Porter Bancorp, Inc. (NASDAQ: PBIB), parent company of PBI Bank, today reported unaudited results for the second quarter of 2015.

The Company reported net loss attributable to common shareholders for the second quarter of 2015 of $2.0 million, or ($0.08) per basic and diluted common share, compared with net loss attributable to common shareholders of $6.3 million, or ($0.53) per basic and diluted share, for the second quarter of 2014. Net loss attributable to common shareholders for the six months ended June 30, 2015, was $1.3 million, or ($0.06) per diluted common share, compared with net loss attributable to common shareholders of $7.3 million, or ($0.61) per diluted share, for the six months ended June 30, 2014.

Net Interest Income - Net interest income remained unchanged at $7.3 million for the second quarter of 2015 compared to the first quarter of 2015, and decreased from $7.6 million in the second quarter of 2014. Average loans decreased to $641.6 million for the second quarter of 2015 compared with $643.0 million in the first quarter of 2015 and $677.6 million in the second quarter of 2014. Net interest margin remained unchanged at 3.21% in the second quarter of 2015 compared to the first quarter of 2015, and increased from 3.13% in the second quarter of 2014 primarily driven by improving cost of funds which declined to 0.87% in the second quarter of 2015, compared with 0.91% in the first quarter of 2015 and 1.15% in the second quarter of 2014.

Allowance for Loan Losses - The allowance for loan losses to total loans was 2.59% at June 30, 2015 compared to 2.94% at March 31, 2015, and 3.91% at June 30, 2014. The reduced level of the allowance is primarily driven by improving trends in loan category risk ratings and declining historical average charge-off levels. Net loan charge-offs increased to $1.8 million for the second quarter of 2015 compared to $767,000 for the first quarter of 2015, but decreased compared to $6.6 million for the second quarter of 2014. The allowance for loan losses for loans evaluated collectively for impairment was 2.64% at June 30, 2015, compared with 3.18% at March 31, 2015, and 4.15% at June 30, 2014. Because of ongoing improvements in asset quality and management's confidence in the assessment of risk in the loan portfolio, no provision expense was recorded during 2015.

Non-performing Assets - Non-performing assets, which include loans past due 90 days and still accruing, loans on nonaccrual, and other real estate owned ("OREO"), decreased considerably to $69.9 million, or 7.13% of total assets at June 30, 2014, compared with $80.1 million, or 7.94% of total assets at March 31, 2015, and $101.3 million, or 9.69% of total assets at June 30, 2014.

Non-performing loans decreased to $30.3 million, or 4.67% of total loans, at June 30, 2015, compared with $36.5 million, or 5.77% of total loans at March 31, 2015 and $44.4 million, or 6.9% of total loans at June 30, 2014. The decrease from the previous quarter was primarily driven by $5.3 million in principal payments received on nonaccrual loans, $608,000 of nonaccrual loans migrating to OREO, and $2.1 million of charge-offs.

OREO at June 30, 2015 decreased to $39.5 million, compared with $43.6 million at March 31, 2015 and $56.9 million at June 30, 2014. The Company acquired $608,000 in OREO and sold $2.4 million in OREO during the second quarter of 2015. Fair value write-downs arising from reductions in listing prices for certain properties as well as updated appraisals totaled $2.3 million in the second quarter of 2015, compared with $300,000 in the first quarter of 2015 and $400,000 in the second quarter of 2014. Progress continues to be made in the disposition of OREO. Currently, $12.7 million of OREO property is subject to a contract for sale or letter of intent.

 

The following table details past due loans and non-performing assets as of:
 
   

June 30, 2015
   

March 31, 2015
   

December 31, 2014
   

September 30, 2014
   

June 30, 2014

(in thousands)
Past due loans:
30 - 59 days $ 1,941 $ 4,370 $ 3,960 $ 3,507 $ 3,057
60 - 89 days 650 1,769 980 3,333 991
90 days or more 92 18 151
Nonaccrual loans   30,215   36,500   47,175   44,670   44,375

Total past due and nonaccrual loans

$

32,898

$

42,657
$ 52,266 $ 51,510 $ 48,423
 

Loans past due 90 days or more

$

92

$

18
$ 151 $ $
Nonaccrual loans 30,215 36,500 47,175 44,670 44,375
OREO 39,545 43,618 46,197 54,507 56,882
Other repossessed assets          

Total non-performing assets

$

69,852

$

80,136
$ 93,523 $ 99,177 $ 101,257
 

In addition to nonaccrual loans and OREO, loans classified as Troubled Debt Restructures (TDRs) and on accrual totaled $18.5 million at June 30, 2015, compared to $18.8 million at March 31, 2015 and $32.4 million at June 30, 2014.

Non-interest Income - Non-interest income decreased $1.1 million to $1.6 million for the second quarter of 2015, compared with $2.7 million for the first quarter of 2015, and increased $616,000 compared with $949,000 for the second quarter of 2014. The decline in non-interest income was driven primarily by a reduction in gains on the sales of securities which totaled $199,000 in the second quarter of 2015, compared to $1.5 million in the first quarter of 2015. The increase from the second quarter of 2014 was due to an increase in gains on the sales of securities of $197,000, and an increase in OREO rental income of $354,000.

Non-interest Expense - Non-interest expense increased $1.6 million to $11.0 million for the second quarter of 2015, compared with $9.4 million for the first quarter of 2015, and increased $1.2 million compared with $9.8 million for the second quarter of 2014. The increase from the first quarter of 2015 was primarily due to an increase in OREO expenses of approximately $2.2 million, partially offset by decreases in professional fees and other non-interest expenses. OREO expenses increased primarily due to an increase in fair value write-downs of $2.0 million resulting from declines in the fair value of the real estate based upon reductions in listing prices for certain properties as well as updated appraisals.

Capital - At June 30, 2015, PBI Bank's Tier 1 leverage ratio improved slightly to 5.95% compared with 5.84% at March 31, 2015, and its Total risk-based capital ratio was 10.34% at June 30, 2015 compared with 10.26% at March 31, 2015, which are below the minimums of 9.0% and 12.0% required by the Bank's Consent Order. At June 30, 2015, Porter Bancorp's leverage ratio was 4.25% compared with 4.13% at March 31, 2015, and its Total risk-based capital ratio was 10.25%, compared with 10.00% at March 31, 2015. At June 30, 2015, PBI Bank's Common equity Tier I risk-based capital ratio was 8.43% compared with 8.32% at March 31, 2015, and Porter Bancorp's Common equity Tier I risk-based capital ratio was 4.42% compared with 4.68% at March 31, 2015.

Management and the Board of Directors remain committed to evaluating and implementing appropriate strategies for increasing the Company's capital in order to meet the capital requirements of the Consent Order.

Tax Benefit Preservation Plan - On June 24, 2015, the Board of Directors approved the adoption of a tax benefits preservation plan designed to preserve the value of certain of the Company's deferred tax assets primarily associated with net operating loss carryforwards (NOLs) under Section 382 of the Internal Revenue Code.

NOLs can generally be used to offset future taxable income and therefore reduce federal income tax obligations. However, the Company's ability to use its NOLs would be limited if there was an "ownership change" under Section 382. This would occur if shareholders owning (or deemed to own under the tax rules) 5% or more of the Company's stock increase their aggregate ownership of the Company by more than 50 percentage points over a defined period of time. The plan is intended to reduce the likelihood of an "ownership change" occurring as a result of the buying and selling of the Company's common stock.

The primary purpose of the tax preservation plan is to protect the value of our NOLs for our shareholders. While our net deferred tax asset of $51.9 million at June 30, 2015 is subject to a full valuation allowance, it remains very important to the Company.

In connection with the plan, the Company declared a dividend of one preferred stock purchase right for each share of common stock outstanding as of the close of business on July 10, 2015. Any shareholder or group that acquires beneficial ownership of 5 percent or more of the Company (an "acquiring person") could be subject to significant dilution in its holdings if the Board of Directors does not approve such acquisition. Existing shareholders holding 5 percent or more of the Company will not be considered acquiring persons unless they acquire additional shares, subject to certain exceptions described in the plan. In addition, in its discretion, the Board of Directors may exempt certain transactions and certain persons whose acquisition of securities is determined by the Board not to jeopardize the Company's deferred tax assets. The rights will expire on July 29, 2018 or earlier in certain circumstances.

Additional information regarding the plan was provided on June 29, 2015 in a Current Report on Form 8-K and in a Registration Statement on Form 8-A filed with the Securities and Exchange Commission.

PBIB-G

Forward-Looking StatementsStatements 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 InformationUnaudited supplemental financial information for the first quarter ending June 30, 2015 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
6/30/15 3/31/15 6/30/14 6/30/15 6/30/14

 

 

 
Income Statement Data
Interest income $ 9,167 $ 9,203 $ 10,166

$

18,370
$ 20,063
Interest expense   1,828     1,913   2,552     3,741     5,149  
Net interest income 7,339 7,290 7,614 14,629 14,914
Provision for loan losses         6,300         6,300  
Net interest income after provision 7,339 7,290 1,314 14,629 8,614
 
Service charges on deposit accounts 475 409 487 884 955
Bank card interchange fees 229 203 205 432 366
Other real estate owned income 372 357 18 729 25
Gains (losses) on sales of securities, net 199 1,497 2 1,696 46
Other   290     230   237     520     472  
Non-interest income 1,565 2,696 949 4,261 1,864
 
Salaries & employee benefits 4,028 3,847 3,949 7,875 7,690
Occupancy and equipment 828 870 896 1,698 1,788
Professional fees 714 979 484 1,693 773
FDIC insurance 564 570 571 1,134 1,111
Data processing expense 278 304 280 582 549
State franchise and deposit tax 285 285 405 570 830
Other real estate owned expense 2,932 733 774 3,665 1,436
Loan collection expense 291 283 1,249 574 1,788
Other   1,114     1,521   1,196     2,635     2,341  
Non-interest expense 11,034 9,392 9,804 20,426 18,306
 
Income (loss) before income taxes (2,130 ) 594 (7,541 ) (1,536 ) (7,828 )
Income tax expense (benefit)         (1,307 )       (1,307 )
Net income (loss) (2,130 ) 594 (6,234 ) (1,536 ) (6,521 )
Less:
Dividends on preferred stock 789 1,574
Earnings (loss) allocated to participating securities   (91 )   185   (693 )   (269 )   (772 )
Net income (loss) attributable to common $ (2,039 ) $ 409 $ (6,330 )

$

(1,267
) $ (7,323 )
   
Weighted average shares - Basic 24,589,507 17,493,397 11,981,121 21,079,238 11,992,925
Weighted average shares - Diluted 24,589,507 17,493,397 11,981,121 21,079,238 11,992,925
 
Basic earnings (loss) per common share $ (0.08 ) $ 0.02 $ (0.53 )

$

 
(0.06 ) $ (0.61 )
Diluted earnings (loss) per common share $ (0.08 ) $ 0.02 $ (0.53 )

$

 
(0.06 ) $ (0.61 )
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
6/30/15 3/31/15 6/30/14 6/30/15 6/30/14

 

 

 
Average Balance Sheet Data
Assets $ 1,003,507 $ 1,011,561 $ 1,056,809 $ 1,007,512 $ 1,065,151
Loans 641,587 642,959 677,643 642,269 687,857
Earning assets 930,415 936,037 991,416 933,210 1,005,218
Deposits 924,840 931,698 966,164 928,250 975,117
Long-term debt and advances 33,208 33,902 35,372 33,553 35,303
Interest bearing liabilities 846,892 854,423 893,921 850,637 902,506
Stockholders' equity 33,770 33,971 37,611 33,870 37,303
 
 
Performance Ratios
Return on average assets (0.85 )% 0.24 % (2.37 )% (0.31 )% (1.23 )%
Return on average equity (25.30 ) 7.09 (66.48 ) (9.15 ) (35.25 )
Yield on average earning assets (tax equivalent) 4.00 4.03 4.16 4.02 4.08
Cost of interest bearing liabilities 0.87 0.91 1.15 0.89 1.15
Net interest margin (tax equivalent) 3.21 3.21 3.13 3.21 3.04
Efficiency ratio 126.75 110.64 114.52 118.80 109.41
 
 
Loan Charge-off Data
Loans charged-off $ (2,264 ) $ (1,327 ) $ (8,323 ) $ (3,591 ) $ (11,405 )
Recoveries   476     560     1,741     1,036     2,114  
Net charge-offs $ (1,788 ) $ (767 ) $ (6,582 ) $ (2,555 ) $ (9,291 )
 
 
Nonaccrual Loan Activity
Nonaccrual loans at beginning of period $ 36,500 $ 47,175 $ 77,344 $ 47,175 $ 101,767
Net principal pay-downs (5,336 ) (10,754 ) (12,195 ) (16,090 ) (22,440 )
Charge-offs (2,082 ) (955 ) (8,125 ) (3,037 ) (10,597 )
Loans foreclosed and transferred to OREO (608 ) (337 ) (13,331 ) (945 ) (30,226 )
Loans returned to accrual status (620 ) (78 ) (2,362 ) (698 ) (3,232 )
Loans placed on nonaccrual during the period   2,361     1,449     3,044     3,810     9,103  
Nonaccrual loans at end of period $ 30,215   $ 36,500   $ 44,375   $ 30,215   $ 44,375  
 
Troubled Debt Restructurings (TDRs)
Accruing $ 18,548 $ 18,798 $ 32,389 $ 18,548 $ 32,389
Nonaccrual   15,006     19,002     18,500     15,006     18,500  
Total $ 33,554 $ 37,800 $ 50,889 $ 33,554 $ 50,889
 
Other Real Estate Owned (OREO) Activity (Net of Allowance)
OREO at beginning of period $ 43,618 $ 46,197 $ 45,918 $ 46,197 $ 30,892
Real estate acquired 608 347 13,515 955 30,866
Valuation adjustment write-downs (2,330 ) (300 ) (400 ) (2,630 ) (650 )
Proceeds from sales of properties (2,391 ) (2,629 ) (2,205 ) (5,020 ) (4,280 )
Gain (loss) on sales, net   40     3     54     43     54  
OREO at end of period $ 39,545   $ 43,618   $ 56,882   $ 39,545   $ 56,882  
 

 

PORTER BANCORP, INC. Unaudited Financial Information(in thousands, except share and per share data)
 
    As of
6/30/15     3/31/15     12/31/14     9/30/14     6/30/14     3/31/14
 
Assets
Loans $ 648,321 $ 632,428 $ 624,999 $ 638,360 $ 643,030 $ 682,591
Allowance for loan losses   (16,809 )   (18,597 )   (19,364 )   (24,198 )   (25,133 )   (25,415 )
Net loans 631,512 613,831 605,635 614,162 617,897 657,176
Loans held for sale 125 8,926 280
Securities held to maturity 42,202 42,263 42,325 42,386 43,488 43,550
Securities available for sale 151,758 157,290 190,791 192,146 180,723 166,442
Federal funds sold & interest bearing deposits 63,987 101,872 66,011 73,494 95,353 99,286
Cash and due from financial institutions 7,403 7,899 14,169 11,336 6,913 7,449
Premises and equipment 19,167 19,323 19,507 19,649 19,788 19,821
Bank owned life insurance 9,320 9,231 9,167 9,103 9,039 8,981
FHLB Stock 7,323 7,323 7,323 7,323 7,323 7,323
Other real estate owned 39,545 43,618 46,197 54,507 56,882 45,918
Accrued interest receivable and other assets   6,998     7,056     7,938     6,608     7,181     7,584  
Total Assets $ 979,340   $ 1,009,706   $ 1,017,989   $ 1,030,714   $ 1,044,867   $ 1,063,530  
 
Liabilities and Equity
Certificates of deposit $ 564,253 $ 597,117 $ 574,681 $ 609,682 $ 631,110 $ 656,475
Interest checking 84,627 86,614 91,086 76,431 76,625 79,689
Money market 110,529 102,349 109,734 100,890 95,946 89,678
Savings   35,942     36,418     36,430     36,364     37,178     38,524  
Total interest bearing deposits 795,351 822,498 811,931 823,367 840,859 864,366
Demand deposits   108,800     108,011     114,910     110,165     109,956     110,507  
Total deposits 904,151 930,509 926,841 933,532 950,815 974,873
Federal funds purchased & repurchase agreements 1,265 1,145 1,341 1,817 2,451 2,240
FHLB advances 3,430 3,597 15,752 16,940 14,134 4,345
Junior subordinated debentures 29,500 29,725 29,950 30,175 30,400 30,625
Accrued interest payable and other liabilities   10,949     10,758     10,640     18,922     16,453     15,110  
Total liabilities 949,295 975,734 984,524 1,001,386 1,014,253 1,027,193
 
Preferred stockholders' equity 2,771 2,771 8,552 38,283 38,283 38,283
Common stockholders' equity (deficit)   27,274     31,201     24,913     (8,955 )   (7,669 )   (1,946 )
Total stockholders' equity   30,045     33,972     33,465     29,328     30,614     36,337  
Total Liabilities and Stockholders' Equity $ 979,340   $ 1,009,706   $ 1,017,989   $ 1,030,714   $ 1,044,867   $ 1,063,530  
 
Ending shares outstanding 25,759,223 25,663,495 14,890,514 13,099,400 13,104,853 12,894,741
Book value per common share $ 1.06 $ 1.22 $ 1.67 $ (0.68 ) $ (0.59 ) $ (0.15 )
Tangible book value per common share 1.03 1.18 1.61 (0.76 ) (0.67 ) (0.25 )
 

 

PORTER BANCORP, INC. Unaudited Financial Information(in thousands, except share and per share data)
 
    As of
6/30/15     3/31/15     12/31/14     9/30/14     6/30/14     3/31/14
Asset Quality Data
Loan 90 days or more past due still on accrual $ 92 $ 18 $ 151 $ $ $
Nonaccrual loans   30,215     36,500     47,175     44,670     44,375     77,344  
Total non-performing loans 30,307 36,518 47,326 44,670 44,375 77,344
Real estate acquired through foreclosures 39,545 43,618 46,197 54,507 56,882 45,918
Other repossessed assets                        
Total non-performing assets $ 69,852   $ 80,136   $ 93,523   $ 99,177   $ 101,257   $ 123,262  
 
Non-performing loans to total loans 4.67 % 5.77 % 7.57 % 7.00 % 6.90 % 11.33 %
Non-performing assets to total assets 7.13 7.94 9.19 9.62 9.69 11.59
Allowance for loan losses to non-performing loans 55.46 50.93 40.92 54.17 56.64 32.86
 
Allowance for loans evaluated individually $ 842 $ 254 $ 752 $ 1,788 $ 1,753 $ 2,453
Loans evaluated individually for impairment 49,011 55,299 71,993 78,695 79,742 122,158
Allowance as % of loans evaluated individually 1.72 % 0.46 % 1.04 % 2.27 % 2.20 % 2.01 %
 
Allowance for loans evaluated collectively $ 15,967 $ 18,343 $ 18,612 $ 22,410 $ 23,380 $ 22,962
Loans evaluated collectively for impairment 599,310 577,129 553,006 559,665 563,288 560,433
Allowance as % of loans evaluated collectively 2.66 % 3.18 % 3.37 % 4.00 % 4.15 % 4.10 %
 
Allowance for loan losses to total loans 2.59 % 2.94 % 3.10 % 3.79 % 3.91 % 3.72 %
 
Loans by Risk Category
Pass $ 509,843 $ 480,545 $ 461,126 $ 446,166 $ 434,853 $ 415,144
Watch 67,712 76,876 68,200 83,711 91,208 104,171
Special Mention 1,718 1,110 4,189 4,431 3,223 4,069
Substandard 69,048 73,897 91,484 104,052 113,746 159,207
Doubtful                        
Total $ 648,321 $ 632,428 $ 624,999 $ 638,360 $ 643,030 $ 682,591
 
Risk-based Capital Ratios - Company
Tier I leverage ratio 4.25 % 4.13 % 4.51 % 4.02 % 4.10 % 4.87 %
Common equity Tier I risk-based capital ratio 4.42 4.68 N/A N/A N/A N/A
Tier I risk-based capital ratio 6.02 5.85 6.70 5.93 6.19 7.22
Total risk-based capital ratio 10.25 10.00 10.61 10.05 10.27 10.93
 
Risk-based Capital Ratios - PBI Bank
Tier I leverage ratio 5.95 % 5.84 % 5.78 % 6.09 % 5.96 % 6.36 %
Common equity Tier I risk-based capital ratio 8.43 8.32 N/A N/A N/A N/A
Tier I risk-based capital ratio 8.43 8.32 8.59 8.99 9.00 9.44
Total risk-based capital ratio 10.34 10.26 10.57 11.01 11.06 11.50
 
FTE employees 253 258 264 268 275 263
 

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