Porter Bancorp, Inc. (NASDAQ: PBIB), parent company of PBI Bank, today reported unaudited results for the fourth quarter of 2017. The Company reported net income attributable to common shareholders for the fourth quarter of 2017 of $32.5 million, or $5.31 per basic and diluted common share, compared to a net loss attributable to common shareholders of $6.4 million, or ($1.07) per basic and diluted share, for the fourth quarter of 2016.

Net income attributable to common shareholders for the year ended December 31, 2017, was $37.5 million, or $6.15 per basic and diluted common share, compared to net loss attributable to common shareholders of $2.7 million, or ($0.46) per basic and diluted common share, for the year ended December 31, 2016. Net income before taxes was $6.6 million for the year ended December 31, 2017, compared to a net loss before taxes of $2.7 million for the year ended December 31, 2016.

Net income for 2017 was impacted by the reversal of the Company's deferred tax asset valuation allowance and the change in federal corporate tax rates in connection with the enactment of the Tax Cuts and Jobs Act of 2017. The net result of these two items was an income tax benefit of $31.9 million for 2017.

Reversal of Deferred Tax Asset Valuation Allowance and Change in Federal Corporate Tax Rate - The Company has had a full valuation allowance against its net deferred tax asset since 2011. The Company's ability to utilize the net deferred tax asset depends upon generating sufficient future levels of taxable income. The determination to restore a deferred tax asset and eliminate a valuation allowance depends upon the evaluation of both positive and negative evidence regarding the likelihood of achieving sufficient future taxable income levels. During the fourth quarter of 2017, management concluded it was more-likely-than-not the asset would be utilized to reduce future taxes payable related to the future taxable income of the Company, and as such, reversed the valuation allowance. The positive evidence that outweighed the negative evidence evaluated by management in arriving at the conclusion to remove the valuation allowance included, but was not limited to, the following:
  • positive cumulative pre-tax earnings over the prior three-year period ended December 31, 2017
  • growth in net interest income, stable non-interest income trends, and lower non-interest expense trends
  • improvement in asset quality which increases management's ability to forecast future taxable income and achieve forecasted results
  • the Company's net operating loss ("NOLs") carryforwards do not begin to expire until 2032, and
  • the Bank's Consent Order was terminated in the fourth quarter of 2017

As a result of the conclusion to reverse the valuation allowance, the Company recorded an income tax benefit of $52.2 million for the year ended December 31, 2017. On December 22, 2017, the Tax Cuts and Jobs Act of 2017 was signed into law. Among other significant changes to the tax code, the new law lowered the federal corporate tax rate from 35% to 21% beginning in 2018. As a result, the Company revalued its net deferred tax asset at the new 21% rate. Due to this revaluation, the Company recorded a $20.3 million charge to income tax expense for the year ended December 31, 2017. The combination of the reversal of the valuation allowance and the change in federal corporate tax rates resulted in an income tax benefit of $31.9 million for the year ended December 31, 2017.

Net Interest Income - Net interest income before provision for loan losses was $8.0 million for the fourth quarter of 2017, compared to $7.8 million in the third quarter of 2017, and $7.3 million in the fourth quarter of 2016. Average loans increased to $695.6 million for the fourth quarter of 2017, compared with $669.6 million in the third quarter of 2017, and $619.6 million for the fourth quarter of 2016. Net interest margin increased to 3.50% for the fourth quarter of 2017, compared to 3.44% for the third quarter of 2017, and 3.35% for the fourth quarter of 2016.

The yield on earning assets increased to 4.24% for the fourth quarter of 2017, compared to 4.16% for the third quarter of 2017, and 4.01% for the fourth quarter of 2016. The cost of interest bearing liabilities was 0.88% for the fourth quarter of 2017, compared to 0.85% for the third quarter of 2017, and 0.78% for the fourth quarter of 2016.

Negative Provision and Allowance for Loan Losses - Because of continuing improvement in asset quality and management's assessment of risk in the loan portfolio, a negative provision for loan losses of $800,000 was recorded for 2017, compared to a negative provision for loan losses of $2.5 million for 2016. The negative provision of $800,000 was recorded in the fourth quarter of 2017, compared to a negative provision of $550,000 in the fourth quarter of 2016.

The allowance for loan losses to total loans was 1.15% at December 31, 2017, compared to 1.32% at September 30, 2017, and 1.40% at December 31, 2016. The reduced level of the allowance in 2017, compared to 2016 was primarily driven by declining charge-off levels, growth in the portfolio, improving trends in credit quality, and the negative provision. Net loan recoveries were $35,000 for 2017, compared to net loan charge-offs of $624,000 for 2016. The allowance for loan losses for loans evaluated collectively for impairment was 1.13% at December 31, 2017, compared with 1.27% at September 30, 2017, and 1.37% at December 31, 2016.

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 $9.9 million, or 1.02% of total assets at December 31, 2017, compared with $12.1 million, or 1.26% of total assets at September 30, 2017, and $16.0 million, or 1.70% of total assets, at December 31, 2016.

Non-performing loans decreased to $5.5 million, or 0.77% of total loans at December 31, 2017, compared with $5.8 million, or 0.85% of total loans at September 30, 2017, and $9.2 million, or 1.44% of total loans, at December 31, 2016. The decrease from the previous year was primarily driven by $5.0 million in principal payments received on nonaccrual loans, $270,000 of nonaccrual loans migrating to OREO, and $665,000 of charge-offs offset by $2.3 million in loans placed on nonaccrual during 2017. OREO at December 31, 2017, decreased to $4.4 million, compared with $6.3 million at September 30, 2017, and $6.8 million at December 31, 2016. During the year, the Company sold $793,000 in OREO and acquired $270,000 in new OREO properties. Fair value write-downs arising from lower marketing prices or new appraisals totaled $2.0 million for 2017, compared to $1.2 million in 2016.

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

      December 31,

2017
   

September 30,

2017
    June 30,

2017
    March 31,

2017
    December 31,

2016
(in thousands)
Past due loans:
30 - 59 days $ 1,478 $ 872 $ 1,328 $ 972 $ 2,302
60 - 89 days 171 612 765 289 315
90 days or more 1
Nonaccrual loans   5,457   5,769   6,509   8,102   9,216

Total past due and nonaccrual loans

$

7,107

$

7,253
$ 8,602 $ 9,363 $ 11,833
 

Loans past due 90 days or more

$

1

$

$ $ $
Nonaccrual loans 5,457 5,769 6,509 8,102 9,216
OREO 4,409 6,330 6,318 6,571 6,821
Other repossessed assets          

Total non-performing assets

$

9,867

$

12,099
$ 12,827 $ 14,673 $ 16,037
 

In addition to nonaccrual loans and OREO, loans classified as Troubled Debt Restructures (TDRs) and on accrual totaled $1.2 million at both December 31, 2017 and September 30, 2017, compared to $5.4 million at December 31, 2016.

Non-interest Income - Non-interest income increased $91,000 to $4.9 million for the year ended December 31, 2017, compared with $4.8 million for the year ended December 31, 2016. The increase between years was primarily attributable to a $295,000 increase in service charges on deposit accounts, a $123,000 increase in bank card interchange fees, and a $72,000 increase in net gain on sales of securities partially offset by no income from OREO in 2017, compared to $456,000 of OREO income in 2016.

Non-interest income increased $382,000 to $1.5 million for the fourth quarter of 2017, compared with $1.1 million for the fourth quarter of 2016. The increase was due primarily to a net gain on sale of securities of $293,000 compared to $29,000 in the fourth quarter of 2016.

Non-interest Expense - Non-interest expense decreased $9.3 million to $30.2 million for the year ended December 31, 2017, compared with $39.6 million for the year ended December 31, 2016. The decrease in non-interest expense was due primarily to lower litigation and loan collection expense, which decreased $8.6 million. Litigation expense was negatively impacted in the fourth quarter of 2016 by a ruling from the Kentucky Court of Appeals against the Bank that approximated $8.0 million. Non-interest expense also benefited from declining professional fees expense, salaries and employee benefits, and FDIC insurance expense.

Non-interest expense decreased $6.7 million to $8.9 million for the fourth quarter of 2017, compared with $15.6 million for the fourth quarter of 2016. The decrease was due primarily to the nonrecurring nature of the 2016 litigation expense of $8.0 partially offset by a $1.8 million increase in OREO expenses primarily resulting from fair value write-downs arising from lower marketing prices or new appraisals.

Capital - At December 31, 2017, PBI Bank's Tier 1 leverage ratio was 8.70%, compared with 6.24% at December 31, 2016, and its Total risk-based capital ratio was 11.61% at December 31, 2017, compared with 9.88% at December 31, 2016. At December 31, 2017, PBI Bank's Common equity Tier I risk-based capital ratio was 10.35%, compared with 8.28% at December 31, 2016.

At December 31, 2017, Porter Bancorp's Tier 1 leverage ratio was 7.11%, compared with 5.27% at December 31, 2016, and its Total risk-based capital ratio was 10.55%, compared with 10.21% at December 31, 2016. Porter Bancorp's Common equity Tier I risk-based capital ratio was 6.92%, compared with 5.20% at December 31, 2016.

Deferred Tax Assets and Liabilities - The Company has a net deferred tax asset of $31.3 million at December 31, 2017. Deferred tax assets and liabilities are shown below.

      December 31,     December 31,
2017 2016
(in thousands)
Deferred tax assets:
Net operating loss carry-forward $ 25,645 $ 42,094
Allowance for loan losses 1,723 3,139
Other real estate owned write-down 2,432 3,366
Other   2,388   7,607  
  32,188   56,206  
 
Deferred tax liabilities:
FHLB stock dividends 557 928
Other   318   1,229  
  875   2,157  
Net deferred tax assets before valuation allowance   31,313   54,049  
Valuation allowance     (54,049 )
Net deferred tax asset $ 31,313 $  
 

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 and year ending December 31, 2017, follows.

 
 
 

PORTER BANCORP, INC. Unaudited Financial Information(in thousands, except share and per share data)
 

 
      Three Months Ended     Years Ended
12/31/17     9/30/17     12/31/16 12/31/17     12/31/16

 

 

 
Income Statement Data
Interest income $ 9,717 $ 9,446 $ 8,781 $ 37,522 $ 35,602
Interest expense   1,716     1,659   1,465     6,405     5,981  
Net interest income 8,001 7,787 7,316 31,117 29,621
Provision (negative provision) for loan losses   (800 )     (550 )   (800 )   (2,450 )
Net interest income after provision 8,801 7,787 7,866 31,917 32,071
 
Service charges on deposit accounts 636 568 536 2,253 1,958
Bank card interchange fees 259 245 212 972 849
Other real estate owned income 5 456
Bank owned life insurance income 103 103 101 412 417
Gains (losses) on sales and calls of securities, net 293 29 288 216
Other   207     266   233     930     868  
Non-interest income 1,498 1,182 1,116 4,855 4,764
 
Salaries & employee benefits 3,657 3,683 3,884 15,090 15,508
Occupancy and equipment 919 836 1,013 3,420 3,517
Professional fees 202 232 317 978 1,568
Marketing expense 218 364 267 1,098 973
FDIC insurance 357 356 202 1,412 1,660
Data processing expense 325 321 298 1,256 1,185
State franchise and deposit tax 281 225 200 956 965
Other real estate owned expense 1,881 111 257 1,973 1,541
Litigation and loan collection expense 58 78 8,230 179 8,805
Other   1,030     969   952     3,856     3,845  
Non-interest expense 8,928 7,175 15,620 30,218 39,567
 
Income (loss) before income taxes 1,371 1,794 (6,638 ) 6,554 (2,732 )
Income tax expense (benefit)   (31,899 )         (31,899 )   21  
Net income (loss) 33,270 1,794 (6,638 ) 38,453 (2,753 )
Less:
Earnings (loss) allocated to participating securities   797     45   (202 )   967     (88 )
Net income (loss) attributable to common $ 32,473   $ 1,749 $ (6,436 ) $ 37,486   $ (2,665 )
 
Weighted average shares - Basic 6,109,991 6,102,452 6,035,403 6,091,932 5,788,713
Weighted average shares - Diluted 6,109,991 6,102,452 6,035,403 6,091,932 5,788,713
 
Basic earnings (loss) per common share $ 5.31 $ 0.29 $ (1.07 ) $ 6.15 $ (0.46 )
Diluted earnings (loss) per common share $ 5.31 $ 0.29 $ (1.07 ) $ 6.15 $ (0.46 )
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
12/31/17     9/30/17     12/31/16 12/31/17     12/31/16

 

 

 
Average Balance Sheet Data
Assets $ 960,269 $ 951,687 $ 925,721 $ 947,961 $ 929,140
Loans 695,646 669,592 619,640 667,474 621,275
Earning assets 916,561 907,723 878,470 904,069 875,262
Deposits 862,625 870,623 847,168 864,278 852,717
Long-term debt and advances 50,335 36,046 27,753 38,057 27,675
Interest bearing liabilities 774,507 777,597 748,159 773,247 760,656
Stockholders' equity 41,397 39,159 42,696 37,851 39,423
 
 
Performance Ratios
Return on average assets 13.75 % 0.75 % (2.85 )% 4.06 % (0.30 )%
Return on average equity 318.85 18.18 (61.85 ) 101.59 (6.98 )
Yield on average earning assets (tax equivalent) 4.24 4.16 4.01 4.18 4.11
Cost of interest bearing liabilities 0.88 0.85 0.78 0.83 0.79
Net interest margin (tax equivalent) 3.50 3.44 3.35 3.48 3.42
Efficiency ratio 96.98 80.00 185.89 84.68 115.80
 
 
Loan Charge-off Data
Loans charged-off $ (226 ) $ (67 ) $ (547 ) $ (901 ) $ (2,629 )
Recoveries   201     159     575     936     2,005  
Net recoveries (charge-offs) $ 25 $ 92 $ 28 $ 35 $ (624 )
 
 
Nonaccrual Loan Activity
Nonaccrual loans at beginning of period $ 5,769 $ 6,509 $ 10,099 $ 9,216 $ 14,087
Net principal pay-downs (488 ) (1,068 ) (1,251 ) (4,952 ) (5,286 )
Charge-offs (137 ) (57 ) (434 ) (665 ) (1,725 )
Loans foreclosed and transferred to OREO (130 ) (30 ) (270 ) (1,273 )
Loans returned to accrual status (283 ) (199 ) (1,034 )
Loans placed on nonaccrual during the period   313     515     1,115     2,327     4,447  
Nonaccrual loans at end of period $ 5,457   $ 5,769   $ 9,216   $ 5,457   $ 9,216  
 
 

Troubled Debt Restructurings (TDRs)
Accruing $ 1,217 $ 1,226 $ 5,350 $ 1,217 $ 5,350
Nonaccrual   1,829     1,932     3,374     1,829     3,374  
Total $ 3,046 $ 3,158 $ 8,724 $ 3,046 $ 8,724
 
 
Other Real Estate Owned (OREO) Activity
OREO at beginning of period $ 6,330 $ 6,318 $ 7,098 $ 6,821 $ 19,214
Real estate acquired 130 30 270 1,273
Valuation adjustment write-downs (1,865 ) (98 ) (210 ) (1,963 ) (1,180 )
Proceeds from sales of properties (55 ) (30 ) (98 ) (793 ) (12,708 )
Gain (loss) on sales, net   (1 )   10     1     74     222  
OREO at end of period $ 4,409   $ 6,330   $ 6,821   $ 4,409   $ 6,821  

 
 
 

PORTER BANCORP, INC. Unaudited Financial Information(in thousands, except share and per share data)
 
      As of
12/31/17     9/30/17     6/30/17     3/31/17     12/31/16
 
Assets
Loans $ 712,115 $ 682,511 $ 654,938 $ 664,183 $ 639,236
Allowance for loan losses   (8,202 )   (8,977 )   (8,885 )   (8,966 )   (8,967 )
Net loans 703,913 673,534 646,053 655,217 630,269
Loans held for sale 70
Securities held to maturity 41,424 41,635 41,752 41,818
Securities available for sale 152,720 149,797 154,993 156,001 152,790
Federal funds sold & interest bearing deposits 25,966 37,812 51,413 32,329 56,867
Cash and due from financial institutions 8,137 9,557 9,297 5,456 9,449
Premises and equipment 16,789 16,975 17,164 17,687 17,848
Bank owned life insurance 15,229 15,131 15,033 14,935 14,838
FHLB Stock 7,323 7,323 7,323 7,323 7,323
Other real estate owned 4,409 6,330 6,318 6,571 6,821
Deferred taxes, net 31,313
Accrued interest receivable and other assets   4,932     5,082     5,228     5,083     7,154  
Total Assets $ 970,801   $ 962,965   $ 954,457   $ 942,354   $ 945,177  
 
Liabilities and Equity
Certificates of deposit $ 424,235 $ 445,577 $ 458,068 $ 470,029 $ 444,639
Interest checking 99,383 94,523 97,169 104,811 103,876
Money market 151,388 156,905 153,700 122,434 142,497
Savings   34,632     35,946     36,363     36,380     34,518  
Total interest bearing deposits 709,638 732,951 745,300 733,654 725,530
Demand deposits   137,386     133,896     129,518     127,049     124,395  
Total deposits 847,024 866,847 874,818 860,703 849,925
FHLB advances 11,797 16,847 2,158 17,313 22,458
Junior subordinated debentures 23,250 23,475 23,700 23,925 24,150
Senior debt 10,000 10,000 10,000
Accrued interest payable and other liabilities   6,057     5,728     5,388     4,908     15,911  
Total liabilities 898,128 922,897 916,064 906,849 912,444
 
Preferred stockholders' equity 2,771 2,771 2,771 2,771 2,771
Common stockholders' equity   69,902     37,297     35,622     32,734     29,962  
Total stockholders' equity   72,673     40,068     38,393     35,505     32,733  
Total Liabilities and Stockholders' Equity $ 970,801   $ 962,965   $ 954,457   $ 942,354   $ 945,177  
 
Ending shares outstanding 6,259,864 6,259,864 6,259,864 6,247,520 6,224,533
Book value per common share $ 11.17 $ 5.96 $ 5.69 $ 5.24 $ 4.81
Tangible book value per common share 11.17 5.96 5.69 5.23 4.79

 
 
 

PORTER BANCORP, INC. Unaudited Financial Information(in thousands, except share and per share data)
 
      As of
12/31/17     9/30/17     6/30/17     3/31/17     12/31/16
Asset Quality Data
Loan 90 days or more past due still on accrual $ 1 $ $ $ $
Nonaccrual loans   5,457     5,769     6,509     8,102     9,216  
Total non-performing loans 5,458 5,769 6,509 8,102 9,216
Real estate acquired through foreclosures 4,409 6,330 6,318 6,571 6,821
Other repossessed assets                    
Total non-performing assets $ 9,867   $ 12,099   $ 12,827   $ 14,673   $ 16,037  
 
Non-performing loans to total loans 0.77 % 0.85 % 0.99 % 1.22 % 1.44 %
Non-performing assets to total assets 1.02 1.26 1.34 1.56 1.70
Allowance for loan losses to non-performing loans 150.27 155.61 136.50 110.66 97.30
 
Allowance for loans evaluated individually $ 219 $ 425 $ 254 $ 332 $ 399
Loans evaluated individually for impairment 7,173 7,509 8,273 9,891 15,131
Allowance as % of loans evaluated individually 3.05 % 5.66 % 3.07 % 3.36 % 2.64 %
 
Allowance for loans evaluated collectively $ 7,983 $ 8,552 $ 8,631 $ 8,634 $ 8,568
Loans evaluated collectively for impairment 704,942 675,002 646,665 654,292 624,105
Allowance as % of loans evaluated collectively 1.13 % 1.27 % 1.33 % 1.32 % 1.37 %
 
Allowance for loan losses to total loans 1.15 % 1.32 % 1.36 % 1.35 % 1.40 %
 
Loans by Risk Category
Pass $ 673,033 $ 633,203 $ 610,356 $ 617,361 $ 586,430
Watch 25,715 35,167 29,433 26,442 30,431
Special Mention 164 598 604 492 497
Substandard 13,203 13,543 14,545 19,888 21,878
Doubtful                    
Total $ 712,115 $ 682,511 $ 654,938 $ 664,183 $ 639,236
 
Risk-based Capital Ratios - Company
Tier I leverage ratio 7.11 % 5.85 % 5.65 % 5.43 % 5.27 %
Common equity Tier I risk-based capital ratio 6.92 5.49 5.58 5.29 5.20
Tier I risk-based capital ratio 8.44 7.31 7.46 7.09 6.99
Total risk-based capital ratio 10.55 10.05 10.44 10.15 10.21
 
Risk-based Capital Ratios - PBI Bank
Tier I leverage ratio 8.70 % 7.73 % 7.54 % 6.37 % 6.24 %
Common equity Tier I risk-based capital ratio 10.35 9.66 9.97 8.33 8.28
Tier I risk-based capital ratio 10.35 9.66 9.97 8.33 8.28
Total risk-based capital ratio 11.61 11.10 11.50 9.89 9.88
 
FTE employees 217 217 221 230 238

Non-GAAP Financial Measures Reconciliation

Tangible book value per common share is a non-GAAP financial measure derived from GAAP-based amounts. Tangible book value per common share is calculated by excluding the balance of intangible assets from common stockholders' equity. Tangible book value per common share is calculated by dividing tangible common equity by common shares outstanding, as compared to book value per common share, which is calculated by dividing common stockholders' equity by common shares outstanding. Management believes this is consistent with bank regulatory agency treatment, which excludes tangible assets from the calculation of risk-based capital.

The efficiency ratio is a non-GAAP measure of expense control relative to revenue from net interest income and fee income. The efficiency ratio is calculated by dividing total non-interest expenses as determined under GAAP by net interest income and total non-interest income, but excluding net gains on the sale of securities from the calculation. Management believes this provides a reasonable measure of primary banking expenses relative to primary banking revenue.
      As of
12/31/17     9/30/17     6/30/17     3/31/17     12/31/16
Tangible Book Value Per Share (in thousands, except share and per share data)
 
Common stockholder's equity $ 69,902 $ 37,297 $ 35,622 $ 32,734 $ 29,962
Less: Intangible assets               42     140  
Tangible common equity 69,902 37,297 35,622 32,692 29,822
 
Shares outstanding   6,259,864     6,259,864     6,259,864     6,247,520     6,224,533  
Tangible book value per common share $ 11.17 $ 5.96 $ 5.69 $ 5.23 $ 4.79
Book value per common share 11.17 5.96 5.69 5.24 4.81
 
 
 
Three Months Ended Year Ended
12/31/17 9/30/17 12/31/16 12/31/17 12/31/16
Efficiency Ratio (in thousands)
 
Net interest income $ 8,001 $ 7,787 $ 7,316 $ 31,117 $ 29,621
Non-interest income 1,498 1,182 1,116 4,855 4,764
Less: Net gain (loss) on securities   293         29     288     216  
Revenue used for efficiency ratio   9,206     8,969     8,403     35,684     34,169  
Non-interest expense 8,928 7,175 15,620 30,218 39,567
 
Efficiency ratio

96.98

%

80.00

%

185.89

%

84.68

%

115.80

%
 
 
 

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