Porter Bancorp, Inc. (NASDAQ: PBIB), parent company of PBI Bank, today reported unaudited results for the fourth quarter of 2016. Per share amounts in this release have been adjusted to reflect the 1-for-5 reverse stock split of the Company's common shares that was effective on December 16, 2016.

The Company reported a net loss attributable to common shareholders for the fourth quarter of 2016 of $6.4 million, or ($1.07) per basic and diluted common share, compared to a net loss attributable to common shareholders of $579,000, or ($0.11) per basic and diluted share, for the fourth quarter of 2015 and a net loss attributable to common shareholders for the year ended December 31, 2016, of $2.7 million, or ($0.46) per basic and diluted common share, compared to net loss attributable to common shareholders of $2.9 million, or ($0.62) per basic and diluted common share, for the year ended December 31, 2015.

As the Company reported on December 2, 2016, the fourth quarter of 2016 was negatively impacted by the Kentucky Court of Appeals ruling against the Bank in a decision with a partial dissent that upheld the award of $1.515 million in compensatory damages and $5.5 million in punitive damages by the trial court. The Bank previously accrued the compensatory damages along with interest at the statutory rate. The punitive damages and statutory interest of approximately $8.0 million had not been previously accrued and impacted fourth quarter 2016 earnings. On December 30, 2016, the Bank filed a motion for discretionary review with the Kentucky Supreme Court. Funds to retire all amounts due are on hand and available to meet this obligation with no material impact to liquidity should a decision be made to retire the accrued liability.

John T. Taylor, President and CEO noted, "While we were very disappointed with the court's decision regarding this legacy issue, the Bank's capital and liquidity remain strong and its mission to serve our customers remains unchanged. After adjusting for the additional $8.0 million cost of the December 2016 ruling, net income available to common shareholders would have been approximately $5.3 million, or $0.92 per basic and diluted common share in 2016. It is also important to note that the Company's core financial performance improved significantly in 2016 as the balance sheet stabilized after a meaningful reduction in size over the past several years, asset quality improved significantly with non-performing assets and accruing TDRs declining from 5.3% to 2.3% of total assets, and net interest margin improved from 3.27% in 2015 to 3.42% in 2016. We are excited about our prospects for 2017 as we work to grow the franchise."

Net Interest Income - Net interest income before provision was $7.3 million for the fourth quarter of 2016 compared to $7.5 million in the third quarter of 2016 and $7.4 million in the fourth quarter of 2015. Average loans decreased to $619.6 million for the fourth quarter of 2016 compared with $626.1 million in the third quarter of 2016, and $619.5 million for the fourth quarter of 2015. Net interest margin decreased to 3.35% in the fourth quarter of 2016 compared to 3.47% in the third quarter of 2016 and 3.32% in the fourth quarter of 2015.

Our yield on earning assets decreased to 4.01% in the fourth quarter of 2016, compared to 4.15% for the third quarter of 2016 and 4.02% in the fourth quarter of 2015. Our cost of funds was 0.78% in both the third and fourth quarters of 2016, compared to 0.79% for the fourth quarter of 2015.

Allowance for Loan Losses and Negative Provision for Loan Losses - The allowance for loan losses to total loans was 1.40% at December 31, 2016, compared to 1.53% at September 30, 2016, and 1.95% at December 31, 2015. The declining level of the allowance is primarily driven by declining charge-off levels and improving trends in credit quality. Net loan recoveries were $28,000 for the fourth quarter of 2016, compared to net loan recoveries of $135,000 for the third quarter of 2016 and net loan recoveries of $143,000 for the fourth quarter of 2015. The allowance for loan losses for loans evaluated collectively for impairment was 1.37% at December 31, 2016, compared with 1.51% at September 30, 2016, and 1.98% at December 31, 2015.

Because of ongoing improvements in asset quality and management's assessment of risk in the loan portfolio, a negative provision of $550,000 was recorded for the fourth quarter of 2016, compared to a negative provision of $750,000 for the third quarter of 2016 and negative provision of $2.3 million in the fourth quarter of 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 to $16.0 million, or 1.70% of total assets at December 31, 2016, compared with $17.2 million, or 1.88% of total assets at September 30, 2016, and $33.3 million, or 3.51% of total assets, at December 31, 2015.

Non-performing loans decreased to $9.2 million, or 1.44% of total loans at December 31, 2016, compared with $10.1 million, or 1.62% of total loans at September 30, 2016, and $14.1 million, or 2.28% of total loans, at December 31, 2015. The decrease from the previous year was primarily driven by $5.3 million in principal payments received on nonaccrual loans, $1.3 million of nonaccrual loans migrating to OREO, and $1.7 million of charge-offs offset by $4.4 million in loans placed on nonaccrual during 2016.

OREO at December 31, 2016, decreased to $6.8 million, compared with $7.1 million at September 30, 2016, and $19.2 million at December 31, 2015. The Company acquired $30,000 in OREO and sold $98,000 in OREO during the fourth quarter of 2016. Fair value write-downs arising from lower market prices or new appraisals totaled $210,000 in the fourth quarter of 2016 compared with $320,000 in the third quarter of 2016 and $2.8 million in the fourth quarter of 2015.

The following table details past due loans and non-performing assets as of:
                       
December 31,

2016
September 30,

2016
June 30,

2016
March 31,

2016
December 31,

2015
(in thousands)
Past due loans:
30 - 59 days $ 2,302 $ 2,335 $ 2,401 $ 1,829 $ 3,133
60 - 89 days 315 273 336 62 241
90 days or more
Nonaccrual loans   9,216   10,099   11,599   11,119   14,087

Total past due and nonaccrual loans

$
11,833

$
12,707 $ 14,336 $ 13,010 $ 17,461
 

Loans past due 90 days or more

$

$
$ $ $
Nonaccrual loans 9,216 10,099 11,599 11,119 14,087
OREO 6,821 7,098 12,322 17,861 19,214
Other repossessed assets          

Total non-performing assets

$
16,037

$
17,197   $ 23,921 $ 28,980   $ 33,301
 

In addition to nonaccrual loans and OREO, loans classified as Troubled Debt Restructures (TDRs) and on accrual totaled $5.4 million at December 31, 2016, compared to $6.1 million at September 30, 2016, and $17.4 million at December 31, 2015.

Non-interest Income - Non-interest income was unchanged at $1.1 million for the fourth quarter of 2016 as compared to the third quarter of 2016 and the fourth quarter of 2015.

Non-interest income decreased $2.9 million to $4.8 million for the year ended December 31, 2016, compared with $7.7 million for the year ended December 31, 2015. The decrease in non-interest income was primarily due to a $1.6 million decrease in net gain on sale and call of securities. Non-interest income for 2015 was positively impacted by the gain on extinguishment of junior subordinated debt of $883,000 recognized in 2015. Additionally, OREO income has continued to decline as income producing properties have been sold.

Non-interest Expense - Non-interest expense increased $7.7 million to $15.6 million for the fourth quarter of 2016 compared with $7.9 million for the third quarter of 2016, and increased $4.1 million compared with $11.6 million for the fourth quarter of 2015. The increase from the third quarter of 2016 was due primarily to the accrual of the punitive damages and statutory interest totaling $8.0 million related to the Kentucky Court of Appeals matter discussed above.

Non-interest expense decreased $5.4 million to $39.6 million for the year ended December 31, 2016, compared with $45.0 million for the year ended December 31, 2015. The decrease in non-interest expense was due primarily to lower OREO expenses, which decreased $10.8 million to $1.5 million in 2016 from $12.3 million in 2015. The size of the OREO portfolio declined from $46.2 million to $19.2 million to $6.8 million at December 31, 2014, 2015, and 2016, respectively. Non-interest expense also benefited from declining professional fees expense, FDIC insurance expense, and state franchise and deposit tax expense. These decreases were partially offset by the Kentucky Court of Appeals matter discussed above.

Capital - At December 31, 2016, PBI Bank's Tier 1 leverage ratio was 6.24% compared with 6.08% at December 31, 2015, and its Total risk-based capital ratio was 9.88% at December 31, 2016, compared with 10.58% at December 31, 2015. Both are below the minimums of 9.0% and 12.0% required by PBI Bank's consent order. At December 31, 2016, Porter Bancorp's leverage ratio was 5.27% compared with 4.74% at December 31, 2015, and its Total risk-based capital ratio was 10.21%, compared with 10.46% at December 31, 2015. At December 31, 2016, PBI Bank's Common equity Tier I risk-based capital ratio was 8.28% compared with 8.84% at December 31, 2015. Porter Bancorp's Common equity Tier I risk-based capital ratio was 5.20% compared with 5.09% at December 31, 2015.

As previously announced on December 16, 2016, the Company completed a 1-for-5 reverse stock split of its issued and outstanding common and non-voting common shares. As a result of the reverse stock split, all share and per share data has been adjusted in the accompanying tables. Preferred shares were not impacted by the 1-for-5 reverse stock split.

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 quarter ending December 31, 2016 follows.
       
PORTER BANCORP, INC.
Unaudited Financial Information

(in thousands, except share and per share data)
 
Three Months Ended Years Ended
12/31/16     9/30/16     12/31/15 12/31/16     12/31/15

 

 

 
Income Statement Data
Interest income $ 8,781 $ 8,931 $ 9,025 $ 35,602 $ 36,574
Interest expense 1,465 1,473 1,585 5,981   7,023

 

 

 

 
Net interest income 7,316 7,458 7,440 29,621 29,551
Provision (negative provision) for loan losses (550 ) (750 ) (2,300 ) (2,450 ) (4,500 )

 

 

 

 

 
Net interest income after provision 7,866 8,208 9,740 32,071 34,051
 
Service charges on deposit accounts 536 520 475 1,958 1,851
Bank card interchange fees 212 214 195 849 839
Other real estate owned income 5 46 237 456 1,346
Bank owned life insurance income 101 101 66 417 295
Gains (losses) on sales and calls of securities, net 29 (16 ) 70 216 1,766
Gain on extinguishment of debt 883
Other 233 240 181 868   715

 

 

 

 
Non-interest income 1,116 1,105 1,224 4,764 7,695
 
Salaries & employee benefits 3,884 3,945 4,062 15,508 15,857
Occupancy and equipment 1,013 842 936 3,517 3,449
Professional fees 317 374 572 1,568 2,885
FDIC insurance 202 442 539 1,660 2,212
Data processing expense 298 295 268 1,185 1,128
State franchise and deposit tax 200 255 265 965 1,120
Other real estate owned expense 257 322 3,506 1,541 12,302
Litigation and loan collection expense 8,230 222 246 8,805 1,141
Other 1,219 1,223 1,171 4,818   4,865

 

 

 
Non-interest expense 15,620 7,920 11,565 39,567 44,959
 
Income (loss) before income taxes (6,638 ) 1,393 (601 ) (2,732 ) (3,213 )
Income tax expense (benefit) 21  

 

 

 

 
Net income (loss) (6,638 ) 1,393 (601 ) (2,753 ) (3,213 )
Less:

Earnings (loss) allocated to participating securities
(202 ) 46 (22 ) (88 ) (336 )
 
Net income (loss) attributable to common $ (6,436 ) $ 1,347 $ (579 ) $ (2,665 ) $ (2,877 )

 

 

 

 
 
Weighted average shares - Basic 6,035,403 6,016,216 5,193,414 5,788,713 4,649,002
Weighted average shares - Diluted 6,035,403 6,016,216 5,193,414 5,788,713 4,649,002
 
Basic earnings (loss) per common share $ (1.07 ) $ 0.22 $ (0.11 ) $ (0.46 ) $ (0.62 )
Diluted earnings (loss) per common share $ (1.07 ) $ 0.22 $ (0.11 ) $ (0.46 ) $ (0.62 )
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 Months Ended Years Ended
12/31/16     9/30/16     12/31/15 12/31/16     12/31/15

 

 

 
Average Balance Sheet Data
Assets $ 925,721 $ 917,625 $ 954,934 $ 929,140 $ 984,419
Loans 619,640 626,095 619,506 621,275 635,948
Earning assets 878,470 864,307 900,418 875,262 917,546
Deposits 847,168 839,926 882,046 852,717 907,785
Long-term debt and advances 27,753 27,270 28,421 27,675 32,062
Interest bearing liabilities 748,159 748,585 793,182 760,656 826,858
Stockholders' equity 42,696 42,170 33,697 39,423 33,083
 
 
Performance Ratios
Return on average assets (2.85) % 0.60 % (0.25) % (0.30) % (0.33) %
Return on average equity (61.85) 13.14 (7.08) (6.98) (9.71)
Yield on average earning assets (tax equivalent) 4.01 4.15 4.02 4.11 4.03
Cost of interest bearing liabilities 0.78 0.78 0.79 0.79 0.85
Net interest margin (tax equivalent) 3.35 3.47 3.32 3.42 3.27
Efficiency ratio 185.89 92.32 134.57 115.80 126.72
 
 
Loan Charge-off Data
Loans charged-off $ (547 ) $ (405 ) $ (961 ) $ (2,629 ) $ (6,132 )
Recoveries   575   540   1,104   2,005   3,309
Net recoveries (charge-offs) $ 28 $ 135 $ 143 $ (624 ) $ (2,823 )
 
 
Nonaccrual Loan Activity
Nonaccrual loans at beginning of period $ 10,099 $ 11,599 $ 16,987 $ 14,087 $ 47,175
Net principal pay-downs (1,251 ) (592 ) (2,472 ) (5,286 ) (27,590 )
Charge-offs (434 ) (303 ) (756 ) (1,725 ) (5,126 )
Loans foreclosed and transferred to OREO (30 ) (667 ) (1,063 ) (1,273 ) (5,503 )
Loans returned to accrual status (283 ) (402 ) (29 ) (1,034 ) (1,629 )
Loans placed on nonaccrual during the period   1,115   464   1,420   4,447   6,760
Nonaccrual loans at end of period $ 9,216 $ 10,099 $ 14,087 $ 9,216 $ 14,087
 
 
Troubled Debt Restructurings (TDRs)
Accruing $ 5,350 $ 6,114 $ 17,440 $ 5,350 $ 17,440
Nonaccrual   3,374   3,379   3,544   3,374   3,544
Total $ 8,724 $ 9,493 $ 20,984 $ 8,724 $ 20,984
 
Other Real Estate Owned (OREO) Activity
OREO at beginning of period $ 7,098 $ 12,322 $ 29,177 $ 19,214 $ 46,197
Real estate acquired 30 667 1,063 1,273 5,513
Valuation adjustment write-downs (210 ) (320 ) (2,775 ) (1,180 ) (9,855 )
Proceeds from sales of properties (98 ) (5,623 ) (8,150 ) (12,708 ) (22,567 )
Gain (loss) on sales, net   1   52   (101 )   222   (74 )
OREO at end of period $ 6,821 $ 7,098 $ 19,214 $ 6,821 $ 19,214
 

   
PORTER BANCORP, INC.
Unaudited Financial Information

(in thousands, except share and per share data)
 
As of
12/31/16   9/30/16   6/30/16   3/31/16   12/31/15
 
Assets
Loans $ 639,236 $ 621,697 $ 624,136 $ 619,827 $ 618,666
Allowance for loan losses   (8,967 )   (9,489 )   (10,104 )   (11,340 )   (12,041 )
Net loans 630,269 612,208 614,032 608,487 606,625
Loans held for sale 134 113 186
Securities held to maturity 41,818 41,883 41,948 42,011 42,075
Securities available for sale 152,790 142,433 143,145 141,525 144,978
Federal funds sold & interest bearing deposits 56,867 57,578 49,313 72,209 85,329
Cash and due from financial institutions 9,449 6,266 8,289 8,097 8,006
Premises and equipment 17,848 18,481 18,618 18,751 18,812
Bank owned life insurance 14,838 14,741 14,646 14,531 9,441
FHLB Stock 7,323 7,323 7,323 7,323 7,323
Other real estate owned 6,821 7,098 12,322 17,861 19,214
Accrued interest receivable and other assets   7,154   7,135   6,916   7,251   6,733
Total Assets $ 945,177 $ 915,280 $ 916,552 $ 938,159 $ 948,722
 
Liabilities and Equity
Certificates of deposit $ 444,639 $ 454,742 $ 461,183 $ 478,965 $ 499,827
Interest checking 103,876 88,386 90,806 96,465 97,515
Money market 142,497 140,995 135,643 134,684 125,935
Savings   34,518   33,816   34,616   35,197   34,677
Total interest bearing deposits 725,530 717,939 722,248 745,311 757,954
Demand deposits   124,395   119,005   117,843   120,302   120,043
Total deposits 849,925 836,944 840,091 865,613 877,997
FHLB advances 22,458 2,619 2,775 2,932 3,081
Junior subordinated debentures 24,150 24,375 24,600 24,825 25,050
Accrued interest payable and other liabilities   15,911   7,721   7,651   10,181   10,577
Total liabilities 912,444 871,659 875,117 903,551 916,705
 
Preferred stockholders' equity 2,771 2,771 2,771 2,771 2,771
Common stockholders' equity   29,962   40,850   38,664   31,837   29,246
Total stockholders' equity   32,733   43,621   41,435   34,608   32,017
Total Liabilities and Stockholders' Equity $ 945,177 $ 915,280 $ 916,552 $ 938,159 $ 948,722
 
Ending shares outstanding 6,224,533 6,222,994 6,223,661 5,388,836 5,389,507
Book value per common share $ 4.81 $ 6.56 $ 6.21 $ 5.91 $ 5.43
Tangible book value per common share 4.79 6.53 6.16 5.83 5.33
 

   
PORTER BANCORP, INC.
Unaudited Financial Information

(in thousands, except share and per share data)
 
As of
12/31/16   9/30/16   6/30/16   3/31/16   12/31/15
Asset Quality Data
Loan 90 days or more past due still on accrual $ $ $ $ $
Nonaccrual loans   9,216   10,099   11,599   11,119   14,087
Total non-performing loans 9,216 10,099 11,599 11,119 14,087
Real estate acquired through foreclosures 6,821 7,098 12,322 17,861 19,214
Other repossessed assets          
Total non-performing assets $ 16,037 $ 17,197 $ 23,921 $ 28,980 $ 33,301
 
Non-performing loans to total loans 1.44 % 1.62 % 1.86 % 1.79 % 2.28 %
Non-performing assets to total assets 1.70 1.88 2.61 3.09 3.51
Allowance for loan losses to non-performing loans 97.30 93.96 87.11 101.99 85.48
 
Allowance for loans evaluated individually $ 399 $ 339 $ 146 $ 464 $ 428
Loans evaluated individually for impairment 15,131 16,214 25,535 26,236 31,776
Allowance as % of loans evaluated individually 2.64 % 2.09 % 0.57 % 1.77 % 1.35 %
 
Allowance for loans evaluated collectively $ 8,568 $ 9,150 $ 9,958 $ 10,876 $ 11,613
Loans evaluated collectively for impairment 624,105 605,483 598,601 593,591 586,890
Allowance as % of loans evaluated collectively 1.37 % 1.51 % 1.66 % 1.83 % 1.98 %
 
Allowance for loan losses to total loans 1.40 % 1.53 % 1.62 % 1.83 % 1.95 %
 
Loans by Risk Category
Pass $ 586,430 $ 551,075 $ 547,853 $ 534,451 $ 517,484
Watch 30,431 46,049 50,024 59,265 63,363
Special Mention 497 603 622 1,383 1,395
Substandard 21,878 23,970 25,637 24,728 36,424
Doubtful          
Total $ 639,236 $ 621,697 $ 624,136 $ 619,827 $ 618,666
 
Risk-based Capital Ratios - Company
Tier I leverage ratio 5.27 % 6.21 % 5.87 % 5.03 % 4.74 %
Common equity Tier I risk-based capital ratio 5.20 6.37 6.11 5.21 5.09
Tier I risk-based capital ratio 6.99 8.48 8.16 7.03 6.89
Total risk-based capital ratio 10.21 11.57 11.31 10.46 10.46
 
Risk-based Capital Ratios - PBI Bank
Tier I leverage ratio 6.24 % 6.97 % 6.65 % 6.39 % 6.08 %
Common equity Tier I risk-based capital ratio 8.28 9.53 9.22 8.94 8.84
Tier I risk-based capital ratio 8.28 9.53 9.22 8.94 8.84
Total risk-based capital ratio 9.88 11.18 10.87 10.64 10.58
 
FTE employees 238 233 239 246 244
 

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