were an increase of $9,000 in service charges and fees, which were $581,000 in the first quarter of 2018, and a decline of $3,000 in income on bank owned life insurance, which was $232,000 for the period.

Year-Over-Year
Noninterest income increased $47,000, or 4.5%, from $1.0 million in the first quarter of 2017 to $1.1 million in the first quarter of 2018. Mortgage loan income increased $78,000, or 236.4%, from $33,000 in the first quarter of 2017 to $111,000 in the first quarter of 2018.  The increase in mortgage loan income reflects continued momentum from a shift that began in the fourth quarter of 2016 to a less expensive platform program. Service charges and fees increased $56,000, or 10.7%, and were $581,000 in the first quarter of 2018 compared with $525,000 in the first quarter of 2017. Gains on securities transactions declined $65,000 over this time frame and were $30,000 in the first quarter of 2018 versus $95,000 in the first quarter of 2017. There has been less activity in the securities portfolio in 2018 as the Company maintains the level of securities to total assets near a target close to the 18.9% reflected at March 31, 2018. Other noninterest income decreased from $148,000 in the first quarter of 2017 to $128,000 in the first quarter of 2018. Within other noninterest income, brokerage fees and commissions declined by $18,000 year-over-year.

Noninterest Expenses

Linked Quarter Basis
Noninterest expenses totaled $9.4 million for the first quarter of 2018, as compared with $8.4 million for the fourth quarter of 2017, an increase of $1.0 million, or 12.54%.  Salaries and employee benefits increased $860,000, or 17.1% on a linked quarter basis. The vast majority of this increase was related to higher group benefit costs, which increased by $703,000. Salaries and employee benefits in the first quarter of 2018 were $5.9 million and also include employee costs from a new branch opened in Lynchburg, Virginia in December 2017. Other operating expenses increased $134,000 on a linked quarter basis, from $1.5 million in the fourth quarter of 2017 to $1.6 million in the first quarter of 2018. FDIC assessment increased $30,000, from $176,000 in the fourth quarter of 2017 to $206,000 in the first quarter of 2018. Data processing fees of $486,000 in the first quarter of 2018 represented an increase of $29,000 over the linked quarter. Equipment and occupancy expenses increased $19,000 and $11,000, respectively, on a linked quarter basis and were driven by the new branch opened in December 2017 Other real estate expenses, net, declined $14,000 on a linked quarter basis and were $50,000 in the first quarter of 2018. 

Year-Over-Year
Noninterest expenses increased $1.1 million, or 13.0%, when comparing the first quarter of 2018 to the same period in 2017. Again, the increase year-over-year was largely attributable to abnormally higher than usual group benefit costs, which increased by $703,000 in the first quarter of 2018 over the same period in 2017. Salaries and employee benefits increased $1.2 million, or 26.0%, from $4.7 million in the first quarter of 2017 to $5.9 million in the first quarter of 2018. Other operating expenses increased $207,000, or 14.4%, and were $1.6 million in the first quarter of 2018 compared with $1.4 million for the same period in 2017. Occupancy expenses increased $80,000 year-over-year and were $812,000 in the first quarter of 2018 compared with $732,000 in the first quarter of 2017. Since the beginning of 2017, the Bank has opened three full service banking facilities, West Broad Marketplace in the Short Pump area of Richmond and two offices in Lynchburg.  These openings also resulted in an increase year-over-year in equipment expenses, which increased $30,000, from $284,000 to $314,000. Other real estate expenses, net, of $50,000 in the first quarter of 2018 represents a year-over-year increase of $23,000. FDIC assessment was $206,000 in the first quarter of 2018 compared with $201,000 for the same period in 2017. Data processing fees of $486,000 in the first quarter of 2018 compared with $488,000 for the same period in 2017. Offsetting these increases was a decline of $477,000 in amortization of intangibles, which expired during 2017 and was $0 in the first quarter of 2018.

The following table compares the Company's other operating expenses included in noninterest expenses for the three months ended March 31, 2018, December 31, 2017 and March 31, 2017.

Income Taxes

Income tax expense was $540,000 for the three months ended March 31, 2018, compared with income tax expense of $4.2 million and $1.1 million for the fourth and first quarters of 2017, respectively.  The large expense in the fourth quarter of 2017 was attributable to recording a $3.5 million charge related to the re-measurement of net deferred tax assets from the passage of the Tax Cuts and Jobs Act. The effective tax rate for the first quarter of 2018 was 17.2% versus 30.1% for the first quarter of 2017. The decrease in the Company's effective tax rate results principally from the decrease in its applicable federal corporate tax rate from 34% to 21% as a result of the Tax Cuts and Jobs Act.    

FINANCIAL CONDITION

Total assets increased $17.0 million, or 1.3%, to $1.353 billion at March 31, 2018 when compared to December 31, 2017.  Total assets have increased $90.5 million, or 7.2%, since March 31, 2017.  Total loans, excluding PCI loans, were $964.3 million at March 31, 2018, increasing $22.3 million, or 2.4%, from year end 2017 and $112.1 million, or 13.2%, from March 31, 2017.   Total PCI loans were $42.2 million at March 31, 2018 versus $44.3 million at the prior quarter end and $49.7 million at March 31, 2017.

During the first quarter of 2018, commercial loans grew $11.4 million, or 7.2%, and were $170.4 million at March 31, 2018. Consumer installment loans grew $8.7 million and were $13.9 million at March 31, 2018.  On March 30, 2018, the Company purchased an in-market, high quality consumer auto loan pool totaling $9.0 million.  The addition of these loans will bring an increase in diversification to the portfolio. Commercial mortgage loans on real estate grew by $5.2 million, or 1.4%, and were $371.5 million at March 31, 2018.  Residential 1-4 family loans declined $4.8 million, or 2.1%, during the first quarter of 2018 and were $222.7 million at March 31, 2018. 

The Company's loan portfolio exhibits balanced growth when comparing March 31, 2018 and March 31, 2017.  Total loans grew $112.1 million or 13.2%, over the time frame with commercial loans growing by $39.7 million, or 30.4%, followed by growth of $27.9 million, or 8.1%, in commercial mortgage loans on real estate, $13.4 million, or 13.9%, in construction and land development loans, $12.2 million, or 5.8%, in residential 1-4 family loans, $10.5 million, or 21.1%, in multifamily loans and $8.6 million, or 160.8%, in consumer installment loans.

The following table shows the composition of the Company's loan portfolio, excluding PCI loans, at March 31, 2018, December 31, 2017 and March 31, 2017.

The Company's securities portfolio, excluding restricted equity securities, declined $4.3 million since year end 2017 to total $246.7 million at March 31, 2018. Securities balances declined $13.5 million since March 31, 2017.  Net gains of $30,000 were recognized during each of the first quarter of 2018 and the fourth quarter of 2017 through sales and call activity, and $95,000 was recognized during the first quarter of 2017.  The Company actively manages the portfolio to improve its liquidity and maximize the return within the desired risk profile.

The Company had cash and cash equivalents of $21.3 million, $22.0 million and $23.9 million at March 31, 2018, December 31, 2017 and March 31, 2017, respectively.  There were federal funds purchased of $20.0 million and federal funds sold of $152,000 at March 31, 2018 compared with federal funds purchased of $4.8 million at December 31, 2017 and federal funds sold of $132,000 at March 31, 2017. The increase in federal funds purchased at March 31, 2018 was used to fund loan growth in the first quarter of 2018 and is anticipated to be short-term in nature. Interest bearing bank balances were $9.1 million at March 31, 2018 compared with $7.3 million at December 31, 2017 and $12.0 million at March 31, 2017.

The following table shows the composition of the Company's securities portfolio, excluding equity securities, at March 31, 2018, December 31, 2017 and March 31, 2017.

Interest bearing deposits at March 31, 2018 were $946.3 million, an increase of $3.5 million from December 31, 2017 and $22.7 million greater than at March 31, 2017. As a result primarily of new account promotions at the three offices opened during 2017, money market deposit accounts grew $45.4 million, or 44.0%, from $103.0 million at March 31, 2017 to $148.4 million at March 31, 2018.  Money market balances grew $5.0 million since December 31, 2017.  NOW accounts, although decreasing $2.8 million during the first quarter of 2018, grew $23.3 million, or 17.8%, since March 31, 2017. Time deposits $250,000 and over increased $3.9 million during the first quarter of 2018 but declined $30.4 million since March 31, 2017. Driving the changes for both quarters were brokered deposits, which increased $2.4 million during the first quarter of 2018 but declined $31.7 million since March 31, 2017.  The increase in money market and NOW account balances has allowed the Bank to replace wholesale funding with core retail deposits. Time deposits less than or equal to $250,000 declined $2.3 million during the first quarter of 2018 and declined $16.6 million since March 31, 2017.

The following table compares the mix of interest bearing deposits at March 31, 2018, December 31, 2017 and March 31, 2017.

FHLB advances were $101.1 million at March 31, 2018, compared with $101.4 million at December 31, 2017 and $81.7 million at March 31, 2017.    

Shareholders' equity was $125.0 million at March 31, 2018, $124.0 million at December 31, 2017 and $117.7 million at March 31, 2017.  Shareholder's equity to assets was 9.2% at March 31, 2018 and 9.3% at each of December 31, 2017 and March 31, 2017.  Total shareholders' equity increased through retained earnings from net income but was negatively impacted by the fourth quarter write-down of the deferred tax asset and by the rise in interest rates, which impacted accumulated other comprehensive (loss) income  due to the effect on the fair value of available-for-sale securities.

Asset Quality – non-covered assets

Nonaccrual loans were $10.1 million at March 31, 2018, increasing $1.1 million from December 31, 2017 and increasing $1.0 million from March 31, 2017.  The increase from March 31, 2017 to March 31, 2018 was 11.0%. 

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

Total non-performing assets totaled $13.3 million at March 31, 2018 compared with $11.8 million at December 31, 2017. Total nonperforming assets increased $484,000, or 3.8%, since March 31, 2017.  There were net charge-offs of $1,000 in the first quarter of 2018 and $98,000 in the fourth quarter of 2017 and net recoveries of $20,000 in the first quarter of 2017.

The allowance for loan losses equaled 88.9% of nonaccrual loans at March 31, 2018, compared with 99.4% at December 31, 2017 and 104.6% at March 31, 2017. The ratio of nonperforming assets to loans and OREO was 1.37% at March 31, 2018 compared with 1.25% at December 31, 2017 and 1.49% at March 31, 2017.

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

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

A further breakout of nonaccrual loans, excluding PCI loans, at March 31, 2018, December 31, 2017, and March 31, 2017 is below.

Capital Requirements

The Company's ratio of total risk-based capital was 12.6% at March 31, 2018 compared with 12.7% at December 31, 2017.  The tier 1 risk-based capital ratio was 11.8% at March 31, 2018 and 11.9% at December 31, 2017. The Company's tier 1 leverage ratio was 9.8% at March 31, 2018 and 9.7% at December 31, 2017.  All capital ratios exceed regulatory minimums to be considered well capitalized.  BASEL III introduced the common equity tier 1 capital ratio, which was 11.4% at March 31, 2018 and 11.5% at December 31, 2017.

Earnings Conference Call and Webcast

The Company will host a conference call for interested parties on Thursday, April 26, 2018, at 10:00 a.m. Eastern Time to discuss the financial results for the first quarter of 2018. 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 April 26, 2018, until 9:00 a.m. Eastern Time on May 9, 2018. The replay will be available by dialing 877-344-7529 and entering access code 10119079 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, 2017 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.