Community Bankers Trust Corporation Reports Third Quarter Results, Including Continued Strong Allowance, Capital and Liquidity Positions

• Third quarter loss available to common shareholders was $3.0 million, after recording $5.2 million in provision for loan losses and increasing allowance for loan losses from $12.2 million at June 30, 2009 to $16.2 million at September 30, 2009.
• Continued strong capital ratios were in excess of definition of “Well Capitalized” with a Tier 1 leverage ratio of 9.23% and a total risk-based capital ratio of 18.48%.
• Tangible common book value per share increased from $4.40 at December 31, 2008 to $4.56 at September 30, 2009. (See “Non-GAAP Financial Measures” below for an explanation of this non-GAAP financial measure.)
• Liquidity remains strong with a large core deposit base and relatively low loan-to-deposit ratio of 79.3%. The Company is not reliant on brokered deposits or other sources of wholesale funding.
• Non-accrual loans, excluding FDIC covered loans, decreased by 16.0%, or $3.9 million, during the quarter, from $24.5 million at June 30, 2009 to $20.6 million at September 30, 2009.
• Allowance for loan losses, excluding FDIC covered loans, increased from 2.21% at June 30, 2009 to 2.85% at September 30, 2009.
• The ratio of allowance for loan losses to nonperforming assets, excluding FDIC covered assets, increased from 47.1% at June 30, 2009 to 69.9% at September 30, 2009.
• The absence of impairments in the securities portfolio demonstrates a continued conservative investment practice.
• The Company successfully integrated the operations of Suburban Federal Savings Bank into the Essex Bank operating platform.
• Total loan growth, excluding FDIC covered loans, was 3.2% from June 30, 2009 to September 30, 2009.

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GLEN ALLEN, Va.--(BUSINESS WIRE)--Community Bankers Trust Corporation (the “Company”) (NYSE Amex: BTC), the holding company for Essex Bank (the “Bank”), reported a net loss available to common stockholders for the third quarter of 2009 of $3.0 million, or $0.14 per diluted share, compared with a profit of $952,000, or $0.04 per diluted share, for the same period in 2008.

The loss incurred during the third quarter was primarily the result of a $4.1 million increase in the provision for loan losses over the same period in 2008. This increase reflects both prudent recognition of economic conditions and additions to the allowance for loan losses on specific credits in the Company’s loan portfolio. The allowance for loan losses with respect to loans not covered by the shared loss agreements with the FDIC, as described below, was 2.85% at September 30, 2009 versus 2.21% at June 30, 2009.

For the nine month period ended September 30, 2009, net loss available to common stockholders was $16.7 million, which represented $0.78 per share on a fully diluted basis. Net loss for the first three quarters of 2009 was primarily driven by the goodwill impairment charge of $24.0 million taken during the second quarter of 2009 and year-to-date loan loss provisions of $11.3 million. Excluding the non-cash impairment charge to goodwill recognized in the second quarter of $24.0 million, and including the after-tax gain of net assets acquired in connection with the Bank’s acquisition of the operations of Suburban Federal Savings Bank (SFSB) of $12.9 million, the Company would have had $7.3 million in net income available to common stockholders, or $0.34 per share on a fully diluted basis.

George M. Longest, Jr., the Company’s President and Chief Executive Officer, stated, “We continue to see softening in the central Virginia market, which has led us to significantly add to our reserves in these uncertain times. We are heartened by our ability to generate new loan growth, which shows our commitment to prudently leverage our capital. We continue to deploy our recently acquired deposits, integrate our previously announced acquisitions, build a platform to undertake future acquisitions, and enhance our shareholder value. During a time when many banks are shrinking the balance sheet to preserve capital, we are prudently using our strong capital position to generate loans in our three state footprint.”

Mr. Longest continued, “While our loan loss provision in the third quarter mitigated earnings, we continue to have solid loan and capital reserves. We remain well positioned to grow our balance sheet while completing integration of our initial merger and subsequent FDIC assisted transactions and work towards a position of linked quarter profitability. Our focus at the present time is to carefully monitor and make provision for problem assets, build our platform and take advantage of our funding sources by hiring experienced people and expanding our lending capabilities in all of our markets and bring resolution to the FDIC covered non-performing assets acquired in the SFSB transaction. We are diligently at work converting the systems of former SFSB branches banking platforms of products and services. We are well along in that process.”

Mr. Longest concluded, “We believe the bulk of integration costs related to our initial merger transaction and two subsequent FDIC-assisted transactions are behind us. We expect to see a significant reduction in merger related expenses from these transactions next year.”

Net interest income before provisions for loan losses was $9.2 million for the three months ended September 30, 2009, compared with $6.2 million for the same period in 2008. For the three months ended September 30, 2009, the net interest margin was 3.37% compared with 4.26% for the same period in 2008. The decline in the margin compared with the same period in 2008 was driven by several factors:

• The Bank’s loan rates declined in the fourth quarter of 2008 due to a decrease in the prime rate;
• $280 million of core deposits purchased in the fourth quarter of 2008 were invested in securities, rather than loans; and
• The SFSB transaction resulted in further margin compression during 2009 as the Bank assumed a large volume of FDIC covered non-accruing loans that are included in the margin calculation.

On a linked quarter basis, the net interest margin for the third quarter of 2009 improved seven basis points due primarily to a lower cost of funds. Management has proactively managed excess deposits related to the acquisition of the operations of The Community Bank (TCB) in 2008 and the SFSB transaction and allowed higher priced time deposits to run-off without adversely compromising the Bank’s liquidity position.

For the three months ended September 30, 2009, noninterest income was $1.3 million, compared with $754,000 in the same period of 2008. This increase of $520,000, or 69.0%, was primarily attributable to $612,000 in gains on securities transactions, liquidated to offset time deposit decreases. Service charges on deposit accounts increased $158,000 for the same time period as a result of an increase of 111.5% in total deposits from $485.8 million at September 30, 2008 to $1.03 billion at September 30, 2009 as a result of the TCB and SFSB transactions. The increase in noninterest income was partially offset by $187,000 in losses on sale of other real estate and a decrease in other noninterest income of $63,000 compared with the same period in 2008.

For the third quarter of 2009, noninterest expenses were $9.9 million compared with $4.7 million for the same period in 2008. Salaries and employee benefits were $4.8 million and represented 48.7% of all noninterest expenses for the quarter. Salaries and wages increased $2.5 million, or 103.8%, from the same quarter in 2008. The increases in salaries and wages were the direct result of increased staffing from the prior year related to the bank acquisitions and corporate staff hires for positions required for a significantly larger financial institution.

For the third quarter of 2009, other noninterest expenses included other operating expenses of $1.8 million, occupancy expenses of $752,000, data processing fees of $743,000, amortization of intangibles of $565,000, equipment expense of $436,000, legal fees of $217,000, and other professional fees of $184,000. FDIC assessments for the quarter equaled $436,000.

An income tax benefit of $1.9 million was recorded during the third quarter of 2009 compared with an expense of $234,000 for the same period in 2008. The Company has recorded an income tax expense of $3.0 million through the first three quarters of 2009. The goodwill impairment charge in the second quarter of 2009 was not tax deductible, and thus no tax benefit was permitted under current tax regulations.

For the nine months ended September 30, 2009, net interest income was $27.7 million, which generated a net interest margin of 3.32%. Noninterest income equaled $24.7 million, and excluding the first quarter gain on the SFSB transaction of $21.3 million, would have equaled $3.4 million. Service charges on deposit accounts were $1.9 million, other noninterest income was $844,000, and securities gains were $905,000.

For the nine month period ended September 30, 2009, noninterest expenses were $54.1 million, inclusive of the $24.0 million goodwill impairment charge. Salaries and employee benefits were $14.3 million and represented 47.5% of overhead, exclusive of the goodwill impairment charge. Throughout the year, the management team has been expanded, providing additional depth to the management of the Company. While additional staffing may be required in 2010, the Company believes that its current staffing level has a greater capacity to effectively manage the Company through current and anticipated opportunities and challenges.

Other overhead costs included other operating expenses of $5.4 million, data processing fees of $2.2 million, occupancy expenses of $1.9 million, amortization of core deposit intangibles of $1.7 million, professional fees of $1.3 million, equipment expense of $1.2 million, and legal fees of $772,000.

Balance Sheet

Total assets were $1.24 billion at September 30, 2009, increasing $209.4 million, or 20.3%, since December 31, 2008. Asset growth since year end was centered in loan growth related to the SFSB transaction. Total loans, including FDIC covered loans, at September 30, 2009 were $814.5 million, an increase of $291.2 million, or 55.7%, compared with $523.3 million at December 31, 2008. Total loans, including FDIC covered loans, increased $7.0 million, or 0.9%, during the third quarter from $807.5 million at June 30, 2009 to $814.5 million at September 30, 2009. On a linked quarter basis, FDIC covered loans decreased by $10.7 million, from $255.7 million at June 30, 2009 to $245.1 million at September 30, 2009, while the Bank’s non-covered loan portfolio increased by $17.7 million, from $551.8 million at June 30, 2009 to $569.5 million at September 30, 2009.

The following table shows the composition of the non-covered loan portfolio (excluding FDIC covered loans) at September 30, 2009, and December 31, 2008.

The following table, which provides additional detail to the loan portfolio by type, includes both non-covered and “covered” (FDIC covered loans) at September 30, 2009.

Total deposits at September 30, 2009 were $1.03 billion, an increase of $221.2 million, or 27.4%, compared with $806.3 million at December 31, 2008. This increase was primarily due to the SFSB transaction. Total deposits declined on a linked quarter basis by $39.9 million, or 3.7%. The most significant dollar decline by deposit category was in time deposits. Time deposits declined $37.4 million during the third quarter as management proactively priced these deposits to allow excess higher priced time deposits to run-off, correspondingly enhancing the net interest margin.

The Company’s total loan-to-deposits ratio, including FDIC covered loans, was 79.3% at September 30, 2009 and 75.7% at June 30, 2009.

The following table details interest-bearing deposit totals by category at September 30, 2009, June 30, 2009, and December 31, 2008:

Capital

At September 30, 2009, the Company’s ratio of total capital to risk-weighted assets was 18.48%. The ratio of Tier 1 capital to risk-weighted assets was 17.27%, and the leverage ratio (Tier 1 capital to average adjusted total assets) was 9.23%. All three ratios exceed capital adequacy guidelines outlined by its regulator, and the Company is considered “well-capitalized”. The Company has trust preferred subordinated debt that qualifies as regulatory capital. This trust preferred debt has a 30-year maturity with a 5-year call option, and was issued at a rate of three month LIBOR plus 3.00%, and was priced at 3.60% in the third quarter of 2009.

Asset Quality

Nonperforming assets, excluding FDIC covered assets, totaled $23.2 million or 4.1% of loans and other real estate at September 30, 2009 compared with $25.9 million or 4.7% of loans at June 30, 2009. The allowance for loans losses was 2.85% of total loans, excluding FDIC covered loans, at September 30, 2009, compared with 2.21% at June 30, 2009. Allowance for loan losses increased from 47.1% of nonperforming assets at June 30, 2009 to 69.9% at September 30, 2009 and from 49.8% of nonaccrual loans at June 30, 2009 to 78.8% at September 30, 2009.

The following table provides asset quality ratios, excluding FDIC covered assets, at September 30, 2009, June 30, 2009, and March 31, 2009:

The following table presents nonaccrual loans for the non-covered loan portfolio at September 30, 2009.

The following table shows a reconciliation of the allowance for loan losses for the nine months and three months ended September 30, 2009.

The following table presents, charge-offs and recoveries for all non-covered loans, for the first three quarters ended September 30, 2009 and the quarter ended September 30, 2009.

For the three months ended September 30, 2009, the Company’s provision for loan losses was $5.2 million compared with $1.1 million in the same period of 2008. For the nine months ended September 30, 2009, loan loss provisions were $11.3 million.

Increases were made to the loan loss reserve during the third quarter of 2009 as economic conditions continued to show signs of deterioration for classified assets. The most notable impetus for the provision was evidenced in one borrowing relationship which was previously impaired and on the Bank’s watch list. Current information related to unwinding the credit necessitated further impairment which amounted to over 50% of the provision for the quarter. The remaining balance of the provision during the third quarter was attributable to downgraded credits and further insulation from the economic downturn. Management continues to monitor the loan portfolio closely and make appropriate adjustments using the Company’s internal risk rating system.

FDIC Covered Assets

On January 30, 2009, the Bank entered into a purchase and assumption agreement with the FDIC, as receiver, for SFSB. The Bank assumed all deposit liabilities and purchased certain assets of SFSB. In connection with the SFSB transaction, the Bank entered into two shared-loss agreements with the FDIC with respect to the loan and foreclosed real estate assets purchased. One agreement relates to losses arising from single family one-to-four residential mortgage loans, and one agreement relates to losses arising from other loans and foreclosed real estate.

Under the shared-loss agreements, the FDIC will reimburse the Bank for 80% of all losses, including expenses associated with liquidating and maintaining properties arising from covered loan assets, on the first $118 million of all losses on such covered loans, and for 95% of losses on covered loans thereafter. Under the shared-loss agreements, a “loss” on a covered loan is defined generally as a realized loss incurred through a permitted disposition, foreclosure, short-sale or restructuring of the covered asset. The reimbursable losses from the FDIC are based on the book value of the relevant loan as determined by the FDIC at the date of the SFSB transaction, January 30, 2009. New loans made after that date are not covered by the shared-loss agreements.

At September 30, 2009, FDIC-covered assets totaled $265.5 million. Of this amount, $179.1 million were performing loans, $66.0 million were nonaccrual loans, $16.8 million were other real estate owned, and $3.6 million were reimbursable expenses. All loan and OREO relationships are under the shared-loss agreements, which limit the potential loss to the Company in the event that these loans should default. The Company’s Special Assets department is aggressively working towards the appropriate resolution and or disposition of these credits.

The following table details the volume of covered assets that were nonperforming at September 30, 2009:

Securities

The Company’s securities portfolio remains solid and a viable source of liquidity. The following two tables show the amortized costs and fair values of securities for the entire investment portfolio at September 30, 2009.

At September 30, 2009, there were $2.2 million of securities available-for-sale that were in a continuous loss position for more than twelve months with unrealized losses of $30,000 consisting primarily of municipal obligations. Management continually monitors the fair value and credit quality of the Company’s investment portfolio, and there were no investments considered other than temporarily impaired as of September 30, 2009.

The Company does not hold any trust preferred securities in its investment portfolio.

Non-GAAP Financial Measures

This press release contains certain financial information determined by methods other than in accordance with accounting principles generally accepted in the United States of America (GAAP). Tangible common stockholders’ equity equals total stockholders’ equity less preferred stock, goodwill and identifiable intangible assets. Tangible common book value per share, which was presented earlier in this press release, is computed by dividing tangible common stockholders’ equity by the number of common shares outstanding. Management believes that tangible stockholders’ equity is meaningful because it is one of the measures that the Company and investors use to assess capital adequacy. Management believes that presenting the change in tangible common book value per share provides a meaningful period-to-period comparison of these measures. These disclosures should not be viewed as substitutes for the results determined to be in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. The methodology for determining this measure may differ among companies in light of potential diversity in presentation in the banking industry.

The following table sets forth the reconciliation of stockholders’ equity to tangible common stockholders’ equity.

About Community Bankers Trust Corporation

The Company is the holding company for Essex Bank, a Virginia state bank with 25 full-service offices, 14 of which are in Virginia, seven of which are in Maryland and four of which are in Georgia. The Company also operates two loan production offices. Additional information is available on the Company’s 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, growth 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: general economic and market conditions, either nationally or locally; the interest rate environment; competitive pressures among banks and financial institutions or from companies outside the banking industry; real estate values; the quality or composition of the Company’s loan or investment portfolios; the demand for deposit, loan, and investment products and other financial services; the demand, development and acceptance of new products and services; the timing of future reimbursements from the FDIC to the Company under the shared-loss agreements; consumer profiles and spending and savings habits; the securities and credit markets; costs associated with the integration of banking and other internal operations; management’s evaluation of goodwill and other assets on a periodic basis, and any resulting impairment charges, under applicable accounting standards; the soundness of other financial institutions with which the Company does business; inflation; technology; and legislative and regulatory requirements. 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, 2008 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.

Community Bankers Trust Corporation
Bruce E. Thomas
Senior Vice President/Chief Financial Officer
804-443-4343