United Bankshares, Inc. (UBSI) Q2 2015 Earnings Report, Transcript and Summary

Good morning and welcome to the Community Bankers Trust Corporation’s Second Quarter 2015 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Rex Smith, President and CEO. Please go ahead, sir.

Thank you for joining us today as we review the results of the second quarter and the first half of 2015 for Community Bankers Trust Corporation, which is the Holding Company for Essex Bank. Let me begin with a 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 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. Following our usual format I’ll give a quick overview of the quarter; then Bruce Thomas, our Chief Financial Officer, will cover the financial highlights; and lastly I’ll discuss some of our strategies for the rest of 2015. Well our growth in loans for the quarter appears lackluster it is skewed by the resolution and full pay off of a large non-accrual loan, adjusted for that organic loan growth was close to $10 million. That number represents less than 2% growth, but it does not concerned me for several reasons. First our strategy is to be selective in our growth. So that the bank does not take undo pricing, credit or duration risk. We are seeing some competitors appear who want growth at any cost and we will not play that game. Secondly, we’ve added a total of six new loan officers throughout Virginia and Maryland in the first half of this year. That investment is beginning to show great potential as they are producing the strong pipeline of diverse credits with the pricing and structure that we are demanding. This is evident in the stability of our loan yield on both the linked quarter basis and year-over-year. That stability helps drive future core earnings. Net income was up 29% over the first quarter and $1.7 million. That number should continue to improve as we see the increase in production from the previously mentioned staff increases and the increases we are seeing in non-interest income specifically a mortgage operation. We should also see further decreases in non-interest expenses from lower software operating costs and lower credit expenses going forward. We continue to decrease the level of broker deposits was solid growth in demand deposits. This is the result of some branch relocations in Maryland and our new retail sales system. For the quarter demand deposits are up almost a $11 million or 12%. We should see significant deposit growth in the third quarter as our newest branch located in the Bon Air Community of Richmond is opening tomorrow. With that, let me turn it over to Bruce for some details on the financials of the quarter.

Thank you, Rex. Second quarter 2015 net income and net income available to common shareholders of $1,693,000 or $0.08 for a fully diluted common share, compares with second quarter 2014 net income available to common shareholders of $1,538,000 or $0.07 for a fully diluted common share. Second quarter 2015 net income reflects a linked quarter increase of 29% or $381,000 from first quarter 2015 net income of $1,312,000 or $0.06 for a fully diluted common share. The 10.1% increase in net income available to common shareholders on a year-over-year basis reflects a $295,000 or 2.7% decrease in net interest income and an $84,000 increase in non-interest expense. This was more than offset by a $236,000 increase in non-interest income a $116,000 decrease in income tax expense and no dividends on preferred stock in the current quarter as compared with $182,000 in the second quarter of 2014. The decrease in net interest income reflects the lower level of interest and fees on the FDIC covered loans of $995,000 year-over-year, partially the result of $231,000 less in cash payments received on the zero carrying value acquisition development and construction tool. However the average balance of the non-covered loan portfolio increased $75.2 million or 12.3% and the yield dropped only two basis points from 4.79% in the second quarter of 2014 to 4.77% in the second quarter of 2015. Additionally, interest income on securities remain consistent with an improved tax equivalent yield of 2.99% this quarter versus 2.69% in the second quarter of 2014. Additionally, we ended the quarter in a fully invested position. The year-to-date core loan growth and going into the third quarter of 2015 fully invested are meaningful to note. Non-interest income increased $236,000 or 24.3% year-over-year and was driven by an increase in mortgage income of $232,000 which was just getting started in the second quarter of 2014. This reflects the expected lag time between the addition of production personnel and increases in loan volume and interest and non-interest income. Analyzing the linked-quarter results of the second quarter of 2015 versus the first quarter of 2015, net income improved to $381,000 or 29%. Net interest income increased $678,000 or 6.9% on a linked-quarter basis. The increases were reflected in interest and fees on covered loans of $355,000 in interest and fees on non-covered loans of $260,000 and securities income of $68,000. Interest expense increased only $5,000 on a linked-quarter basis. Driving the improvement within interest income of the $14.2 million or 2.1% increase in non-covered loan volume a $95,000 cash payment on a loan non-accruing interest and $475,000 cash payment on a covered ADC loan. These increases more than offset a decline of $191,000 in total non-interest income. Securities gains of $297,000 will recognize in the first quarter of 2015 versus the loss of $8,000 realized in the second quarter of 2015. However, other non-interest income increased $106,000 once again the result of performance in the mortgage division. Non-interest expense is actually declined slightly $76,000 on a linked-quarter basis and has been consistent at the current levels sent to second quarter of 2014. Six months 2015 performance is very similar to that reported for the same period in 2014. Net income available to common shareholders of $3 million this year versus $3.2 million last year is $192,000 below the prior year’s performance. However, we are bullish about the second half of the year as our loan yields are holding steady, we are fully invested and have above peer yield on our securities portfolio and our interest expense has stabilized as has overhead. Examining our balance sheet our non-covered loan growth is 8.2% or $51.7 million year-over-year. Residential 1-4 family mortgage loans have gone $21.8 million of 14%, commercial loans $10.2 million or 3.7%. Multifamily growth of $10.6 million is 31.2% with the balance at June 30, 2015 of $44.5 million. Commercial loans have also grown just that $10 million year-over-year and were $96.3 million at June 30, 2015. In the liability section total deposits have increased $3.2 million or 29% since year end and $33.1 million year-over-year. The second quarter increase was $33.2 million, non-interest bearing deposit have grown $16.9 million for the year. Interest-bearing deposits have grown $10.4 million year-over-year despite management allowing $9.1 million in broker deposits to runoff. Factoring this non-core runoff core deposits have grown $43 million or 4.7% year-over-year. Federal Home Loan Bank advances have declined from $96.4 million at December 31, 2014 to $81 million at June 30, 2015 and federal funds purchase have declined $9.5 million. This $24.9 million has been replaced by the deposit growth noted above. Stockholders equity has increased $7.1 million or 7% year-over-year. Common tangible book value increased from $4.43 per share at June 30, 2014 to $4.83 at June 30, 2015 an increase of 9%. Asset quality improved this quarter. Total classified and criticized assets declined 22.8% and ended the quarter at $38.3 million, of this total 55.5% are in the special mention category. Substandar loan have declined 54.5% year-over-year and were $12.3 million at June 30, 2015. The allowance for loan losses was 1.45% of non-covered loans at June 30, 2015 and our coverage ratio has improved as well, but the allowance for loan losses to non-performing assets at 64.67% and the allowance for loan losses for non-accrual loans at 93.68%. Non-performing assets to loans and other real estate fell from 3.30% at March 31, 2015 to 2.23% at June 30, 2015 the lowest levels at the end of any of the five most recent reporting periods. At this time I’ll turn it back over to Rex.

Thank you, Bruce. The company had many past of achievements in the quarter. The complete resolution of the large non-accruals and tremendous plus. It proves their credit team was responsive and then the loan was well structured to allow the recovery occurred in less than six months’ time. It also leaves us with an allowance to total loans ratio which will keep our provision expense down for the remainder of 2015. I also believe that our strategy for growth will pay big dividends for the future as other bank suffer sizable decreases in their margins and we have been able to keep that stable, while growing non-covered loans and not extending duration. I am convinced that this is the correct strategy for the current rate environment and for what is forecasted for the next year. Management continues to work on other ways to enhance our earnings growth and increase long-term value. We are working diligently on reducing the cost of fixed assets, reducing the cost of last year programs and utilizing new technology enhancements to further test core operating cost. We have a strong commitment to enhance franchise value to core growth in the balance sheet and growth in our earnings per share. The opening of our new branch in Richmond and the plans for other strategically to locate offices throughout Virginia and Maryland will help to drive our franchise value for the future. Since 2011 we have been able to add tremendous value to the company. The stock price has increased from a $1 a share to over $5 per share. I am confident that we can continue to show improvement during the rest of 2015 and beyond. I thank you all who participated in the call today and for your ongoing support of the company. With that, we will now open the call for any questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Showing no questions at this time, we will conclude the question-and-answer session. I would like to turn the conference back over to Rex Smith for his closing remarks. Mr. Smith I’m sorry, we do have a question that just came in if you would like to take it.

Yes.

Okay, the question will come from [Joe Steven of Steven Capital]. Please go ahead sir.

Hey Rex. First of all good quarter.

Thank you, Joe.

Rex, you did talk a little bit about, you are trying to reduce your loss share if you get your exact coding the loss share costs. Can you get any more specific or is that just an ongoing process? That’s it. Thank you, guys. Good quarter.

Yes, it is one of those ongoing processes Joe, there are lot of steps that has to be taken down that path, but we are aggressively pursuing some options with the FDIC to see what we can do with that.

Okay. Thank you guys, good quarter.

Thank you, Joe.

Thank you.

[Operator Instructions] And at this time I show no additional questions so I’ll hand the call over to Mr. Smith for his closing remarks.

I just like to thank everybody for their continued support to the company and we look forward to the remainder of 2015. If anyone has any follow-up questions, Bruce and I will be available today, just give is a call. Thank you.

Ladies and gentlemen, the conference has now concluded. We thank you for attending today’s presentation. You may now disconnect.