“Our loss in the second quarter was largely a result of our strategy change to more aggressively move other real estate off our balance sheet,” stated Maria L. Bouvette, President and CEO of Porter Bancorp. “We determined that the holding period required to liquidate large condominium projects at current appraised value was inconsistent with our objective of materially reducing non-earning assets in a timely manner. Accordingly, we sold 54 condominium units below prior carrying value and have established a valuation allowance to reduce the carrying value of similar remaining properties to a level we believe will lead to quicker sale. As a result, we saw significant improvement in our asset quality ratios. We also added personnel to our team addressing other real estate owned to accelerate disposal efforts.
“The Company’s write-off of goodwill is a non-cash charge that has no effect on the operation of our business, our ability to serve our customers or our insurance coverage for deposits,” continued Ms. Bouvette. “The recent decline in our stock price caused us to update our goodwill impairment testing which led to the conclusion that our goodwill should be written off. As a result our book value and tangible book value are more closely aligned.”
Second Quarter Highlights
- We recorded a pre-tax goodwill impairment charge of $23.8 million during the second quarter of 2011. The write-off of goodwill was a non-cash accounting entry that had no effect on liquidity, regulatory capital or regulatory capital ratios. Approximately $6.2 million of the impairment charge was deductible for federal income tax purposes. The after tax impact of the goodwill impairment charge was $21.6 million or $(1.85) per common share.
- Net loss to common shareholders was $39.0 million for the three months ended June 30, 2011, compared with a net loss of $1.6 million for the second quarter of 2010. Net loss per fully diluted common share was $(3.33) in the second quarter of 2011 compared with $(0.18) per share in the second quarter of 2010.
- Net interest margin decreased 26 basis points to 3.45% in the second quarter of 2011 compared with 3.71% in the second quarter of 2010. The decrease in margin since last year resulted from lower average earning assets relative to average interest bearing liabilities and a 21 basis point decline in net interest spread.
- Average loans decreased 6.5% to $1.27 billion in the second quarter of 2011 compared with $1.36 billion in the second quarter of 2010. Net loans decreased 7.6% to $1.21 billion in the second quarter of 2011 compared with $1.31 billion at June 30, 2010.
- Deposits increased 1.5% to $1.44 billion compared with $1.41 billion at June 30, 2010, and decreased 2.2% from $1.47 billion at December 31, 2010. The decrease in deposits from year-end 2010 follows management’s strategy to match liability funding levels with lower loan balances.
- Total assets decreased 4.8% to $1.68 billion compared with $1.76 billion at June 30, 2010, due largely to the decrease in loans.
- Non-performing loans decreased $8.4 million during the second quarter to $61.5 million at June 30, 2011, compared with $69.9 million at March 31, 2011. The decrease from March 31, 2011 to June 30, 2011 was primarily in the commercial and residential real estate segments of our portfolio.
- Non-performing assets decreased $32.4 million during the second quarter to $111.4 million at June 30, 2011, from $143.9 million at March 31, 2011. The decrease was primarily due to sales and write-downs of other real estate owned, and nonperforming loans moving through the collection and foreclosure process.
- In June 2011, we closed a bulk sale transaction involving 54 condominium units in our OREO portfolio. We received $5.2 million in the transaction of which $2.7 million was cash and $2.5 million was financed by PBI Bank at market terms. The book value of the units sold was approximately $11.0 million resulting in a pre-tax loss on sale of approximately $5.8 million. Additionally, the Company recorded additional writedowns of approximately $10.6 million on similar OREO properties remaining in the portfolio.
- On June 24, 2011, PBI Bank entered into a Consent Order with the FDIC and the Kentucky Department of Financial Institutions. The consent order establishes benchmarks for the Bank to improve its asset quality, reduce its loan concentrations and maintain its capital levels.
Net Interest IncomeNet interest income decreased 8.7% to $13.4 million for the three months ended June 30, 2011, a decrease of $1.3 million, compared with $14.7 million for the same period in 2010. Net interest income decreased 5.9% to $27.2 million for the six months ended June 30, 2011, a decrease of $1.7 million, compared with $28.9 million for the same period in 2010. The decrease was primarily attributable to a decline in average balance of and yields on earning assets, partially offset by a decrease in the cost of funds, compared with 2010.