Porter Bancorp, Inc. (NASDAQ: PBIB), parent company of PBI Bank, with 18 full-service banking offices in Kentucky, today reported unaudited results for the second quarter of 2013.

The Company reported a net loss available to common shareholders of $1.7 million, or ($0.14) per diluted share, for the second quarter of 2013 compared with a net loss of $319,000, or ($0.03) per diluted share, for the second quarter of 2012. Net loss available to common shareholders for the six months ended June 30, 2013, was $2.2 million, or ($0.19) per diluted common share, compared with net income available to common shareholders of $661,000, or $0.06 per diluted share, for the six months ended June 30, 2012.

The second quarter 2013 loss of $1.7 million represents a decline of $1.4 million compared with the $319,000 loss reported in the second quarter of 2012. This was primarily due to decreased non-interest income and increased non-interest expense, compared with the second quarter of 2012, countered by a $4.0 million reduction in the provision for loan losses. Additionally, our net interest margin improved to 3.24% for the second quarter of 2013 compared to 3.07% in the first quarter of 2013 and declined from 3.35% for the second quarter of 2012.

The $2.2 million loss for the six months ended June 30, 2013 represents a decline of $2.9 million compared to the six months ended June 30, 2012. This was primarily due to decreased net interest income driven by the reduction of the size of our loan portfolio, a decline in our net interest margin, a reduction of $2.8 million in gains on sales of investment securities, and increased non-interest expense. This was offset by a decrease in the provision for loan losses expense from $7.8 million for the six months ended June 30, 2012, to $450,000 for the six months ended June 30, 2013.

No provision for loan losses was recorded in the second quarter of 2013, which is a significant decrease compared to $4.0 million in the second quarter of 2012. The decrease was attributable to the $52.3 million reduction in loan portfolio size, lower net loan charge-offs during the quarter, and a reduction in loans migrating downward in risk grade classification.

We have successfully reduced the size of our balance sheet in accordance with our capital plan. Average assets were $1.1 billion in the second quarter of 2013 compared to $1.4 billion in the second quarter of 2012. This was accomplished primarily by reducing our commercial real estate and construction and development loans within our loan portfolio and through the redemption of higher cost certificates of deposit accounts. The reduction of our balance sheet was the primary driver for net interest income declining by $2.4 million to $8.4 million in the second quarter of 2013 compared to $10.8 million in the second quarter of 2012. Additionally, our net interest margin declined to 3.24% in the second quarter of 2013 compared to 3.35% in the second quarter of 2012, but improved from 3.07% in the first quarter of 2013.

Financial performance continues to be negatively impacted by the Bank’s high level of non-performing loans and other real estate owned. Non-performing assets, which include loans past due 90 days and still accruing, loans on nonaccrual, and other real estate owned, decreased in dollars to $159.3 million, or 14.86% of total assets at June 30, 2013, compared with $165.1 million, or 14.58% of total assets, at March 31, 2013.

Non-performing loans decreased to $112.3 million, or 14.49% of total loans, at June 30, 2013, compared with $120.9 million, or 14.62% of total loans, at March 31, 2013. In addition, net charge-offs decreased from $17.3 million in the first quarter of 2013 to $2.3 million in the second quarter of 2013.

Total past due and nonaccrual loans decreased approximately $8.1 million to $123.8 million at June 30, 2013 from $132.0 million at March 31, 2013.

  June 30, 2013     March 31, 2013     Increase/

(Decrease)
 
(in thousands)
Past Due Loans:    
30 – 59 Days $ 8,600 $ 8,052 $ 548
60 – 89 Days 2,979 2,960 19
90 Days and Over 71 71
 
Nonaccrual Loans 112,185   120,943   (8,758 )
Total Past Due and Nonaccrual Loans $ 123,835   $ 131,955   $ (8,120 )

Foreclosed properties at June 30, 2013 increased to $47.0 million compared with $44.2 million at March 31, 2013, but decreased from $54.4 million at June 30, 2012. The Company acquired $11.9 million in other real estate owned and sold $8.1 million in other real estate owned during the second quarter of 2013. Fair value write-downs arising from new appraisals or lower marketing prices totaled $977,000 in the second quarter of 2013 compared to $350,000 in the second quarter of 2012 and $307,000 in the first quarter of 2013.

At June 30, 2013, PBI Bank’s Tier 1 leverage ratio was 6.08% compared to 5.95% at March 31, 2013 and its Total risk-based capital ratio was 10.60% at June 30, 2013 compared to 10.29% at March 31, 2013, which are below the minimums of 9.0% and 12.0% required by the Bank’s Consent Order. At June 30, 2013, Porter Bancorp’s leverage ratio was 4.91%, compared with 4.91% at March 31, 2013 and 4.50% at December 31, 2012, and its Total risk-based capital ratio was 10.46% compared with 10.16% at March 31, 2013, and 9.81% at December 31, 2012.

On July 16, 2013, a jury in Louisville, Kentucky returned a verdict against PBI Bank awarding the plaintiffs compensatory damages of $1.5 million and punitive damages of $5.5 million. The verdict is subject to post-trial motions and has not yet been entered as a judgment. After conferring with our legal advisors, we believe the findings and damages are excessive and contrary to the law, and that we have meritorious grounds to seek reconsideration of the verdict and to appeal. The Bank intends to file motions to reduce or overturn the award and otherwise for reconsideration of the case. In accordance with U.S. generally accepted accounting principles (GAAP), we record contingent liabilities resulting from claims against us when a loss is assessed to be probable and the amount of the loss is reasonably estimable. As such, we accrued $1.5 million related to this matter during the quarter ended June 30, 2013.

We are continuing our efforts to strengthen our capital levels and comply with the Consent Order. Management and the Board of Directors are evaluating appropriate strategies for increasing the Company’s capital in order to meet the capital requirements of our Consent Order. These include, among other things, a possible public offering or private placement of common stock to new and existing shareholders. As previously announced, Sandler O’Neill & Partners, LP is acting as our financial advisor and assisting our Board in this evaluation. Asset quality remediation, capital restoration, and lowering the risk profile of the Company continue to be major objectives during 2013 as well as delivering quality financial products and services to our customers throughout the Commonwealth of Kentucky.

PBIB-G

Forward-Looking Statements

Statements in this press release relating to Porter Bancorp’s plans, objectives, expectations or future performance are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The words “believe,” “may,” “should,” “anticipate,” “estimate,” “expect,” “intend,” “objective,” “possible,” “seek,” “plan,” “strive” or similar words, or negatives of these words, identify forward-looking statements. These forward-looking statements are based on management’s current expectations. Porter Bancorp’s actual results in future periods may differ materially from those indicated by forward-looking statements due to various risks and uncertainties, including our ability to reduce our level of higher risk loans such as commercial real estate and real estate development loans, reduce our level of non-performing loans and other real estate owned, and increase net interest income in a low interest rate environment, as well as our need to increase capital. These and other risks and uncertainties are described in greater detail under “Risk Factors” in the Company’s Form 10-K and subsequent periodic reports filed with the Securities and Exchange Commission. The forward-looking statements in this press release are made as of the date of the release and Porter Bancorp does not assume any responsibility to update these statements.

Additional Information

Unaudited supplemental financial information for the second quarter ending June 30, 2013 follows.
 

PORTER BANCORP, INC.

Unaudited Financial Information

(in thousands, except share and per share data)
 
Three Three Three Six Six
Months Months Months Months Months
Ended Ended Ended Ended Ended
6/30/13 3/31/13 6/30/12 6/30/13 6/30/12

 

 

 
Income Statement Data
Interest income $ 11,168 $ 11,258 $ 14,812 $ 22,426 $ 30,567
Interest expense 2,816 2,960 4,017 5,776 8,318

 

 

 
Net interest income 8,352 8,298 10,795 16,650 22,249
Provision for loan losses 450 4,000 450 7,750

 

 

 

 
Net interest income after provision 8,352 7,848 6,795 16,200 14,499
 
Service charges on deposit accounts 506 493 556 999 1,110
Income from fiduciary activities 517 291 517 542
Bank card interchange fees 196 172 199 368 376
Other real estate owned income 230 112 24 342 62
Gains (losses) on sales of securities, net 703 1,511 703 3,530
Income from bank owned life insurance 305 79 79 384 158
Other 208 274 358 482 685

 

 

 
Non-interest income 2,148 1,647 3,018 3,795 6,463
 
Salaries & employee benefits 3,999 4,139 3,982 8,138 8,294
Occupancy and equipment 913 931 969 1,844 1,855
Other real estate owned expense 1,657 791 1,205 2,448 2,462
FDIC insurance 650 639 832 1,289 1,705
Franchise tax 537 537 592 1,074 1,184
Loan collection expense 2,407 1,035 586 3,442 946
Professional fees 499 406 567 905 923
Communications expense 179 175 168 354 348
Postage and delivery 102 113 109 215 231
Insurance expense 160 151 104 311 200
Other 706 647 548 1,353 1,161

 

 

 
Non-interest expense 11,809 9,564 9,662 21,373 19,309
 
Income (loss) before income taxes (1,309 ) (69 ) 151 (1,378 ) 1,653
Income tax expense (benefit)

 

 

 
Net income (loss) (1,309 ) (69 ) 151 (1,378 ) 1,653
Less:
Dividends on preferred stock 437 438 438 875 875
Accretion on preferred stock 45 45 45 90 90
Earnings (loss) allocated to participating securities (110 ) (28 ) (13 ) (131 ) 27
 
Net income (loss) available to common $ (1,681 ) $ (524 ) $ (319 ) $ (2,212 ) $ 661

 

 

 
 
Weighted average shares – Basic 11,761,788 11,847,907 11,733,156 11,801,663 11,701,655
Weighted average shares – Diluted 11,761,788 11,847,907 11,733,156 11,801,663 11,701,655
 
Basic earnings (loss) per common share $ (0.14 ) $ (0.04 ) $ (0.03 ) $ (0.19 ) $ 0.06
Diluted earnings (loss) per common share $ (0.14 ) $ (0.04 ) $ (0.03 ) $ (0.19 ) $ 0.06
Cash dividends declared per common share $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00

 

PORTER BANCORP, INC.

Unaudited Financial Information

(in thousands, except share and per share data)
 
Three Three Three Six Six
Months Months Months Months Months
Ended Ended Ended Ended Ended
6/30/13 3/31/13 6/30/12 6/30/13 6/30/12

 

 

 
Average Balance Sheet Data
Assets $ 1,104,807 $ 1,151,816 $ 1,363,340 $ 1,128,182 $ 1,387,973
Loans 806,941 872,505 1,078,497 839,542 1,098,839
Earning assets 1,050,515 1,111,469 1,307,520 1,080,824 1,329,199
Deposits 1,008,102 1,053,884 1,231,281 1,030,867 1,255,284
Long-term debt and advances 36,652 37,169 38,959 36,909 39,255
Interest bearing liabilities 941,059 983,481 1,159,447 962,153 1,183,651
Stockholders’ equity 46,904 47,749 83,987 47,324 84,323
 
 
Performance Ratios
Return on average assets (0.48) % (0.02) % 0.04 % (0.25) % 0.24 %
Return on average equity (11.19) (0.59) 0.72 (5.87) 3.94
Yield on average earning assets (tax equivalent) 4.31 4.15 4.59 4.23 4.66
Cost of interest bearing liabilities 1.20 1.22 1.39 1.21 1.41
Net interest margin (tax equivalent) 3.24 3.07 3.35 3.15 3.40
Efficiency ratio 120.54 96.17 78.54 108.26 76.68
 
 
Loan Charge-off Data
Loans charged-off $ (3,404 ) $ (17,962 ) $ (6,438 ) $ (21,366 ) $ (9,020 )
Recoveries 1,124 671 79 1,795 285

 

 

 

 
Net charge-offs $ (2,280 ) $ (17,291 ) $ (6,359 ) $ (19,571 ) $ (8,735 )
 
 
Nonaccrual Loan Activity
Nonaccrual loans at beginning of period $ 120,943 $ 94,517 $ 97,230 $ 94,517 $ 92,020
Net principal pay-downs (8,118 ) (4,105 ) (4,084 ) (12,223 ) (9,324 )
Charge-offs (3,256 ) (17,472 ) (4,902 ) (20,728 ) (7,214 )
Loans foreclosed and transferred to OREO (11,875 ) (3,648 ) (15,243 ) (15,523 ) (19,072 )
Loans returned to accrual status (421 ) (421 )
Loans placed on nonaccrual during the period 14,912 51,651 8,652 66,563 25,243
 
Nonaccrual loans at end of period $ 112,185 $ 120,943 $ 81,653 $ 112,185 $ 81,653
 
 
Troubled Debt Restructurings (TDRs)
Accruing $ 54,927 $ 55,171 $ 85,068 $ 54,927 $ 85,068
Nonaccrual   46,510   52,592   37,748   46,510   37,748
Total $ 101,437 $ 107,763 $ 122,816 $ 101,437 $ 122,816
 
Other Real Estate Owned (OREO) Activity (Net of Allowance)
OREO at beginning of period $ 44,192 $ 43,671 $ 35,574 $ 43,671 $ 41,449
Real estate acquired 11,875 3,680 23,910 15,555 28,126
Valuation adjustment write-downs (977 ) (307 ) (350 ) (1,284 ) (830 )
Proceeds from sales of properties (7,898 ) (2,655 ) (4,223 ) (10,553 ) (13,433 )
Loss on sales, net (162 ) (197 ) (546 ) (359 ) (948 )
Capital improvements 1
 
OREO at end of period $ 47,030 $ 44,192 $ 54,365 $ 47,030 $ 54,365

 

PORTER BANCORP, INC.

Unaudited Financial Information

(in thousands, except share and per share data)
 
As of As of As of As of
6/30/13 3/31/13 12/31/12 6/30/12

 

 

 

 
Assets
Loans $ 774,785 $ 827,076 $ 899,092 $ 1,040,909
Loan loss reserve   (37,559 ) (39,839 ) (56,680 ) (51,594 )

 

 

 

 

 
Net loans 737,226 787,237 842,412 989,315
Mortgage loans held for sale 133 507 383
Securities available for sale 176,942 183,247 178,476 194,091
Federal funds sold & interest bearing deposits 56,512 62,505 41,161 30,762
Cash and due from financial institutions 7,754 8,683 8,411 5,599
Premises and equipment 20,368 20,667 20,805 21,223
Other real estate owned 47,030 44,192 43,671 54,365
Accrued interest receivable and other assets   26,166 26,338 27,188 39,114

 

 

 

 

 

 
Total Assets $ 1,072,131 $ 1,132,869 $ 1,162,631 $ 1,334,852

 

 

 

 

 

 
 
Liabilities and Equity
Certificates of deposit $ 690,557 $ 739,934 $ 760,573 $ 909,504
Interest checking 78,218 83,522 87,234 82,208
Money market 65,620 62,111 63,715 60,704
Savings   40,121 41,952 39,227 39,509

 

 

 

 

 

 
Total interest bearing deposits 874,516 927,519 950,749 1,091,925
Demand deposits   106,320 108,841 114,310 112,797

 

 

 

 

 

 
Total deposits 980,836 1,036,360 1,065,059 1,204,722
Federal funds purchased & repurchase agreements 3,292 2,853 2,634 2,501
FHLB advances 5,016 5,324 5,604 6,398
Junior subordinated debentures 31,525 31,525 31,975 32,200
Accrued interest payable and other liabilities   12,710 10,069 10,169 7,526

 

 

 

 

 

 
Total liabilities 1,033,379 1,086,131 1,115,441 1,253,347
Stockholders’ equity   38,752 46,738 47,190 81,505

 

 

 

 

 

 
Total Liabilities and Stockholders’ Equity $ 1,072,131 $ 1,132,869 $ 1,162,631 $ 1,334,852

 

 

 

 

 

 
 
Ending shares outstanding 12,322,207 12,139,975 12,002,421 11,934,872
Book value per common share $ 0.04 $ 0.70 $ 0.74 $ 3.62
Tangible book value per common share (0.10 ) 0.55 0.58 3.44
 
Asset Quality Data
Loan 90 days or more past due still on accrual $ 71 $ $ 86 $ 88
Nonaccrual loans   112,185 120,943 94,517 81,653

 

 

 

 

 

 
Total non-performing loans 112,256 120,943 94,603 81,741
Real estate acquired through foreclosures 47,030 44,192 43,671 54,365
Other repossessed assets   5

 

 

 

 

 

 
Total non-performing assets $ 159,286 $ 165,135 $ 138,274 $ 136,111

 

 

 

 

 

 
Non-performing loans to total loans 14.49 % 14.62 % 10.52 % 7.85 %
Non-performing assets to total assets 14.86 14.58 11.89 10.20
Allowance for loan losses to non-performing loans 33.46 32.94 59.91 63.12
Allowance for loan losses to total loans 4.85 4.82 6.30 4.96
 
Risk-based Capital Ratios
Tier I leverage ratio 4.91 % 4.91 % 4.50 % 7.56 %
Tier I risk-based capital ratio 6.88 6.77 6.46 9.95
Total risk-based capital ratio 10.46 10.16 9.81 11.94
 
FTE employees 264 264 278 300

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