Community Bankers Trust Corporation (NASDAQ: ESXB), the holding company for Essex Bank, today reported results for the first quarter of 2020.

OPERATING HIGHLIGHTS

• Provision for loan losses for the first quarter of 2020 was $3.3 million, which resulted in an allowance for loan losses to total loans of 1.10% at March 31, 2020, compared with 0.80% at December 31, 2019. The provision was the result of rapidly evolving uncertainties and potential effects of the coronavirus disease 2019 ("COVID-19").
• Loans, excluding purchased credit impaired (PCI) loans, grew $20.9 million, or 2.0%, since year end 2019.
• Deposits grew $57.6 million, or 5.0%, since year end 2019.
• Noninterest bearing deposits grew $22.6 million, or 13.6%, year over year.
• Net interest margin was 3.68% in the first quarter of 2020 compared with 3.74% in the fourth quarter of 2019 and 3.81% in the first quarter of 2019.
• Federal Home Loan Bank advances of $58.3 million decreased $10.2 million, or 14.8%, from year end.

FINANCIAL HIGHLIGHTS

• Net income was $1.4 million for the quarter ended March 31, 2020, compared with net income of $4.0 million in the fourth quarter of 2019 and net income of $3.5 million in the first quarter of 2019.
• Fully diluted earnings per common share was $0.06 for the quarter ended March 31, 2020, compared with $0.18 per share and $0.16 per share for the quarters ended December 31, 2019 and March 31, 2019, respectively.
• Provision for loan losses was $3.3 million in the first quarter of 2020 compared with $200,000 in the fourth quarter of 2019 and no provision in the first quarter of 2019.
• Interest and fees on loans were $13.1 million in the first quarter of 2020, an increase of $667,000, or 5.4%, over the first quarter of 2019.
• Noninterest income increased $321,000, or 31.7%, year over year, driven by mortgage loan income, which increased $159,000 over that time frame.
• Noninterest expenses decreased $246,000 year over year, driven by a decrease of $229,000 in salaries and employee benefits and $103,000 in occupancy expenses.

MANAGEMENT COMMENTS

Rex L. Smith, III, President and Chief Executive Officer, stated, "The COVID-19 pandemic had an obvious impact on the results for the quarter, the largest of which was a prudent increase in the allowance for loan and lease losses as we try to anticipate the final effect of the economic and business disruption. But, amid this challenging situation, we have provided crucial and necessary services to all of our communities, both large and small. We continue our focus on meeting our customers' needs with superior service and flexibility that only a community bank could deliver in this environment. All of our branches have remained open with by appointment and full service drive-through options. Additionally, we have expanded the hours of our Customer Service Center to help in this time of need."

Smith added, "We also continue to work with our loan customers to provide payment relief on preexisting loans and to assist them through the CARES Act Payroll Protection Program. Helping our customers and our communities is the most important job we have, especially when we are in challenging times."

Smith continued, "Despite the large allowance expense, the Company had numerous positive metrics that will positively affect earnings once we turn the corner on the healthcare crisis. Loan and deposit growth for the quarter were strong and both noninterest income and noninterest expense showed improvement."

Smith concluded, "There will be more challenges ahead, but we have a strong capital position, a very experienced management team that has navigated through tough times before and a dedicated group of associates who are working harder than ever to meet the challenges our customers and communities face."

RESULTS OF OPERATIONS

Net income was $1.4 million for the first quarter of 2020, compared with net income of $4.0 million in the fourth quarter of 2019 and net income of $3.5 million in the first quarter of 2019. Earnings per common share, basic and fully diluted, were $0.06 per share, $0.18 per share and $0.16 per share for the three months ended March 31, 2020, December 31, 2019, and March 31, 2019, respectively.

The decrease of $2.1 million, or 59.6%, in net income, for the first quarter of 2020 compared with the first quarter of 2019 was primarily the result of a provision for loan losses of $3.3 million in the first quarter of 2020 to reflect the business and market disruptions with respect to COVID-19.

Offsetting these decreases to net income were a decrease of $532,000 in income tax expenses, an increase of $321,000 in noninterest income, a decrease of $246,000 in noninterest expenses and an increase of $113,000 in net interest income. Details on the drivers of these year-over-year changes are presented below.

The decrease of $2.6 million in net income on a linked quarter basis was also caused primarily by an increase of $3.1 million in provision for loan losses. Also affecting net income on a linked quarter basis were a decline of $331,000 in interest and dividend income and a decrease of $43,000 in noninterest income. Offsetting these decreases to net income were a decrease of $614,000 in income tax expenses, a decrease of $156,000 in interest expenses and a decrease of $74,000 in noninterest expenses. Linked quarter details are also provided below.

Net Interest Income

Linked Quarter BasisNet interest income was $12.2 million for the quarter ended March 31, 2020. This was a linked quarter decrease of $175,000, or 1.4%. Interest and dividend income on a linked quarter basis decreased $331,000, or 2.0%, to $15.9 million for the first quarter of 2020. Interest income with respect to loans, excluding PCI loans, decreased $219,000, or 1.6%, during the first quarter of 2020 when compared with the fourth quarter of 2019. This decline in interest and fees on loans during the quarter was attributed to the 1.50% decrease during the same period in the discount rate set by the Board of Governors of the Federal Reserve System. This rate serves as a benchmark for the prime rate at which a bank prices many of its loans and as a pricing tool for part of a bank's securities portfolio. The average balance of loans, excluding PCI loans, increased by $18.2 million, or 1.7%, on a linked quarter basis, to $1.065 billion. The increase muted a portion of the decrease in interest and dividend income driven by the decline in rates. The yield on loans decreased from 5.04% in the fourth quarter of 2019 to 4.93% in the first quarter of 2020. Interest income with respect to PCI loans was $1.1 million in the first quarter of 2020, and the corresponding yield was 13.87%, compared with $1.2 million and a yield of 13.68% in the fourth quarter of 2019. Interest income on securities decreased $22,000 on a linked quarter basis and was $1.7 million in the first quarter of 2020.

Interest income on securities on a tax-equivalent basis equaled $1.8 million for the first quarter of 2020, which was a decrease of $17,000 from the fourth quarter of 2019. The tax-equivalent yield on the securities portfolio was 3.08% in the first quarter of 2020 and 3.15% in the fourth quarter of 2019 based on a 21.0% income tax rate.

Interest expense of $3.7 million in the first quarter of 2020 was a decrease of $156,000, or 4.0%, on a linked quarter basis. Interest on deposits decreased $96,000, or 2.7%. Interest on borrowed funds decreased $60,000, or 17.2%. Average interest bearing balances of Federal Home Loan Bank and other borrowings decreased $1.8 million from the fourth quarter of 2019 to the first quarter of 2020. The cost on these borrowings decreased from 1.82% in the fourth quarter of 2019 to 1.58% in the first quarter of 2020. The Company's cost of interest bearing deposits of 1.36% in the first quarter of 2020 was a decrease of seven basis points from the prior quarter.

With the changes in interest income noted above, the tax-equivalent net interest margin decreased from 3.74% in the fourth quarter of 2019 to 3.68% in the first quarter of 2020. The interest spread was 3.42% for the current quarter compared with 3.47% in the prior quarter.

Year-Over-YearNet interest income increased $113,000, or 0.9%, from the first quarter of 2019 to the first quarter of 2020. Net interest income was $12.2 million in the first quarter of 2020 compared with $12.1 million for the same period in 2019. Interest and dividend income increased $140,000, or 0.9%, over this time period. Interest and fees on loans increased by $667,000. This increase was mitigated by securities income, which declined $304,000, interest and fees on PCI loans, which declined $196,000, and interest on deposits in other banks, which decreased by $27,000. Interest on PCI loans was $1.1 million in the first quarter of 2020 compared with $1.3 million in the first quarter of 2019. The average balance of the PCI portfolio declined $6.5 million during the year-over-year comparison period. The increase in interest and fees on loans was generated by an increase of $66.2 million, or 6.6%, in the average balance of loans. A portion of this loan growth was a shift in the mix of earning assets, as securities average balances declined $21.9 million year over year. The average balance of total earning assets increased $40.1 million, or 3.1%, from the first quarter of 2019 to the first quarter of 2020. The yield on earning assets decreased from 4.95% in the first quarter of 2019 to 4.78% in the first quarter of 2020. The yield on earning assets was the culmination of decreases in the yield on loans, from 5.36% in the first quarter of 2019 to 5.19% in the first quarter of 2020, the tax-equivalent yield on securities, from 3.35% in the first quarter of 2019 to 3.08% in the first quarter of 2020, and the yield on interest bearing bank balances from 2.70% to 1.68% year over year.

Interest expense increased $27,000, or 0.7%, when comparing the first quarter of 2019 and the first quarter of 2020. Interest expense on deposits increased $185,000, or 5.7%, as the average balance of interest bearing deposits increased $20.5 million, or 2.0%. This growth was primarily comprised of an increase of $9.2 million in the average balance of time deposits, which averaged $632.7 million in the first quarter of 2020. Interest-bearing demand deposits increased $12.5 million year over year and were $170.3 million, on average, in the first quarter of 2020. Offsetting these increases was a decrease in the average balance of savings and money market accounts of $1.3 million, to $220.0 million for the first quarter of 2020. The shift in deposit balances increased the cost of interest bearing deposits from 1.31% in the first quarter of 2019 to 1.34% in the first quarter of 2020.

FHLB and other borrowings decreased, on average, $6.4 million year over year, and there was a decrease in the rate paid, from 2.17% in the first quarter of 2019 to 1.58% in the first quarter of 2020. Overall, the Bank's cost of interest bearing liabilities decreased two basis points, from 1.38% in the first quarter of 2019 to 1.36% in the first quarter of 2020.

The tax-equivalent net interest margin decreased 13 basis points, from 3.81% in the first quarter of 2019 to 3.68% in the first quarter of 2020. Likewise, the interest spread decreased from 3.57% to 3.42% over the same time period. The decrease in the margin was precipitated by a greater decrease in the yield on earning assets of 17 basis points compared with a decline in the cost of interest bearing liabilities of only two basis points.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 a provision for loan losses on the loan portfolio, excluding PCI loans, of $3.3 million for the first quarter of 2020. This compares with a provision of loan losses of $200,000 in the fourth quarter of 2019 and no provision for loan losses in the first quarter of 2019.

The provision recorded in the first quarter of 2020 was due to the heightened risks associated with the loan portfolio that resulted from the economic impact of the rapidly evolving effects of the COVID-19 stay-at-home orders, business shut-downs and increased unemployment. Lenders reviewed each loan within the portfolio to identify those borrowers that management believed to be possibly impacted by the current state of the economy. Loans identified with increased risk were aggregated by loan type. This analysis indicated a risk grade migration in a number of loan categories that led to a heightened risk level in the loan portfolio. The impact of the loans' risk grade migration was applied to the allowance for loan loss calculation, which led to the provision for loan losses for the quarter.

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 2020, the fourth quarter of 2019 or the first quarter of 2019. Additional discussion of loan quality is presented below.

Noninterest Income

Linked Quarter BasisNoninterest income was $1.3 million for the first quarter of 2020, a $43,000 decrease compared with $1.4 million for the fourth quarter of 2019. Service charges and fees declined by $85,000 and were $672,000 in the first quarter of 2020 compared with $757,000 in the fourth quarter of 2019. 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 $296,000 was a decrease of $24,000 from the fourth quarter of 2019, primarily due to a decrease in dividend income from investments in partnerships. Partially offsetting the decrease was an increase in mortgage loan income of $73,000, or 49.3%, which was $221,000 in the first quarter of 2020, compared with $148,000 in the fourth quarter of 2019.

Year-Over-YearNoninterest income of $1.3 million in the first quarter of 2020 was an increase of $321,000, or 31.7%, over the first quarter of 2019. Mortgage loan income increased $159,000, or 256.5%, from $62,000 in the first quarter of 2019 to $221,000 in the first quarter of 2020. Other noninterest income was $296,000 in the first quarter of 2020 compared with $176,000 in the first quarter of 2019. The increase of $120,000 was primarily the result of a $64,000 gain on extinguishment of an FHLB borrowing combined with $90,000 in swap fee income, offset by a $24,000 decrease in brokerage fees and commissions. Service charges on deposit accounts of $672,000 in the first quarter of 2020 increased by $63,000, or 10.3%, year over year. This increase was primarily the result of an increase of $15.4 million in the average balance of noninterest bearing deposits and $12.5 million in interest-bearing demand deposits. Offsetting these increases in noninterest income year over year were decreases of $25,000 in losses on securities transactions and $7,000 in income on bank owned life insurance.

Noninterest Expenses

Linked Quarter BasisNoninterest expenses totaled $8.6 million for the first quarter of 2020, as compared with $8.7 million for the fourth quarter of 2019, a decrease of $74,000, or 0.9%. Salaries and employee benefits in the first quarter of 2020 were $5.2 million compared with $5.5 million in the fourth quarter of 2019. This is a decrease of $328,000, or 6.0% on a linked quarter basis. The primary reasons for the decreases were reductions of $282,000 in salaries and $91,000 in employee benefits. Also declining on a linked quarter basis were other real estate expenses, net, which decreased $50,000 on a linked quarter basis. Offsetting these decreases to noninterest expenses were increases on a linked quarter basis of $145,000 in FDIC assessment, $79,000 in other operating expenses, $40,000 in equipment expenses and $36,000 in occupancy expenses.

Year-Over-YearNoninterest expenses decreased $246,000, or 2.8%, when comparing the first quarter of 2020 to the same period in 2019. The largest component of the change was a reduction of $229,000 in salaries and employee benefits. During 2019, two branch offices were closed, which in turn reduced the number of full-time equivalent employees in 2020 compared with 2019. These closures also lowered occupancy expenses year over year, which declined $103,000, from $930,000 in the first quarter of 2019 to $827,000 in the first quarter of 2020. FDIC assessment of $125,000 in the first quarter of 2020 was a year-over-year decrease of $25,000. Offsetting these decreases were an increase in other operating expenses of $82,000, an increase of $24,000 in data processing expenses and an increase of $14,000 in other real estate expenses, net.

Income Taxes

Income tax expense was $264,000 for the three months ended March 31, 2020, compared with income tax expense of $878,000 and $796,000 for the fourth and first quarters of 2019, respectively. The effective tax rate for the first quarter of 2020 was 15.7% compared with 17.8% in the fourth quarter of 2019 and 18.5% for the first quarter of 2019. The decrease in the effective tax rate is a product of a higher percentage of tax free municipal income along with tax credits' representing a higher percentage of overall tax expense for the first quarter.

FINANCIAL CONDITION

Total assets increased $22.7 million, or 1.6%, to $1.454 billion at March 31, 2020 when compared to December 31, 2019. Total assets increased $55.0 million, or 3.9%, since March 31, 2019. Total loans, excluding PCI loans, were $1.079 billion at March 31, 2020, increasing $20.9 million, or 2.0%, from year end 2019 and $81.2 million, or 8.1%, from March 31, 2019. Total PCI loans were $30.3 million at March 31, 2020 versus $32.5 million at the prior quarter end and $36.8 million at March 31, 2019.

Commercial real estate loans, the largest category of loans at $410.4 million, or 38.0% of gross loans outstanding, increased $13.6 million during the first quarter of 2020. Commercial loans grew $7.4 million and were $198.5 million at March 31, 2020. Multifamily loans, totaling $76.2 million, or 7.1% of total loans, increased $3.2 million during the first quarter of 2020. Construction and land development loans, totaling $149.8 million, grew by $3.3 million, or 2.2%. Residential 1 – 4 family loans declined by $3.8 million and ended the period at $219.7 million, or 20.4% of the portfolio. Agriculture loans secured by real estate declined by $1.3 million, or 15.7%, and totaled $7.0 million at March 31, 2020. Consumer installment loans decreased $717,000 during the first quarter of 2020, and second mortgages decreased $685,000 during the period.

The Company's securities portfolio, excluding restricted equity securities, increased $4.7 million since year end 2019 to $227.4 million at March 31, 2020. U.S. Treasury issues increased by $7.5 million during the first quarter of 2020. Corporate securities increased by $6.2 million during the period, while state, county and municipal securities available-for-sale increased by $3.6 million. Offsetting these increases was a decrease of $10.0 million in U.S. Government agency securities held-to-maturity. Securities balances declined $14.2 million since March 31, 2019. Net losses of $39,000 were recognized during the first quarter of 2020 compared with $39,000 in net losses in the fourth quarter of 2019 and $14,000 in net losses in the first quarter of 2019. 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 $30.4 million, $28.7 million and $35.8 million at March 31, 2020, December 31, 2019 and March 31, 2019, respectively. There were federal funds purchased of $24.4 million at December 31, 2019 with no federal funds purchased or sold at either of March 31, 2020 or 2019. Interest bearing bank balances were $15.0 million at March 31, 2020 compared with $11.7 million at December 31, 2019 and $19.0 million at March 31, 2019.

Interest bearing deposits at March 31, 2020 were $1.033 billion, an increase of $47.9 million, or 4.9%, from December 31, 2019 and $30.3 million, or 3.0%, greater than at March 31, 2019. Time deposits less than or equal to $250,000 increased by $29.3 million, or 6.1%, during the first quarter of 2020, the largest increase in the deposit categories. There were also increases of $17.5 million, or 14.7%, in time deposits over $250,000, $2.8 million in savings account balances and $2.6 million in money market deposit accounts. Interest-bearing checking accounts (formerly NOW accounts) declined $4.4 million during the first quarter of 2020 and were the only deposit category to decline.

FHLB advances were $58.3 million at March 31, 2020, compared with $68.5 million at December 31, 2019 and $69.1 million at March 31, 2019. The decrease of $10.2 million in FHLB advances and $24.4 million in Federal funds purchased in the first quarter of 2020 was replaced with strong retail deposit growth of $57.6 million.

Shareholders' equity was $155.5 million at March 31, 2020, $155.5 million at December 31, 2019 and $142.3 million at March 31, 2019. Shareholders equity to assets was 10.7% at March 31, 2020, 10.9% December 31, 2019 and 10.2% at March 31, 2019. On January 22, 2020, the Company announced a share repurchase program of up to 1,000,000 shares of its common stock. During the first quarter of 2020, the Company repurchased 115,800 shares of common stock at a total cost of $809,242. The Company evaluates the value of the common stock and capital for regulatory purposes when considering repurchases under the program and, as a result, is not currently making any repurchases in the current economic environment.

Asset Quality – excluding PCI loans

Nonperforming loans were $5.2 million at March 31, 2020, a $1.1 million decrease from $6.2 million at December 31, 2019. The decrease was primarily from a reduction of $946,000 in loans past due 90 days and accruing interest. Total non-performing assets totaled $9.7 million at March 31, 2020 compared with $10.8 million at December 31, 2019. Total nonperforming assets decreased $2.5 million, or 20.8%, since March 31, 2019. There were net recoveries of $90,000 in the first quarter of 2020, net charge-offs of $164,000 in the fourth quarter of 2019 and net charge-offs of $322,000 in the first quarter of 2019.

The allowance for loan losses equaled 228.5% of nonaccrual loans at March 31, 2020, compared with 159.3% at December 31, 2019 and 78.8% at March 31, 2019. The ratio of nonperforming assets to loans and other real estate owned (OREO) was 0.89% at March 31, 2020 compared with 1.01% at December 31, 2019 and 1.22% at March 31, 2019.

Capital Requirements

The Bank's ratio of total risk-based capital was 13.9% at March 31, 2020 compared with 13.9% at December 31, 2019. The tier 1 risk-based capital ratio was 12.9% at March 31, 2020 and 13.2% at December 31, 2019. The Bank's tier 1 leverage ratio was 10.9% at March 31, 2020 and 11.0% at December 31, 2019. All capital ratios exceed regulatory minimums to be considered well capitalized. BASEL III introduced the common equity tier 1 capital ratio, which was 12.9% at March 31, 2020 and 13.2% at December 31, 2019.

About Community Bankers Trust Corporation and Essex Bank

Community Bankers Trust Corporation is the holding company for Essex Bank, a Virginia state bank with 24 full-service offices, 18 of which are in Virginia and six of which are in Maryland. The Bank also operates two loan production offices.

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.