ESXB - Community Bankers Trust Corporation Reports Results for First Quarter of 2019

RICHMOND, Va., April 26, 2019 /PRNewswire/ -- Community Bankers Trust Corporation (the "Company") (NASDAQ: ESXB), the holding company for Essex Bank (the "Bank"), today reported results for the first quarter of 2019.

OPERATING HIGHLIGHTS

• Loans, excluding purchased credit impaired (PCI) loans, grew $33.7 million, or 3.5%, since March 31, 2018.
• Deposits grew $71.8 million, or 6.5%, from March 31, 2018 to March 31, 2019.
• Noninterest bearing deposits grew $15.7 million, or 10.4%, year-over-year.
• Net interest margin increased on both a linked quarter basis and year-over-year, to 3.81% in the first quarter of 2019 from 3.78% in the fourth quarter of 2018 and from 3.76% in the first quarter of 2018.
• Federal Home Loan Bank advances decreased $32.0 million, or 31.7%, from one year ago.
• The Company recommenced paying a common stock dividend, declaring a dividend of $0.03 per share that was paid on April 1, 2019.

FINANCIAL HIGHLIGHTS

• Net income was $3.5 million for the quarter ended March 31, 2019, compared with net income of $3.4 million in the fourth quarter of 2018 and net income of $2.6 million in the first quarter of 2018.
• Fully diluted earnings per common share was $0.16 for the quarter ended March 31, 2019, compared with $0.15 per share and $0.12 per share for the quarters ended December 31, 2018 and March 31, 2018, respectively. 
• Interest and dividend income increased $1.7 million, or 12.3%, in the first quarter of 2019 compared with the first quarter of 2018.
• Interest and fees on loans were $12.4 million in the first quarter of 2019, an increase of $1.5 million, or 14.2%, over the first quarter of 2018.

MANAGEMENT COMMENTS 

Rex L. Smith, III, President and Chief Executive Officer, stated, "The first quarter had many positive trends that helped create strong earnings growth both quarter over quarter and year over year.   Net income was $3.5 million for the quarter ended March 31, 2019, compared with net income of $3.4 million in the fourth quarter of 2018 and net income of $2.6 million for the same period last year.  I am also excited to report that fully diluted earnings per share was 16 cents, up from 12 cents per share for the first quarter of 2018."  

Smith added, "Loan growth was typical for the first quarter, and year over year growth was 3.4%.  By being more selective on loans and continuing our focus on low cost deposit growth, we were able to increase our net interest margin from 3.78% in the fourth quarter of 2018 to 3.81% in the first quarter of 2019.  We also continue to improve our efficiency, which resulted in a decrease in noninterest expenses quarter over quarter."

Smith concluded, "I am very pleased with the results for the quarter and the trends we are seeing in all of our key metrics, which resulted in an annualized return on equity of 10.02% for the first quarter of 2019, an increase from 8.30% a year ago.  I am also pleased that we paid our first quarterly dividend in over nine years as the Company continues to grow earnings to give our shareholders sound results."

RESULTS OF OPERATIONS

Net income was $3.5 million for the first quarter of 2019, compared with net income of $3.4 million in the fourth quarter of 2018 and net income of $2.6 million in the first quarter of 2018.  Earnings per common share, basic and fully diluted, were $0.16 per share, $0.15 per share and $0.12 per share for the three months ended March 31, 2019, December 31, 2018, and March 31, 2018, respectively.

The increase of $909,000, or 35.0%, in net income, for the first quarter of 2019 compared with the first quarter of 2018 was primarily the result of a $1.7 million increase in interest income and a reduction of $526,000 in noninterest expenses. Offsetting these increases to net income was an increase of $1.1 million in interest expense, an increase of $256,000 in income tax expense and a decrease of $19,000 in noninterest income. Details on the drivers of these year-over-year changes are presented below.

The increase of $146,000 in net income on a linked quarter basis was driven by an increase of $298,000 in interest income and a decrease of $193,000 in noninterest expenses. Offsetting these increases to net income was an increase of $266,000 in interest expenses and a decrease in noninterest income of $70,000. Linked quarter details are also provided below.

The following table presents summary income statements for the three months ended March 31, 2019, December 31, 2018 and March 31, 2018.

Net Interest Income

Linked Quarter Basis
Net interest income was $12.1 million for each of the quarters ended March 31, 2019 and December 31, 2018.  There was an increase across quarters of $32,000, or 0.3%.

Interest income on a linked quarter basis increased $298,000, or 1.9%, to $15.8 million for the first quarter of 2019.  Interest income with respect to loans, excluding PCI loans, increased $250,000, or 2.1%, during the first quarter of 2019 when compared with the fourth quarter of 2018.  This increase was partially attributed to continued loan growth, excluding PCI loans, coupled with higher average interest rates.  The yield on loans increased from 4.95% in the fourth quarter of 2018 to 5.04% in the first quarter of 2019. The average balance of loans, excluding PCI loans, increased $23.6 million, or 2.4%, on a linked quarter basis. Interest income with respect to PCI loans was $1.3 million in each of the fourth quarter of 2018 and the first quarter of 2019.Interest income on securities increased $48,000 on a linked quarter basis.

Interest income on securities on a tax-equivalent basis equaled $2.1 million for the first quarter of 2019, which was an increase of $40,000 from the fourth quarter of 2018.  The tax-equivalent yield on the securities portfolio was 3.35% in the first quarter of 2019 and 3.31% in the fourth quarter of 2018, both based on a 21.0% income tax rate.

Interest expense of $3.7 million in the first quarter of 2019 was an increase of $266,000, or 7.8%, on a linked quarter basis.  Interest on deposits increased $174,000, or 5.7%.  Interest on borrowed funds increased $92,000, or 25.9%.  Average interest bearing balances of Federal Home Loan Bank and other borrowings increased $8.4 million from the fourth quarter of 2018 to the first quarter of 2019.  The cost on these borrowings increased from 2.08% in the fourth quarter of 2018 to 2.20% in the first quarter of 2019. The Company's cost of interest bearing deposits of 1.31% in the first quarter of 2019 was an increase of nine basis points from the prior quarter. 

With the changes in interest income noted above, the tax-equivalent net interest margin improved from 3.78% in the fourth quarter of 2018 to 3.81% in the first quarter of 2019. The interest spread was 3.57% each quarter.

Year-Over-Year
Net interest income increased $658,000, or 5.7%, from the first quarter of 2018 to the first quarter of 2019. Net interest income was $12.1 million in the first quarter of 2019 compared with $11.5 million for the same period in 2018.  Interest income increased $1.7 million, or 12.3%, over this time period.  The increase in interest income was generated by an increase of $51.1 million, or 4.1%, in the level of average earning assets.  The yield on earning assets increased from 4.60% in the first quarter of 2018 to 4.95% in the first quarter of 2019. The average balance of loans, excluding PCI loans, increased $55.6 million, or 5.9%, from $943.4 million in the first quarter of 2018 to $999.0 million in the first quarter of 2019.  Interest and dividends on securities was $2.0 million in the first quarter of 2019, an increase of $233,000, or 13.2%, over interest and dividends on securities of $1.8 million in the first quarter of 2018. On a tax-equivalent basis, the yield on investment securities was 3.35% in the first quarter of 2019 and 2.98% in the first quarter of 2018, both of which are based on a 21.0% income tax rate. 

Interest on PCI loans was $1.3 million in the first quarter of 2019 compared with $1.4 million in the first quarter of 2018.  The average balance of the PCI portfolio declined $5.5 million during the year-over-year comparison period.

Interest expense increased $1.1 million, or 40.9%, when comparing the first quarter of 2018 and the first quarter of 2019. Interest expense on deposits increased $1.1 million, or 50.9%, as the average balance of interest bearing deposits increased $55.7 million, or 5.9%.  Additionally, the average balance of lower cost savings and money market accounts decreased by $17.8 million while the average balance of higher cost time deposits increased by $71.4 million, or 12.9%.  The shift in deposit balances increased the cost of interest bearing deposits from 0.92% in the first quarter of 2018 to 1.31% in the first quarter of 2019.

FHLB and other borrowings decreased, on average, $32.3 million year-over-year, and there was an increase in the rate paid, from 1.74% in the first quarter of 2018 to 2.20% in the first quarter of 2019. The impact of the lower average balances lowered borrowing costs but was partially mitigated by the increase in rates. The result was a decrease of $22,000 in short-term borrowing costs and interest expense on FHLB advances. Overall, the Bank's cost of interest bearing liabilities increased 38 basis points, from 1.00% in the first quarter of 2018 to 1.38% in the first quarter of 2019.

The tax-equivalent net interest margin increased five basis points, from 3.76% in the first quarter of 2018 to 3.81% in the first quarter of 2019.  Conversely, the interest spread decreased from 3.60% to 3.57% over the same time period.  The increase in the margin, despite a decrease in spread, was precipitated by increases of $12.1 million, or 8.2%, in the average balance of noninterest bearing deposits, and $14.9 million, or 11.9%, in the average balance in shareholders' equity. Both of these categories carry no direct interest expense, but the increase was used to  fund growth in  earning assets.

The following table compares the Company's net interest margin, on a tax-equivalent basis, for the three months ended March 31, 2019, December 31, 2018 and March 31, 2018.

Provision for Loan Losses

The Company records a separate provision for loan losses for its loan portfolio, excluding PCI loans, and the PCI loan portfolio.  There was no provision for loan losses on the loan portfolio, excluding PCI loans, during either of the first quarter of 2019 or the first quarter of 2018. The absence of a provision in the first quarter of 2019 was a result  of the level of loan growth coupled with stable asset quality and coverage ratios in the overall portfolio and its nonperforming components. There was no provision for loan losses in the fourth quarter of 2018. With respect  to the PCI portfolio, due to the stable nature of its performance and its declining balances over time as the portfolio amortizes, no provision was taken during either of the first quarter of 2019, the fourth quarter of 2018 or the first quarter of 2018. Additional discussion of loan quality is presented below.

Noninterest Income

Linked Quarter Basis
Noninterest income was $1.0 million for the first quarter of 2019, a $70,000 decrease compared with $1.1 million for the fourth quarter of 2018.  Service charges and fees declined by $83,000 and were $609,000 in the first quarter of 2019 compared with $692,000 in the fourth quarter of 2018. The decrease in service charge income is the result of the increased volume of debit card transactions and overdraft fees that occur in the fourth quarter of a typical year, with the past two quarters following the normal pattern. Other noninterest income of $176,000 was a decrease of $13,000 from the fourth quarter of 2018, primarily due to a decrease in dividend income from investments in partnerships. Partially offsetting the decrease was an increase in mortgage loan income of $31,000, or 99.1%, which was $62,000 in the first quarter of 2019, compared with $31,000 in the fourth quarter of 2018.

Year-Over-Year
Noninterest income decreased $19,000, or 1.8%, and was $1.0 million in both the first quarter of 2019 and the first quarter of 2018. Mortgage loan income decreased $49,000, or 44.1%, from $111,000 in the first quarter of 2018 to $62,000 in the first quarter of 2019.   Gain (loss) on securities transactions, net decreased $44,000 year-over-year as losses of $14,000 were realized in the first quarter of 2019 versus gains realized of $30,000 in the first quarter of 2018. Offsetting these declines in noninterest income year-over-year were increases of $48,000 in other noninterest income and $28,000 in service charges and fees.  Other noninterest income of $176,000 in the first quarter of 2019 compared with $128,000 in the first quarter of 2018.  The increase of $48,000 was the result of a $34,000 increase in brokerage fees and commissions combined with an increase of $13,000 in partnership dividend income. Service charges and fees were $609,000 in the first quarter of 2019 and increased from $581,000, or 4.82%, as a result of an increase in the volume of new accounts. There was an increase of $15.7 million, or 10.4%, year-over-year, in noninterest bearing account balances.

Noninterest Expenses

Linked Quarter Basis
Noninterest expenses totaled $8.8 million for the first quarter of 2019, as compared with $9.0 million for the fourth quarter of 2018, a decrease of $193,000, or 2.1%.  Salaries and employee benefits in the first quarter of 2019 were $5.4 million compared with $5.6 million in the fourth quarter of 2018.  This is a decrease of $199,000, or 3.6% on a linked quarter basis. The primary reasons for the decreases were reductions of $309,000 in salaries and $79,000 in group insurance expenses which were offset by a $140,000 increase in payroll taxes. Also declining on a linked quarter basis was data processing fees, which were $568,000 in the first quarter of 2019 compared with $655,000 in the fourth quarter of 2018.  The decrease of $87,000 in the first quarter of 2019 was associated with increased costs for year-end processing during the fourth quarter. Other operating expenses decreased $27,000 on a linked quarter basis, from $1.5 million in the fourth quarter of 2018 to $1.4 million in the first quarter of 2019. FDIC assessment also decreased $27,000, from $177,000 in the fourth quarter of 2018 to $150,000 in the first quarter of 2019. Offsetting these decreases to noninterest expenses were increases of $103,000 in occupancy expenses and $37,000 in other real estate expenses. Occupancy expenses were $930,000 in the first quarter of 2019 and included higher expense recognized as a result of the opening of a new branch and a loan production office, in addition to the new lease accounting rules that took effect in the first quarter of 2019. 

Year-Over-Year
Noninterest expenses decreased $526,000, or 5.6%, when comparing the first quarter of 2019 to the same period in 2018. The largest component of the change was a reduction of $468,000 in salaries and employee benefits. The decrease year-over-year was largely attributable to abnormally higher group benefit costs in the first quarter of 2018, which accounted for $446,000 of the $468,000 decrease. Other operating expenses of $1.4 million in the first quarter of 2019 was a decrease of $211,000 from the same period in 2018. Telephone and internet data declined $187,000 year-over-year as a telephone provider contract was terminated in the first quarter of 2018, with associated breakage fees, but resulted in a much lower quarterly expense thereafter.  Offsetting these decreases was an increase in occupancy expenses, which increased $118,000 year-over-year, and were $930,000 in the first quarter of 2019 compared with $812,000 in the first quarter of 2018. The opening of new branches since the first quarter of 2018 and the new lease accounting rules were the drivers of the increase. These openings also resulted in an increase year-over-year in equipment expenses, which increased $67,000, from $314,000 to $381,000.

The following table compares the Company's other operating expenses included in noninterest expenses for the three months ended March 31, 2019, December 31, 2018 and March 31, 2018.

Income Taxes

Income tax expense was $796,000 for the three months ended March 31, 2019, compared with income tax expense of $787,000 and $540,000 for the fourth and first quarters of 2018, respectively.  The effective tax rate for the first quarter of 2019 was 18.5% compared with 19.0% in the fourth quarter of 2018 and 17.2% for the first quarter of 2018.   

FINANCIAL CONDITION

Total assets increased $6.1 million, or 0.4%, to $1.399 billion at March 31, 2019 when compared to December 31, 2018.  Total assets increased $46.0 million, or 3.4%, since March 31, 2018.  Total loans, excluding PCI loans, were $998.0 million at March 31, 2019, increasing $4.3 million, or 0.4%, from year end 2018 and $33.7 million, or 3.5%, from March 31, 2018.   Total PCI loans were $36.8 million at March 31, 2019 versus $38.3 million at the prior quarter end and $42.2 million at March 31, 2018.

During the first quarter of 2019, construction and land development loans, totaling $123.5 million, grew by $3.1 million, or 2.5%. Agriculture loans secured by real estate grew by $2.4 million, or 28.8%, and totaled $10.8 million at March 31, 2019.  Commercial loans grew $2.1 million and were $190.8 million at March 31, 2019. Offsetting this loan growth was a decline in multifamily loans, which declined $1.6 million as a result of payoff activity and ended the period at $57.9 million, 5.8% of the total portfolio.  Also, residential 1 – 4 family loans declined by $920,000 and ended the period at $215.3 million, or 21.6% of the portfolio. Commercial real estate loans, the largest category of loans, at $379.1 million, or 38.0% of gross loans outstanding, declined $792,000. Other loan categories declined a nominal $155,000 during the first quarter of 2019.

The Company's loan portfolio exhibited growth trends in a number of categories when comparing March 31, 2019 and March 31, 2018.  Total loans grew $33.7 million, or 3.5%, over the time frame with commercial loans growing by $20.4 million, or 12.0%, followed by growth of $7.6 million, or 2.1%, in commercial mortgage loans on real estate, $13.9 million, or 12.7%, in construction and land development loans, $3.4 million in agriculture loans secured by real estate loans and $405,000 in all other loans.  Offsetting these growth categories were decreases in residential 1-4 family loans of $7.4 million, multifamily loans of $2.0 million, consumer installment loans of $2.0 million and second mortgages of $723,000.

The following table shows the composition of the Company's loan portfolio, excluding PCI loans, at March 31, 2019, December 31, 2018 and March 31, 2018.

The Company's securities portfolio, excluding restricted equity securities, declined $7.3 million since year end 2018 to $241.6 million at March 31, 2019. Securities balances declined $5.1 million since March 31, 2018.  Net losses of $14,000 were recognized during the first quarter of 2019 compared with $12,000 in net losses in the fourth quarter of 2018. Net gains of $30,000 were recognized in the first quarter of 2018.  The Company actively manages the portfolio to improve its liquidity and maximize the return within the desired risk profile.

The Company had cash and cash equivalents of $35.8 million, $34.2 million and $21.3 million at March 31, 2019, December 31, 2018 and March 31, 2018, respectively.  There were federal funds sold of $240,000 at March 31, 2019 and federal funds purchased of $19.4 million at December 31, 2018.  At March 31, 2018, there were federal funds purchased of $20.0 million and federal funds sold of $152,000. Interest bearing bank balances were $18.8 million at March 31, 2019 compared with $15.9 million at December 31, 2018 and $9.1 million at March 31, 2018.

The following table shows the composition of the Company's securities portfolio, excluding equity securities, restricted, at March 31, 2019, December 31, 2018 and March 31, 2018.

Interest bearing deposits at March 31, 2019 were $1.002 billion, an increase of $2.5 million from December 31, 2018 and $56.1 million, or 5.9%, greater than at March 31, 2018. Time deposits less than or equal to $250,000 increased by $14.5 million, or 3.0%, during the first quarter of 2019, followed by increases of $4.9 million in time deposits over $250,000 and $1.3 million in savings account balances. The increase in time deposit balances was the result of a shift during the quarter from NOW and MMDA balances as higher rates were an enhancement to consumers to obtain higher returns on their deposit balances.  NOW accounts declined $14.3 million during the first quarter of 2019 while MMDA balances fell by $3.9 million.

When compared with March 31, 2018, interest bearing deposits grew by $56.1 million. Time deposits less than or equal to $250,000 grew by 14.7%, or $64.2 million, while time deposits over $250,000 grew by $19.4 million, or 16.9%. Offsetting these year-over-year increases was a decrease of $25.4 million in MMDA balances, the result of the expiration of new account promotional rates at new branches and the shifting of funds by customers into higher yielding time deposits.

The following table compares the mix of interest bearing deposits at March 31, 2019, December 31, 2018 and March 31, 2018.

FHLB advances were $69.1 million at March 31, 2019, compared with $59.4 million at December 31, 2018 and $101.1 million at March 31, 2018.  The increase of $9.7 million in FHLB advances in the first quarter of 2019 was used to reduce federal funds purchased levels of $19.4 million at year end 2018.    

Shareholders' equity was $142.3 million at March 31, 2019, $137.5 million at December 31, 2018 and $125.0 million at March 31, 2018.  Shareholders equity to assets was 10.2% at March 31, 2019, 9.9% December 31, 2018 and 9.2% at March 31, 2018.  The Board of Directors recommenced a quarterly dividend to shareholders in the first quarter of 2019, with a $0.03 per common share dividend that totaled $665,000 in the aggregate and was paid on April 1, 2019.

Asset Quality – excluding PCI loans

Nonperforming loans were $11.0 million at March 31, 2019, a $1.5 million increase from $9.5 million at December 31, 2018. The increase was the net result of $3.4 million in additions to nonperforming loans and $1.9 million in reductions. The increase related mainly to two commercial loans totaling $616,000 and one multifamily real estate loan of $2.6 million. With respect to the reductions in nonperforming loans, $97,000 were payments to existing credits, $542,000 were charge-offs, and $1.3 million were paid off.

Total non-performing assets totaled $12.2 million at March 31, 2019 compared with $10.6 million at December 31, 2018. Total nonperforming assets decreased $1.0 million, or 7.9%, since March 31, 2018.  There were net charge-offs of $322,000 in the first quarter of 2019, $10,000 in the fourth quarter of 2018 and $1,000 in the first quarter of 2018.

The allowance for loan losses equaled 78.8% of nonaccrual loans at March 31, 2019, compared with 94.6% at December 31, 2018 and 88.9% at March 31, 2018. The ratio of nonperforming assets to loans and other real estate owned (OREO) was 1.22% at March 31, 2019 compared with 1.07% at December 31, 2018 and 1.37% at March 31, 2018.

The following table reconciles the activity in the Company's allowance for loan losses, by quarter, for the past five quarters.

The following table sets forth selected asset quality data, excluding PCI loans, and ratios for the dates indicated.

A further breakout of nonaccrual loans, excluding PCI loans, at March 31, 2019, December 31, 2018, and March 31, 2018 is below.

Capital Requirements

The Bank's ratio of total risk-based capital was 13.5% at March 31, 2019 compared with 13.3% at December 31, 2018.  The tier 1 risk-based capital ratio was 12.7% at March 31, 2019 and 12.6% at December 31, 2018. The Bank's tier 1 leverage ratio was 10.3% at March 31, 2019 and 10.2% at December 31, 2018.  All capital ratios exceed regulatory minimums to be considered well capitalized.  BASEL III introduced the common equity tier 1 capital ratio, which was 12.7% at March 31, 2019 and 12.6% at December 31, 2018.

Earnings Conference Call and Webcast

The Company will host a conference call for interested parties on  Friday, April 26, 2019, at 10:00 a.m. Eastern Time to discuss the financial results for the first quarter of 2019. The public is invited to listen to this conference call by dialing 866-374-8379 at least five minutes prior to the call.  Interested parties may also listen to this conference call through the internet by accessing the "Corporate Overview – Corporate Profile" page of the Company's internet site at www.cbtrustcorp.com.

A replay of the conference call will be available from 12:00 noon Eastern Time on April 26, 2019, until 9:00 a.m. Eastern Time on May 17, 2019. The replay will be available by dialing 877-344-7529 and entering access code 10130676 or  through the internet by accessing the "Corporate Overview – Corporate Profile" page of the Company's internet site at www.cbtrustcorp.com.

About Community Bankers Trust Corporation and Essex Bank

Community Bankers Trust Corporation is the holding company for Essex Bank, a Virginia state bank with 26 full-service offices, 20 of which are in Virginia and six of which are in Maryland.  The Bank also operates two loan production offices.  The Bank will close its Fairfax branch office on May 31, 2019. 

Additional information on the Bank is available on the Bank's website at www.essexbank.com.  For information on Community Bankers Trust Corporation, please visit its website at www.cbtrustcorp.com.

Forward-Looking Statements

This release contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that are subject to risks and uncertainties. These forward-looking statements include, without limitation, statements with respect to the Company's operations, performance, future strategy and goals. Actual results may differ materially from those included in the forward-looking statements due to a number of factors, including, without limitation, the effects of and changes in the following: the quality or composition of the Company's loan or investment portfolios, including collateral values and the repayment abilities of  borrowers and issuers; assumptions that underlie the Company's allowance for loan losses; general economic and market conditions, either nationally or in the Company's market areas; the interest rate environment; competitive pressures among banks and financial institutions or from companies outside the banking industry; real estate values; the demand for deposit, loan and investment products and other financial services; the demand, development and acceptance of new products and services; the performance of vendors or other parties with which the Company does business; time and costs associated with de novo branching, acquisitions, dispositions and similar transactions; the realization of gains and expense savings from acquisitions, dispositions and similar transactions; consumer profiles and spending and savings habits; levels of fraud in the banking industry; the level of attempted cyber-attacks in the banking industry; the securities and credit markets; costs associated with the integration of banking and other internal operations; the soundness of other financial institutions with which the Company does business; inflation; technology; and legislative and regulatory requirements.  Many of these factors and additional risks and uncertainties are described in the Company's Annual Report on Form 10-K for the year ended December 31, 2018 and other reports filed from time to time by the Company with the Securities and Exchange Commission. This press release speaks only as of its date, and the Company disclaims any duty to update the information in it.