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Porter Bancorp, Inc. (NASDAQ: PBIB), parent company of PBI Bank, with 18 full-service banking offices in Kentucky, today reported results for the second quarter of 2011.
The Company reported a net loss to common shareholders of $39.0 million, or $(3.33) per diluted share, for the second quarter of 2011. Net loss to common shareholders for the six months ended June 30, 2011 was $38.6 million, or $(3.30) per fully diluted common share. Our loss was a direct result of a strategy change undertaken in the second quarter to more aggressively dispose of certain non-performing assets and the write-off of our goodwill. Our change in strategy for disposal of certain non-performing assets is reflected in the $22.1 million other real estate expense and provision for loan losses of $13.7 million, which exceed our net charge-offs for the quarter by $5.1 million. The goodwill impairment charge does not affect cash flows, liquidity, regulatory capital, regulatory capital ratios or the Company’s future operations and was recorded principally due to the decline in the Company’s stock price.
During the second quarter, management, with concurrence of the Board of Directors, determined that certain properties held in other real estate were not likely to be successfully disposed of in an acceptable time-frame using routine marketing efforts. It became apparent that certain condominium projects were going to require extended holding periods to sell the properties at recent appraised values. Accordingly, during June, the Company sold, in a single transaction, 54 finished condominium property units from several condominium developments in our OREO portfolio, with a carrying value of approximately $11.0 million for $5.2 million, resulting in a pre-tax loss of $5.8 million. In addition, management adjusted its valuations for similar properties held in other real estate through provision of an allowance of $10.6 million on other real estate held, with the objective of marketing these properties more aggressively. During the quarter the Company also recorded additional write-downs on real estate owned due to lower valuations reflected in updated appraisals.
A summary of other real estate owned expense follows (in thousands):
Loss on sale of other real estate
Allowance provided on other real estate due to strategy change
Write-downs of other real estate
Costs to administer other real estate
These actions led to a substantial improvement in our asset quality measurements. Non-performing assets fell from $143.9 million at March 31, 2011 to $111.4 million at June 30, 2011, a decline of $32.4 million. Comparing the same periods, the ratio of non-performing assets to total assets fell from 8.28% to 6.65%, the allowance for loan losses to total loans moved from 2.63% to 3.10%, and the allowance for loan losses to non-performing loans increased from 48.09% to 62.98%.