Community Bankers Trust Corporation Reports Fourth Quarter and Annual Results for 2011

GLEN ALLEN, Va., Jan. 31, 2012 /PRNewswire/ -- Community Bankers Trust Corporation (the "Company") (NYSE Amex: BTC), the holding company for Essex Bank (the "Bank"), today reported net income of $695,000 in the fourth quarter of 2011. This compares with net income of $2.7 million in the fourth quarter of 2010 and net income of $1.4 million in the third quarter of 2011.  Net income available to common stockholders was $423,000 in the fourth quarter of 2011, compared with net income available to common stockholders of $2.4 million in the fourth quarter of 2010 and net income available to common stockholders of $1.2 million in the third quarter of 2011.  For the year ended December 31, 2011, the Company reported net income of $1.4 million and net income available to common stockholders of $354,000.  Net loss for the year ended December 31, 2010 was $21.0 million and net loss available to common stockholders for the same period was $22.1 million.

Rex L. Smith, III, President and Chief Executive Officer of the Company and the Bank, stated, "Our goals for 2011 were to make major improvements in our problem assets and to rebuild the fundamentals of the core bank, and I am pleased to report that we accomplished our goals.  Both nonaccrual loans and net charge-offs saw continual and substantial declines throughout the year.  At year-end our ratio of nonperforming assets to loans and other real estate was at its lowest level since the first quarter of 2010.  Additionally, the fourth quarter showed a strong increase in new loan production in our targeted growth areas.  All of this occurred while we lowered noninterest expense for the year by 21%.  While the profit we posted for the year is small, given the economy and the environment we were in, it is a clear success.  

"The positive momentum of 2011 gives us a strong start for 2012.  We will continue to aggressively reduce the level of nonperforming loans while enhancing the new loan production pipeline.  Our capital ratios remain very strong and give us a competitive advantage for the future.  We will build upon our successes, and I believe 2012 will be a year of real transformation for the bank.  While the rapidly changing regulatory world of banking and the economic factors for 2012 will inevitably bring other risks and opportunities not yet foreseeable, this management team remains focused on our core values.   We will focus on creating value for our shareholders in 2012."

Key highlights for the fourth quarter and for 2011 include the following:

• Net interest income improved by $3.3 million, or 8.1%, year over year.
• Loan growth was $39.6 million, or 7.8%, in the fourth quarter.
• Noninterest expenses declined by $9.4 million year over year, or 20.8%.
• Non-covered nonaccrual loans declined 21.1% during the quarter, or $7.6 million, ending the period at $28.5 million.
• Non-covered nonperforming assets declined 9.6%, or $4.3 million, from $45.1 million to $40.8 million on a linked quarter basis.
• Net charged-off loans continue to decline and were $929,000 for the fourth quarter of 2011, down from $1.0 million in the third quarter of 2011, $4.7 million in the second quarter of 2011, $5.5 million in the first quarter of 2011 and $8.7 million in the fourth quarter of 2010.
• Non-covered nonperforming assets to loans and other real estate owned declined from 8.78% to 7.35% on a linked quarter basis.  

RESULTS OF OPERATIONS

For the year ended December 31, 2011, net income available to common stockholders was $354,000, or $0.02 per common share on a diluted basis, compared with a net loss available to common stockholders of $22.1 million, or $1.03 per common share on a diluted basis, for the year ended December 31, 2010.  

Net income available to common stockholders was $423,000, or $0.02 per common share on a diluted basis, for the quarter ended December 31, 2011, compared with net income available to common stockholders of $2.4 million, or $0.11 per common share on a diluted basis, for the quarter ended December 31, 2010. Net income was driven by a decrease in noninterest income of $4.3 million. The change in noninterest income was through decreased securities gains of $3.7 million and an increase in FDIC indemnification asset amortization of $1.4 million when comparing the fourth quarter of 2011 to the same period in 2010.  Other comparison areas within noninterest income, such as loss on sale of OREO and service charges on deposit accounts, improved slightly in the fourth quarter of 2011 compared to the fourth quarter of 2010, resulting in the net decrease in noninterest income of $4.3 million.

The following table presents summary income statements for the three months ended December 31, 2011 and 2010, and the year ended December 31, 2011 and 2010.

Interest Income

Interest income was $13.9 million for the fourth quarter of 2011, a decrease of $395,000, or 2.8%, from interest income of $14.3 million in the third quarter of 2011.  Interest and fees on covered loans was the primary contributor to this decrease and was down $416,000 on a linked quarter basis to $4.3 million for the fourth quarter of 2011.  Covered FDIC loans are a self-liquidating business line and will consistently exhibit declining balances as the carrying value of these loans is reduced.  The carrying value of FDIC covered loans was $97.6 million at December 31, 2011 and $100.0 million at September 30, 2011.  

Interest income was $56.0 million for year ended December 31, 2011, a decrease of $2.9 million from interest income of $58.9 million for the year ended December 31, 2010.  This was primarily the result of a decline of $90.1 million in average earning assets, or 8.8%, from $1.029 billion for 2010 to $938.9 million for 2011.

Interest Expense

Interest expense was $2.9 million for the fourth quarter of 2011, a decrease of $110,000 from interest expense of $3.0 million in the third quarter of 2011.  Although average interest bearing liabilities increased $12.2 million, or 1.4%, during the quarter, the cost of interest bearing liabilities declined from 1.34% in the third quarter of 2011 to 1.27% in the fourth quarter of 2011.

Interest expense declined $6.2 million from $18.4 million for the year ended December 31, 2010 to $12.2 million for the year ended December 31, 2011.  This decline of $6.2 million, or 33.5% was driven by a decline in average interest bearing liabilities, from $1.006 billion for 2010 to $901.2 million for 2011.  Time deposits renewed at lower rates and thus contributed to the decrease in the cost of interest bearing liabilities from 1.83% for 2010 to 1.36% for 2011.

Net Interest Income

Net interest income was $11.0 million for the quarter ended December 31, 2011, compared with $11.3 million for the quarter ended September 30, 2011.  This represents a decrease of $285,000, or 2.5%.  On a tax equivalent basis, net interest income was $11.1 million for the fourth quarter of 2011 compared with tax equivalent net interest income of $11.4 million for the third quarter of 2011.  The tax equivalent net interest margin decreased from 4.91% in the third quarter of 2011 to 4.69% in the fourth quarter of 2011. This was due to a decline in net interest spread, from 4.85% to 4.62%, on a linked quarter basis.

Net interest income was $43.8 million for the year ended December 31, 2011, compared with $40.5 million for the year ended December 31, 2010.  The increase in net interest income was primarily the result of decreases of $104.5 million, or 10.4%, in the average balances of interest bearing liabilities coupled with lower rates, which has reduced interest expense 33.5%, from $18.4 million in 2010 to $12.2 million in 2011.  The tax equivalent net interest margin increased to 4.72% for the year ended December 31, 2011 from 4.10% for the year ended December 31, 2010.  

The following table compares the Company's net interest margin, on a tax-equivalent basis, for the three months ended December 31, 2011 and 2010, and September 30, 2011, and for the year ended December 31, 2011 and 2010.  

Provision for Loan Losses

In 2010, a number of factors influenced credit risk management practices, including the economy, the rising level of nonperforming assets, deterioration within the Company's loan portfolio and regulatory concerns.  As a result, the Company took provisions for loan losses totaling $27.4 million. In 2011, improved credit risk management, which resulted in a lower level of nonperforming assets, influenced the assessment the Company makes concerning the adequacy of its allowance for loan losses and the need for a provision.  There was no provision for loan losses for non-covered loans for the quarter ended December 31, 2011.  There was also no provision for loan losses for the third quarter of 2011, but there was a credit of $77,000 to the provision for the quarter ended December 31, 2010 after the recovery of a previously charged-off loan made by the holding company. 

The allowance for loan losses was 52.0% of non-covered nonaccrual loans at December 31, 2011, compared with 43.6% of non-covered nonaccrual loans at September 30, 2011. The ratio of allowance for loan losses to total non-covered loans was 2.72% at December 31, 2011, compared with 3.12% at September 30, 2011 and 4.86% at December 31, 2010. The decrease in this ratio from December 31, 2010 to December 31, 2011 is primarily the result of earlier recognition and resolution of problem credits and aggressive charge-offs, in addition to work-outs of nonperforming loans. In addition, the Bank held $36.5 million in government-guaranteed loans of the United States Department of Agriculture (USDA) at December 31, 2011, with no allowance for loan losses required.  Net charged-off loans were $929,000 in the fourth quarter of 2011, and the amounts have decreased sequentially over the previous five quarters.   Net charged-off loans have declined from $8.7 million in the fourth quarter of 2010, $5.5 million in the first quarter of 2011, $4.7 million in the second quarter of 2011, $1.0 million in the third quarter of 2011 and were, as reported above, $929,000 in the fourth quarter of 2011.

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

Noninterest Income

Noninterest income was negative $1.5 million for the fourth quarter of 2011 compared with negative $662,000 for the third quarter of 2011. Noninterest income in both periods was negative due to two factors--FDIC indemnification asset amortization and loss on OREO.  The largest component of noninterest income was FDIC indemnification asset amortization, which reduces noninterest income, and was $2.6 million in the fourth quarter of 2011 and $2.4 million in the third quarter of 2011. Loss on OREO was $337,000 in the fourth quarter of 2011 and $1.7 million in the third quarter of 2011.

Noninterest income reflected $306,000 in gain on sale of securities in the fourth quarter of 2011 and $1.7 million in the third quarter of 2011.  Other noninterest income was $535,000 in the fourth quarter of 2011, compared with $1.0 million in the third quarter of 2011.  Service charges on deposit accounts were $647,000 and $643,000, respectively, in the fourth quarter and third quarters of 2011.

For the year ended December 31, 2011, noninterest income equaled negative $5.0 million, compared with $1.6 million for the year ended December 31, 2010. This change was due primarily to accelerated FDIC indemnification asset amortization of $7.2 million, from $3.2 million for 2010 to $10.4 million for 2011.  The increase in FDIC indemnification asset amortization correlates to the increased yield realized in interest and fees on FDIC covered loans over the same time frame, as projected losses carried within the FDIC indemnification asset have been realized instead, through payment performance of the associated borrowers.  Management continues to refine and enhance the methodology to amortize the indemnification asset based on the historical and projected cash flows of the FDIC covered loan portfolio.  These enhancements should result in amortization of the indemnification asset that more closely correlates to the accretable yield of the FDIC covered loan portfolio.   Other noninterest income declined $898,000 in 2011 compared with 2010.  Other noninterest income was $3.8 million for the year ended December 31, 2010 and $2.9 million for the year ended December 30, 2011.  This decrease reflects fewer reimbursable loss events in FDIC covered loans.

Gain on sales of securities decreased by $720,000, from $3.6 million in 2010, to $2.9 million for the same period in 2011.  Additionally, there was a reduction in loss on sale of OREO of $2.2 million, from $5.1 million for 2010 to $2.9 million in 2011.  Service charges increased $39,000 and were $2.5 million in both 2010 and 2011.

Noninterest Expense

On a linked quarter basis, noninterest expenses totaled $8.6 million for the three months ended December 31, 2011, compared with $8.7 million for the quarter ended September 30, 2011, a decrease of $55,000, or 0.7%.  The largest expense increases, on a linked quarter basis, were in salaries and employee benefits and professional fees.  Salaries and employee benefits increased by $128,000, or 3.2%, and were $4.2 million for the fourth quarter of 2011.  Professional fees were $126,000 for the fourth quarter of 2011 and increased $58,000 over the third quarter of 2011.

Legal fees were $63,000 in the fourth quarter of 2011, a decline of $178,000. Other noteworthy expense declines in the fourth quarter of 2011 compared with the third quarter of 2011 were $27,000 in occupancy expenses and $19,000 in other operating expenses.  

For the year ended December 31, 2011, noninterest expenses declined 20.8%, or $9.4 million.  Excluding an impairment of goodwill charge taken in 2010, noninterest expenses would have declined by $3.7 million, or 9.3%, as 12 of 15 expense categories exhibited declines during 2011 compared to 2010.  The largest decrease occurred in salaries and employee benefits, which declined 13.5%, or $2.6 million, from $19.2 million in 2010 to $16.6 million in 2011.  Professional fees declined 67.6%, or $1.2 million, from $1.8 million in 2010 to $583,000 in 2011.  Other decreases of $100,000 or more occurred in data processing, which declined $441,000 in 2011 and equipment expense, which declined $157,000.

Offsetting these decreases in noninterest interest expenses in 2011 compared with 2010 were increases in other operating expenses of $406,000, from $6.8 million in 2010 to $7.2 million in 2011 and FDIC assessment, which increased by $393,000, from $2.4 million to $2.8 million.  

Income Taxes

Income tax expense was $239,000 for the three months ended December 31, 2011, compared with income tax expense of $532,000 in the third quarter of 2011.  For the year ended December 31, 2011, income tax expense was $60,000, compared with an income tax benefit of $9.4 million for the year ended December 31, 2010.

FINANCIAL CONDITION

At December 31, 2011, the Company had total assets of $1.092 billion, a decrease of $23.1 million, or 2.1%, from total assets of $1.116 billion at December 31, 2010. Total loans, including $97.6 million in loans covered by the FDIC shared loss agreements, were $642.3 million at December 31, 2011, decreasing $1.2 million, or 0.2%, from $641.1 million at December 31, 2010.   The carrying value of covered loans declined $18.0 million, or 15.6%, from December 31, 2010 to December 31, 2011. Non-covered loans equaled $544.7 million at December 31, 2011, increasing $19.2 million, or 3.7%, since December 31, 2010.  Non-covered loans increased $39.6 million from September 30, 2011 to December 31, 2011.  

During the third quarter of 2011, the Bank began purchasing government-guaranteed loans under programs administered by the USDA. The Bank has purchased only the government guaranteed portion of any of the loans that have been originated by other financial institutions. At September 30, 2011, the Bank had $11.6 million in USDA loan balances.  During the fourth quarter of 2011, another $25.4 million in USDA loans were purchased and booked, bringing the total to $36.5 million.  USDA balances are reflected in the non-covered loan section. The "covered" loan section is classified as such due to the existence of FDIC shared-loss agreements pertaining to its balances, which are reflected at carrying value.

On a linked quarter basis, gross loans increased $39.6 million, or 7.8%.  Total real estate loans increased $22.7 million and were $462.7 million at December 31, 2011.  Commercial lending activity increased $18.1 million, or 33.6%, during the fourth quarter of 2011 and was $72.1 million at December 31, 2011.  Excluding USDA government-guaranteed loan balances, core loan growth totaled $14.3 million, or 2.9%, in the fourth quarter of 2011.  Real estate – commercial grew $12.2 million, commercial purpose loans increased $6.2 million and real estate – multifamily balances increased $6.0 million.  Real estate – construction and land development loans declined by $6.4 million in the fourth quarter of 2011.

Excluding USDA government-guaranteed loan balances, the allowance for loan losses to total loans would have been 2.92% at December 31, 2011 and 3.19% at September 30, 2011. USDA loans balances are classified according to collateral and purpose.  

The following table shows the composition of the Company's non-covered loan portfolio on a linked quarter basis.

The Company's securities portfolio, excluding equity securities, decreased $3.1 million, or 1.0%, during the year ended December 31, 2011 to $297.2 million with realized gains of $2.9 million through sales activity. The Company had cash and cash equivalents of $21.8 million at December 31, 2011, compared with $33.4 million at December 31, 2010.  There were no Federal funds sold at December 31, 2011, compared with $2.0 million at December 31, 2010. 

On a linked quarter basis, the Company's securities portfolio, excluding equity securities, increased $12.3 million, from $284.9 million at September 30, 2011 to $297.2 million at December 31, 2011, and $306,000 in gains were realized during the fourth quarter.  In addition, management changed the mix of the securities portfolio during the quarter. Fair value of available for sale U.S. Treasury issue and other U.S. Government agencies declined $52.1 while mortgage backed securities balances increased from $91.7 million at September 30, 2011 to $157.6 million at December 31, 2011.

The following table shows the composition of the Company's securities portfolio, excluding equity securities, on a linked quarter basis.

Bank owned life insurance increased $7.6 million during the fourth quarter of 2011, as the Company made an additional investment on December 30, 2011. The income on this investment will be reflected in future periods in noninterest income.

Interest bearing deposits at December 31, 2011 were $868.5 million, a decrease of $30.8 million from December 31, 2010. Management kept rates low among all of the Bank's markets as loan demand remained weak and covered loans continued to decline in volume. Throughout 2011, the Company attempted to restructure the deposit mix away from higher priced deposits and more into lower cost transactional accounts. As a result, total time deposits as a percent of total interest bearing deposits, declined from 66.9% at December 31, 2010 to 63.8% at December 31, 2011.

On a linked quarter basis, interest bearing deposits increased $21.0 million.  The majority of this growth consisted of an increase of 16.5%, or $18.2 million in NOW accounts from $110.5 million at September 30, 2011 to $128.8 million at December 31, 2011.  This increase was concentrated primarily in the form of seasonal funds related to public deposits still in NOW balances at December 31, 2011.  

The following table details the mix of interest bearing deposits at December 31, 2011 and 2010, and September 30, 2011.

The Company had Federal Home Loan Bank (FHLB) advances of $37.0 million at each of December 31, 2011, September 30, 2011 and December 31, 2010.

Asset Quality – non-covered assets

Nonaccrual loans were $28.5 million at December 31, 2011, compared with $36.2 million at September 30, 2011. This decrease of $7.7 million, or 21.1%, was comprised of $3.0 million in additions to nonaccrual loans, $8.7 million of loans removed from nonaccrual status and $2.0 million in paydowns and charge-offs. Total nonperforming assets decreased $4.3 million from $45.1 million at September 30, 2011 to $40.8 million at December 31, 2011. Total charge-offs for the fourth quarter of 2011 were $969,000 and recoveries were $40,000.  Non-covered other real estate owned increased $1.4 million, from $8.9 million at September 30, 2011 to $10.3 million at December 31, 2011. This  change  reflect additions of $2.4 million  and reductions by sales of $1.0 million. Write-downs  and transfers were $0 for the fourth quarter of 2011.

For the year ended December 31, 2011, net charge-offs were $12.2 million, compared with $19.1 million for the year ended December 31, 2010.  Total charge-offs were $12.8 million for 2011 and $20.1 million for 2010.  Recoveries were $588,000 in 2011 and $951,000 in 2010. Management's aggressive strategy to work nonperforming loans and other real estate owned is evidenced in the volume of charge-offs as well as the level of the loan loss reserve.

Nonperforming assets to loans and other real estate declined from 8.78% at September 30, 2011 to 7.35% at December 31, 2011. The ratio of the allowance for loan losses to nonperforming assets was 36.36% at December 31, 2011, compared with 34.94% at September 30, 2011 and 59.61% at December 31, 2010.

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

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

Capital Requirements

Stockholders' equity at December 31, 2011 was $111.1 million, or 10.2% of total assets, and increased from stockholders' equity of $107.1 million, or 9.6% of total assets, at December 31, 2010.  Stockholders' equity was $110.7 million, or 10.3% of total assets, at September 30, 2011.

The Company's ratio of total risk-based capital was 16.2% at December 31, 2011 compared to 15.6% at December 31, 2010.  The tier 1 risk-based capital ratio was 15.0% at December 31, 2011 and 14.4% at December 31, 2010. The Company's tier 1 leverage ratio was 8.9% at December 31, 2011 and 8.1% at December 31, 2010.  All capital ratios exceed regulatory minimums.

About Community Bankers Trust Corporation

The Company is the holding company for Essex Bank, a Virginia state bank with 24 full-service offices, 13 of which are in Virginia, seven of which are in Maryland and four of which are in Georgia. Additional information is available on the Company's website at www.cbtrustcorp.com.

Earnings Conference Call and Webcast

The Company will host a conference call for the financial community on Tuesday, January 31, 2012 at 11:00 a.m. Eastern Time to discuss the fourth quarter and 2011 financial results. The public is invited to listen to this conference call by dialing 800-860-2442 at least 10 minutes prior to the call.  Interested parties may also listen to this conference call through the internet by accessing the "Investor Information" page of the Company's internet site at www.cbtrustcorp.com.

A replay of the conference call will be available from 2:00 p.m. Eastern Time on January 31, 2012 until 9:00 a.m. Eastern Time on February 7, 2012. The replay will be available by dialing 877-344-7529 and entering access code 10006029 or through the internet by accessing the "Investor Information" page of the Company's internet site at www.cbtrustcorp.com.

Forward-Looking Statements

This release contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that are subject to risks and uncertainties. These forward-looking statements include, without limitation, statements with respect to the Company's operations, growth strategy and goals. Actual results may differ materially from those included in the forward-looking statements due to a number of factors, including, without limitation, the effects of and changes in the following: the quality or composition of the Company's loan or investment portfolios, including collateral values and the repayment abilities of borrowers and issuers; assumptions that underlie the Company's allowance for loan losses; general economic and market conditions, either nationally or in the Company's  market areas; the ability of the Company to comply with regulatory actions, and the costs associated with doing so; the interest rate environment; competitive pressures among banks and financial institutions or from companies outside the banking industry; real estate values; the demand for deposit, loan, and investment products and other financial services; the demand, development and acceptance of new products and services; the Company's compliance with, and the timing of future reimbursements from the FDIC to the Company under, the shared loss agreements; assumptions and estimates that underlie the accounting for loan pools under the shared loss agreements; consumer profiles and spending and savings habits; the securities and credit markets; costs associated with the integration of banking and other internal operations; management's evaluation of goodwill and other assets on a periodic basis, and any resulting impairment charges, under applicable accounting standards; the soundness of other financial institutions with which the Company does business; inflation; technology; and legislative and regulatory requirements. Many of these factors and additional risks and uncertainties are described in the Company's Annual Report on Form 10-K for the year ended December 31, 2010 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.

Non-GAAP Financial Measures

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). Common tangible book value equals total stockholders' equity less preferred stock, goodwill and 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 preferred stock, goodwill and 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.

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 following table reconciles these non-GAAP measures from their respective GAAP basis measures.

SOURCE Community Bankers Trust Corporation