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Edited Transcript of ESXB.OQ earnings conference call or presentation 24-Jan-20 3:00pm GMT

Q4 2019 Community Bankers Trust Corp Earnings Call

RICHMOND Feb 2, 2020 (Thomson StreetEvents) -- Edited Transcript of Community Bankers Trust Corp earnings conference call or presentation Friday, January 24, 2020 at 3:00:00pm GMT

TEXT version of Transcript


Corporate Participants


* Bruce E. Thomas

Community Bankers Trust Corporation - Executive VP & CFO

* Rex L. Smith

Community Bankers Trust Corporation - President, CEO & Director




Operator [1]


Good morning and welcome to the Community Bankers Trust Corporation Fourth Quarter and Year 2019 Earnings Conference Call. (Operator Instructions)

I would now like to turn the conference over to Rex Smith, President and CEO. Please go ahead, sir.


Rex L. Smith, Community Bankers Trust Corporation - President, CEO & Director [2]


Good morning, and thank you for joining us today as we review the results of the fourth quarter and the full year of 2019 for Community Bankers Trust Corporation, which is the holding company for Essex Bank.

Let me start with our usual reminder that during the course of our remarks today, we may make forward-looking statements within the meaning of applicable securities laws with respect to our operations, performance, future strategy and goals. I'll remind everyone that our actual results may differ materially from those included in the forward-looking statements due to a number of factors. These factors and additional risks and uncertainties are included in our earnings release, our most recent Form 10-K and other reports that Community Bankers Trust Corporation files with or furnishes to the Securities and Exchange Commission. You can access all of these documents through our website at www.cbtrustcorp.com.

On today's call, I will give a quick overview of the quarter and the year, and then Bruce Thomas, our Chief Financial Officer, will cover detailed selected financial highlights and lastly, I will share our thoughts as we look forward to 2020.

Overall, we are pleased with the results of the fourth quarter and for the year. We continually work to manage the growth and structure of the balance sheet to maximize earnings without undue risk. We still believe that credit quality and pricing structure are more important than the overall growth rate of loans. When we review the asset and liability model for the company, this belief is reinforced.

Additionally, we continue to focus on growing core deposits, specifically transaction-based demand deposits to reduce our overall cost of funds. To that end, I am pleased to report that we finished the year hitting our target growth in loans and in core deposits.

Loan growth for the fourth quarter was 2.3%, which is 9.2% annualized, and the pipeline for the first quarter for 2020 is very strong. The growth rate for the year 2019 was as expected and was a direct result of our deliberate approach to lending in this interest rate environment.

Deposit mix changed significantly as noninterest-bearing demand deposits increased 8.2% for the year, which allowed the company to reduce higher cost time deposits by over $17 million.

Noninterest income also improved for numerous reasons, including growth in deposit account fees of $321,000, growth in mortgage origination fees and growth in income from the investment management group. Noninterest expenses remained relatively flat with the exception of the large tax payment made in the third quarter to bring our oldest nonperforming loan into OREO. All of these factors contributed to a 14.7% increase in net income for the year to $15.7 million, a $2 million increase over 2018.

Now I will turn the call over to Bruce Thomas to discuss the details of the financial results of the quarter and the year.


Bruce E. Thomas, Community Bankers Trust Corporation - Executive VP & CFO [3]


Thank you, Rex. Net income for the fourth quarter of 2019 was $4 million or $0.18 per share, basic and fully diluted. This is an increase year-over-year of $688,000 or 20.5%. The return on average assets annualized for the fourth quarter of 2019 was 1.14% compared with 0.98% for the fourth quarter of 2018. Return on average equity annualized for the fourth quarter of 2019 was 10.42% compared with 10.01% for the same period in 2018. Driving the fourth quarter year-over-year increase was interest and dividend income, which increased $769,000 or 5%, specifically interest and fees on loans increased $1.1 million or 9.3% and fueled the growth in interest and dividend income. Additionally, noninterest income increased $294,000 or 27.1%.

Within noninterest income, performance was lifted by dividends on equity investment and swap fee income. Also, mortgage loan income increased $117,000 year-over-year. Due to strong growth, service charges on deposit accounts increased $65,000 or 9.4% year-over-year.

Noninterest expenses decreased $365,000 or 4% year-over-year. FDIC assessment benefited from the small bank assessment credit in the fourth quarter of 2019 and was a $20,000 credit. However, examining other lines in noninterest expense provides insight into our improved level of overhead from 1 year earlier. Salaries and employee benefits were $100,000 lower year-over-year. Occupancy and equipment expenses combined were $78,000 lower than 1 year ago. Data processing fees were $67,000 lower year-over-year, and they stabilized in 2019 and are currently projected to remain stable in 2020.

For the year ended December 31, 2019, net income was $15.7 million or $0.71 per share basic and $0.70 fully diluted. The increase was $2 million or 14.7% for 2019 compared with 2018. The return on average assets was 1.11% for 2019 compared with 1.01% in 2018, and the return on average equity was 10.63% compared with 10.59%.

Interest and dividend income of $65.4 million was an increase of $6.2 million or 10.5% and was fueled by growth of $5.3 million or 11.4% in interest and fees on loans. Despite an increase of 28.5% or $3.4 million in interest expense, net interest income increased in 2019 over 2018 by $2.8 million or 5.9%. Additionally, a provision of $325,000 was recognized in 2019 compared with no provision for loan losses in 2018. As a result of the 2019 provisioning, the allowance for loan losses to nonaccrual loans is 159.28% at December 31, 2019. Noninterest income increased $891,000 or 20% in 2019 over 2018.

Service charges and fees of $2.8 million in 2019 grew by 12.8% and were $321,000 greater than 2018. Mortgage loan income in 2019 was $486,000 and exhibited strong growth of $167,000 or 52.4% over 2018.

Lastly, noninterest expense growth was $852,000 or 2.4% in 2019 over 2018. Excluding the $624,000 in taxes paid as a result of taking possession of a nonaccrual loan, the increase for 2019 over 2018 would have been less than 1%. Net interest margin was 3.74% for the fourth quarter of 2019 compared with 3.78% for the same period in 2018. Despite a decline in the interest spread of 10 basis points, the net interest margin declined only 4 basis points and was benefited from growth in the average balance of earning assets of $42.7 million year-over-year and only $3.6 million in growth in the average balance of interest-bearing liabilities.

Perhaps more importantly, when analyzing the net interest margin is the linked quarter inspection. Of course, the third quarter of 2019 was the beneficiary of a $1.1 million payment to interest income in the PCI portfolio.

Analyzing margin, excluding this payment, reveals that yield on loans remained stable at 5.04% in both the third and fourth quarters of 2019. Security yields were 3.15% for the fourth quarter compared with 3.17% the previous quarter and, thus, are stable. Interest expense reflects a decrease of $177,000 or 4.4% in the linked quarter comparison and the cost of interest-bearing liabilities dropped from 1.49% in the third quarter to 1.43% in the fourth quarter.

With regard to the company's balance sheet, total loans increased $23.8 million or 2.3% for the linked quarters, and $64.6 million or 6.5% comparing year-end 2019 to year-end 2018. The growth in 2019 reflects growth in a diverse distribution with construction and land development growing by $26.2 million, commercial mortgage loans by $17 million, multifamily loans by $13.4 million, residential 1-4 family loans by $7.3 million and commercial loans by $2.5 million.

On the funding side, noninterest-bearing deposits grew by $13.5 million or 8.2% year-over-year and at $178.5 million represent 15.3% of total deposits. This strong growth enabled the bank to lower time deposits by $17.2 million and increase our loan-to-deposit ratio from 88.6% to 93.8% from year-end 2018 to year-end 2019.

Lastly, our equity position increased $18 million or 13.1% during 2019 and the strong position of risk-based capital allowed the company to resume the payment of dividends in 2019. Examining year-end 2019 shows a strong balance sheet, improving efficiencies and a stable net interest margin, and we look forward to 2020.


Rex L. Smith, Community Bankers Trust Corporation - President, CEO & Director [4]


Thank you, Bruce. We continue to manage the balance sheet for flexibility in multiple scenarios, which allows us to focus on consistently improving earnings. The fourth quarter and the year 2019 demonstrated the success of this strategy. Those results coupled with our recent announcements of the dividend increase in the common stock buyback program should better leverage our capital and improve earnings per share.

I believe we had a successful 2019 but have room to continue on our path to drive favorable results. We have a lot of positive operating momentum currently internally as well as with external factors, such as the SunTrust, BB&T merger that will help our costs. Both management and the Board are excited for the challenges of the New Year. I am sure many of you are aware of the recent statements from an activist shareholder. I'm not going to comment directly on those statements. However, I do believe it is important for all to understand the approach that management and the Board continue to take with your company.

First and foremost, we run your company to produce the best results in terms of earnings growth, dividend growth and stock price appreciation while conservatively managing credit, interest rate and a variety of other risks. The Board and management have worked extremely close through the years on all strategic initiatives, and we'll continue to do so in the future. Further, the Board discusses value creation internally at every monthly Board meeting. Information regarding any M&A activity is never withheld from the Board of Directors and those Board discussions are augmented through the engagement of a variety of well-respected investment bankers.

I would like to thank all of you who participated in the call today and for your ongoing support of the company and ask that you follow up with Bruce or myself with any questions that you may have. Thank you, and we look forward to speaking with you again soon.


Operator [5]


The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.