Community Bankers Trust Corporation Reports Results for Fourth Quarter and Year 2016

RICHMOND, Va., Jan. 26, 2017 /PRNewswire/ -- Community Bankers Trust Corporation (the "Company") (NASDAQ:  ESXB), the holding company for Essex Bank (the "Bank"), today reported unaudited results for the fourth quarter and year ended December 31, 2016.

FINANCIAL HIGHLIGHTS

• Fourth quarter 2016 net income of $2.7 million is a linked quarter increase of 10.9% and a year-over-year increase of 23.1%.
• Earnings per common share (EPS) were $0.12 for the fourth quarter of 2016 compared with $0.10 for the fourth quarter of 2015.
• For the year ended December 31, 2016, net income was $9.9 million, or $0.45 per common share, compared with a net loss of $2.5 million, or ($0.11) per common share, for 2015.

OPERATING HIGHLIGHTS

• Gross loans, excluding purchase credit impaired (PCI) loans, grew $24.5 million, or 3.0%, during the fourth quarter of 2016 and $87.6 million, or 11.7%, since year end 2015.
• Commercial loans grew $10.5 million, or 8.9%, during the fourth quarter of 2016.
• Noninterest bearing deposits grew $32.7 million, or 34.0%, during 2016.
• Noninterest bearing deposits were 12.4% of total deposits at December 31, 2016 compared with 10.2% at December 31, 2015.

MANAGEMENT COMMENTS

Rex L. Smith, III, President and Chief Executive Officer, stated, "We delivered solid earnings in the fourth quarter and continue to grow earnings while expanding the footprint of the franchise.  The results demonstrate the progress we made in realizing our strategic initiatives.  We continue to produce double digit loan growth, and it is distributed among the commercial, small business and real estate groups.  Commercial loans in particular now account for 15.5% of the total loan portfolio."

Smith added, "Our branching strategy has been successful as we continue to grow the franchise while increasing earnings.  In 2016, we opened two new branches in our Virginia market in Fairfax and Cumberland.  For 2017, we have new offices committed in the Short Pump area of Richmond and one in Lynchburg.  We also continue to look for growth and restructuring opportunities in Maryland as that part of the franchise has seen significant growth.  This expansion helps our noninterest bearing deposit growth, which was 34.0% for the year."

Smith concluded, "Our strategy has allowed us to create significant value in the past several years through a combination of strategic branching, diversified loan growth and a substantial change in the core deposit mix.  Because of the level of adjustable rate loans and our sources of funding, including the growth in noninterest bearing deposits, the Bank is well positioned for the rising rate environment we expect in the coming year.  We are pleased with the results of 2016 and look forward to continuing our positive trends in 2017."

RESULTS OF OPERATIONS

Net income was $2.7 million for the fourth quarter of 2016, compared with linked quarter net income of $2.5 million in the third quarter of 2016 and year-over-year net income of $2.2 million in the fourth quarter of 2015.  Earnings per common share, basic and fully diluted, were $0.12 per share, $0.11 per share and $0.10 per share for the three months ended December 31, 2016, September 30, 2016, and December 31, 2015, respectively.  For the year ended December 31, 2016, net income was $9.9 million, or $0.45 per common share, basic and fully diluted, compared with a net loss of $2.5 million, or ($0.11) per common share, for the year ended December 31, 2015.  

Net income in 2015 was affected by the third quarter termination of the Bank's FDIC shared-loss agreements in order to improve profitability beginning in the fourth quarter of 2015.  As part of the termination of the shared-loss agreements, the FDIC paid $3.1 million in cash to the Bank, and the remaining $13.1 million of the FDIC indemnification asset related to the agreements was charged off.  This transaction eliminated future indemnification asset amortization expense, which had totaled $5.2 million for the 12 month period from July 1, 2014 through June 30, 2015. 

Excluding the one-time charge of $13.1 million related to the termination of the FDIC shared-loss agreements, net income for 2015 would have been approximately $6.1 million, or $0.28 per common share.  In addition to the shared-loss termination charge, the Company had write-downs totaling $1.1 million with respect to two bank buildings held for sale and one parcel in other real estate owned in the third quarter of 2015. 

The following table presents summary income statements for the three months ended December 31, 2016, September 30, 2016 and December 31, 2015, and the years ended December 31, 2016 and December 31, 2015.

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 $10.6 million for the quarter ended December 31, 2016 compared with $10.5 million for the quarter ended September 30, 2016.  This is an increase of 1.2%, or $123,000. 

Interest income on a linked quarter basis increased $310,000, or 2.5%, to $12.7 million for the fourth quarter of 2016. This resulted in a yield on earning assets of 4.41%, a decline of nine basis points on a linked quarter basis. Interest income with respect to loans increased $260,000, or 2.8%, during the fourth quarter of 2016 when compared with the third quarter of 2016.  This increase was attributable to a full quarter of earnings from $26.8 million in loan growth generated in the third quarter of 2016 coupled with loan growth of $24.5 million in the fourth quarter of 2016.  Interest income with respect to PCI loans was $1.5 million in each of the third and fourth quarters of 2016. 

Securities income equaled $1.7 million in each of the third and fourth quarters of 2016.  On a tax equivalent basis, securities income was $2.0 million for each of the third and fourth quarters of 2016.  The tax equivalent yield on the securities portfolio was 3.09% for each of the third and fourth quarters of 2016.

Interest expense was $2.1 million for the fourth quarter of 2016, an increase of $187,000, or 9.8%, over the third quarter of 2016 as interest bearing liabilities increased 4.9%, or $46.9 million, on average, in the fourth quarter.  The Bank embarked upon a successful certificate of deposit campaign in the third and fourth quarters of 2016 ahead of the anticipated increase in the discount rate that occurred in December.  The Company's cost of interest bearing liabilities increased from 0.79%, or $1.9 million, in the third quarter of 2016 to 0.83%, or $2.1 million, in the current quarter.  The cost of FHLB borrowings was 1.20% in the fourth quarter of 2016 compared with 1.05% for the third quarter of 2016.  During the fourth quarter of 2016, the average balance of FHLB borrowings was $102.1 million compared with $111.8 million in the third quarter of 2016.  The increase in interest bearing liabilities in the fourth quarter, noted above, enabled the Bank to lower the level of FHLB borrowings.  

With the changes in net interest income noted above, the tax equivalent net interest margin decreased and was 3.70% in the fourth quarter of 2016 compared with 3.82% in the third quarter of 2016. Likewise, the interest spread was 3.58% in the fourth quarter of 2016, down from 3.71% in the third quarter of 2016.

Yearly Comparison 2016 versus 2015

For the year 2016, net interest income increased $1.4 million, or 3.6%, and was $41.5 million. The tax equivalent yield on earning assets was 4.50% for 2016 compared with 4.57% for 2015. Interest and fees on loans of $36.0 million in 2016 was an increase of $4.0 million, or 12.5%, compared with $32.0 million for 2015.  Interest and fees on PCI loans declined $1.6 million over this same time frame.  Of that decline, $475,000 was related to cash payments on ADC loans related to pools, previously written down to a zero carrying value, received in 2015 versus no such payments in 2016. Securities income declined $681,000 for 2016 compared with the same period in 2015 as securities balances have been liquidated to fund loan growth.

Interest expense of $7.8 million for 2016 represented an increase of $323,000, or 4.31%, compared with 2015. Total average interest bearing liabilities increased $21.4 million, as loan growth has been fueled by this increase and an average balance increase of 23.0%, or $21.7 million, in noninterest bearing deposits, coupled with a decline in the average balance of securities of $36.3 million during 2016.

The tax equivalent net interest margin was 3.80% for the year ended December 31, 2016 versus 3.87% for the year ended December 31, 2015.  The net interest spread was 3.69% for 2016 versus 3.77% for 2015.

Year-Over-Year Quarter

Net interest income increased $664,000, or 6.7%, from the fourth quarter of 2015 to the fourth quarter of 2016 and was $10.6 million. The tax equivalent yield on earning assets of 4.41% in the fourth quarter of 2016 was a decrease from 4.45% for the fourth quarter of 2015. While the yield on loans decreased from 4.59% to 4.56%, loan volume increased the average balance by $107.5 million, or 15.1%, in the fourth quarter of 2016. Interest income on loans was $9.4 million, an increase of $1.2 million over fourth quarter 2015 interest income of $8.2 million. Interest on PCI loans was $1.5 million in the fourth quarter of 2016, a decrease of $128,000 year over year.  The return on PCI loans increased over this time frame, from 10.97% to 11.46%. Income on securities of $2.0 million in the fourth quarter of 2016 represented a decline of $240,000 year over year as a result of a reduction in the average balances of securities of $43.9 million, or 14.5%.  These securities, through sales, calls and maturities, have been used to fund loan growth since the fourth quarter of 2015.  There was, however, an increase in the yield on securities from 2.96% to 3.09% year over year. 

Interest expense increased $207,000, or 11.0%, when comparing the fourth quarter of 2016 and the fourth quarter of 2015. The increase in interest expense was a result of the aforementioned certificate of deposit campaign. Interest expense on deposits increased $218,000, or 14.3%, as the average balance of interest bearing deposits increased $55.6 million, or 6.6%. Overall, the Bank's cost of interest bearing deposits of 0.77% represented an increase from 0.72% in the fourth quarter of 2015. Average interest bearing liabilities costs increased from 0.79% in the fourth quarter of 2015 to 0.83% in the fourth quarter of 2016.

The tax equivalent net interest margin decreased 6 basis points from 3.76% in the fourth quarter of 2015 to 3.70% in the fourth quarter of 2016.  Likewise, the interest spread decreased from 3.66% to 3.58% over the same time period.  The decrease in the margin was precipitated by an increase in the level of the average balance of interest bearing liabilities from $949.4 million in the fourth quarter of 2015 to $1.0 billion in the fourth quarter of 2016 as a result of the certificate of deposit campaign noted above.

The following table compares the Company's net interest margin, on a tax-equivalent basis, for the three months ended December 31, 2016, September 30, 2016 and December 31, 2015 and for the years ended December 31, 2016 and December 31, 2015.

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 no provision for loan losses, excluding PCI loans, during the fourth quarter of 2016.  Similarly, there was no provision for loan losses in either the fourth quarter or the year ended December 31, 2015.  Due to continued improved performance in the PCI loan portfolio, there was a credit of $284,000 to its provision in the fourth quarter of 2016. There was no provision for loan losses on the PCI loan portfolio for any period during the year ended December 31, 2015. During the periods with no provision, the absence of a provision was the direct result of nominal charge-offs and the ongoing stabilization of asset quality.  Additional discussion of loan quality is presented below.

Noninterest Income

Linked Quarter Basis

Noninterest income was $1.1 million for the fourth quarter of 2016, compared with $1.3 million for the third quarter of 2016.  The decrease of $227,000, or 16.9%, in noninterest income on a linked quarter basis was driven by a decline of $245,000 in mortgage loan income, which was $252,000 in the third quarter compared with $7,000 in the fourth quarter of 2016.  In September 2016, the Bank discontinued its wholesale mortgage operations and refocused its efforts towards retail mortgage production. With the discontinued wholesale mortgage operations, there is a corresponding decrease in salaries and employee benefit expenses. 

Yearly Comparison 2016 versus 2015

Noninterest income was $5.2 million for the year ended December 31, 2016, an increase of $98,000, or 1.9%, over $5.1 million for the year ended December 31, 2015.  Securities gains of $634,000 in 2016 compared with $472,000 for 2015. Likewise, service charges on deposit accounts increased by $151,000 and were $2.4 million for 2016. Income on bank owned life insurance of $870,000 in 2016 is an increase of $119,000, or 15.9%.  Offsetting these increases for 2016 compared with 2015 were decreases of $178,000 in mortgage loan income, which was $606,000 in 2016, $87,000 in other noninterest income, which was $649,000 in 2016, and $69,000 in gain on sale of loans in 2015, which was zero in 2016,

Year-Over-Year Quarter

Noninterest income decreased $107,000, or 8.7%, from $1.2 million in the fourth quarter of 2015 to $1.1 million in the fourth quarter of 2016. Mortgage loan income decreased by $137,000 year-over-year as a result of the discontinued mortgage operations noted above.  Gains on securities transactions were $26,000 in the fourth quarter of 2016 compared with $109,000 in the fourth quarter of 2015.  Offsetting these decreases were an increase of $51,000 in income on bank owned life insurance, an increase of $34,000 in service charges on deposit accounts and an increase of $28,000 in other noninterest income.

Noninterest Expense

Linked Quarter Basis

Noninterest expenses totaled $8.2 million for the fourth quarter of 2016, as compared with $8.3 million for the third quarter of 2016, a decrease of $66,000, or 0.8%. Notable differences between the third quarter of 2016 and the fourth quarter of 2016 included an increase of $236,000 in other real estate expenses, which were $264,000 in the fourth quarter of 2016.  Offsetting this increase was a decrease of $186,000 in FDIC assessment reflecting lower assessment rates instituted by the FDIC, a decrease of $112,000 in salaries and employee benefits and a decline of $62,000 in occupancy expenses.

Yearly Comparison 2016 versus 2015

Noninterest expenses were $32.8 million for the year ended December 31, 2016, as compared with $50.3 million for the year ended December 31, 2015.  This is a decrease of $17.5 million, or 34.8%.  FDIC indemnification asset amortization was $0 for 2016 and $16.2 million for 2015 as a result of the termination of the shared-loss agreements and associated write-off. Other real estate expenses improved $1.1 million in 2016 and were $175,000. The expense in this category in 2015 was primarily from the write-down of $1.1 million in the two bank owned properties and other real estate owned noted previously. Other operating expenses declined $444,000 over the comparison period.  Salaries and employee benefits increased $271,000, or 1.5%, in 2016 compared with 2015.  FDIC assessment decreased $115,000 and occupancy expenses increased $145,000 in 2016, the result of the Bank's new branches in Fairfax and Cumberland, Virginia.

Year-Over-Year Quarter

Noninterest expenses decreased $57,000, or 0.7%, in the fourth quarter of 2016 compared with the same period in 2015. FDIC assessment decreased $227,000 due to lower assessment rates, and was $67,000 for the fourth quarter of 2016 compared with $294,000 for the same period in 2015.  Additionally, other operating expenses decreased $111,000, or 7.2%, and were $1.4 million in 2016.  Salaries and employee benefits represents the largest year-over-year increase in noninterest expenses, increasing by 2.9% and were $4.6 million for the fourth quarter of 2016.  Occupancy expenses increased $78,000, or 12.7%, and other real estate expenses increased $69,000, or 35.4%.

Income Taxes

Income tax expense was $1.1 million for the three months ended December 31, 2016 compared with income tax expense of $862,000 in the third quarter of 2016 and $704,000 in the fourth quarter of 2015.  The effective tax rate was 28.6% for the fourth quarter of 2016 compared with 26.0% for the third quarter of 2016 and 24.1% in the fourth quarter of 2015. For the year ended December 31 2016, income tax expense of $3.8 million represented an effective tax rate of 27.8% compared with an income tax benefit of $2.6 million for the year ended December 31, 2015. The credit for the year ended 2015 was the result of the net loss for the year generated by the accounting for the termination of the shared-loss agreements.

FINANCIAL CONDITION

Total assets increased $69.3 million, or 5.9%, to $1.250 billion at December 31, 2016 as compared with $1.181 billion at December 31, 2015.  Total loans were $836.3 million at December 31, 2016, increasing $87.6 million, or 11.7%, from year end 2015.   Total PCI loans were $52.0 million at December 31, 2016 versus $59.0 million at year end 2015.

During 2016, construction and land development loans grew by $30.9 million, or 45.8%, commercial loans grew $26.8 million, or 26.1%, commercial mortgage loans on real estate grew $21.8 million, or 6.9%, and residential 1-4 family loans grew $13.3 million, or 6.8%. 

The following table shows the composition of the Company's loan portfolio at December 31, 2016, September 30, 2016 and December 31, 2015.

The Company's securities portfolio, excluding equity securities, declined $17.0 million, or 6.1%, from $279.7 million at December 31, 2015 to $262.7 million at December 31, 2016.  Net realized gains of $634,000 were recognized during 2016 through sales and call activity, as compared with $472,000 recognized during 2015.  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 $21.1 million at December 31, 2016 compared with $17.0 million at December 31, 2015.  There were federal funds purchased of $4.7 million at December 31, 2016 compared with federal funds purchased of $18.9 million at December 31, 2015.

The following table shows the composition of the Company's securities portfolio, excluding equity securities, at December 31, 2016, September 30, 2016 and December 31, 2015.

Interest bearing deposits at December 31, 2016 were $908.4 million, an increase of $59.1 million, or 7.0%, from $849.3 million at December 31, 2015. Time deposits less than or equal to $250,000 increased $31.6 million while time deposits over $250,000 increased $10.1 million as a result of a successful retail certificate of deposit promotion in the fourth quarter of 2016 that brought in over $40 million in new money. NOW account balances increased by $8.6 million, savings accounts by $6.3 million and MMDAs by $2.5 million.

The following table compares the mix of interest bearing deposits at December 31, 2016, September 30, 2016 and December 31, 2015.

FHLB advances were $81.9 million at December 31, 2016, compared with $95.7 million at December 31, 2015. The decrease in FHLB advances was offset by the decline in securities. Long term debt totaled $1.7 million at December 31, 2016, declining by $4.0 million, or 70.6%, since December 31, 2015.  This borrowing, initially in the amount of $10.7 million, was obtained in April 2014, and the proceeds were used to redeem the Company's remaining outstanding TARP preferred stock.  The Company had paid down this debt by $9.0 million at December 31, 2016, and the loan, which was scheduled to be fully paid on April 21, 2017, was fully paid on January 9, 2017.

Shareholders' equity was $114.4 million at December 31, 2016 compared with $104.5 million at December 31, 2015. Shareholders' equity increased $9.9 million, or 9.5%, from year end 2015. 

Asset Quality – non-PCI loans

Nonaccrual loans were $10.2 million at December 31, 2016, decreasing $1.0 million during the fourth quarter of 2016 and $427,000 from December 31, 2015. The level of total classified and criticized assets has been stable over the last five quarters and no provision for loan losses was recognized in the current quarter.  The changes within the level of total classified and criticized assets on a linked quarter basis were primarily from two credits that were shifted from special mention status to substandard status during the third quarter of 2016.  These credits were paid off as of December 31, 2016.

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

Total nonperforming assets totaled $14.7 million at December 31, 2016 compared with $16.2 million at December 31, 2015. Total nonperforming assets decreased $1.4 million since September 30, 2016.  There were net recoveries of $13,000 in the fourth quarter of 2016 compared with $204,000 in net charge-offs in the third quarter of 2016 and $142,000 in net charge-offs in the fourth quarter of 2015. Year-to-date 2016 net charge-offs equaled $516,000.

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 92.7% of nonaccrual loans at December 31, 2016, compared with 84.5% at September 30, 2016 and 89.6% at December 31, 2015. The ratio of the allowance for loan losses to total nonperforming assets was 66.1% at December 31, 2016 compared with 61.8% at September 30, 2016 and 62.2% at December 31, 2015.  The ratio of nonperforming assets to loans and OREO was 1.7% at December 31, 2016 compared with 2.0% at September 30, 2016 and 2.1% at December 31, 2015.

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

A further breakout of nonaccrual loans at December 31, 2016, September 30, 2016 and December 31, 2015 is below.

Capital Requirements

The Company's ratio of total risk-based capital was 13.2% at September 30, 2016 compared with 13.2% at December 31, 2016.  The tier 1 risk-based capital ratio was 12.2% at September 30, 2016 and 12.2% at December 31, 2016. The Company's tier 1 leverage ratio was 9.8% at September 30, 2016 and 10.0% 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 11.8% at September 30, 2016 and 11.8% at December 31, 2016.

Earnings Conference Call and Webcast

The Company will host a conference call for interested parties on Thursday, January 26, 2017, at 10:00 a.m. Eastern Time to discuss the financial results for the fourth quarter and the year 2016. 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 26, 2017, until 9:00 a.m. Eastern Time on February 9, 2017. The replay will be available by dialing 877-344-7529 and entering access code 10098962 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 23 full-service offices, 17 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, 2015 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.