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Porter Bancorp Inc. Reports Operating Results (10-Q)

November 13, 2012 | About:
10qk

10qk

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Porter Bancorp Inc. (PBIB) filed Quarterly Report for the period ended 2012-09-30.

Porter Bancorp, Inc. has a market cap of $11.9 million; its shares were traded at around $0.938 with and P/S ratio of 0.2.

Highlight of Business Operations:

Net loss for the three months ended September 30, 2012 increased $15.6 million to $27.7 million compared with net loss of $12.2 million for the comparable period of 2011. Provision for loan losses expense increased $17.5 million in the third quarter of 2012 compared with the same period in 2011 as the result of collateral value declines for certain larger collateral dependent commercial real estate credits as evidenced by new appraisals received during the quarter, higher net charge-offs, and a continued decline in credit trends in our portfolio. In addition, the third quarter 2012 provision for loan losses was negatively impacted by a strategy change during the third quarter of 2012 related to classified loans which we expect to more quickly remediate by litigation or foreclosure. For loans subject to this expectation, we applied an additional fair value discount to the underlying collateral in our impairment analysis estimates. Net interest income decreased $2.5 million from the 2011 third quarter due to a 15 basis point decline in net interest margin due to lower earning asset levels, lower average rates, and higher non-performing assets. These results were partially off-set by a decrease in OREO expense of $11.8 million for the third quarter of 2012 compared with the same period of 2011 due to lower loss on sales of OREO, lower valuation write-downs, and lower property maintenance expense.

Net loss of $26.1 million for the nine months ended September 30, 2012 represented a decrease of $25.3 million from net loss of $51.4 million for the comparable period of 2011. A non-recurring 100% goodwill impairment charge of $23.8 million was recorded during the first nine months of 2011. OREO expense decreased $32.8 million from the first nine months of 2011 due to lower loss on sales of OREO, lower valuation write-downs, and lower property maintenance expense. Additionally, gain on sales of investment securities was $3.5 million for the first nine months of 2012 compared with $1.1 million for the first nine months of 2011. These improvements were partially offset by a decrease of $7.5 million in net interest income from the first nine months of 2011 due to an 11 basis point decline in net interest margin. In addition, provision for loan losses expense increased $6.5 million in the first nine months of 2012 compared with the same period in 2011 as the result of the continued decline in credit trends in our portfolio that resulted in higher net charge-offs compared to the previous period. More specifically, the 2012 provision for loan losses was negatively impacted by collateral value declines for certain larger collateral dependent commercial real estate credits as evidenced by new appraisals received during the period and a strategy change during the third quarter of 2012 related to classified loans which we expect to more quickly remediate by litigation or foreclosure. For loans subject to this expectation, we applied an additional fair value discount to the underlying collateral in our impairment analysis estimates.

Non-interest expense for the third quarter ended September 30, 2012 decreased $11.3 million, or 44.3%, compared with the third quarter of 2011. For the nine months ended September 30, 2012, non-interest expense decreased $56.2 million, or 62.6%, to $33.5 million compared with $89.6 million for the first nine months of 2011. The decreases in non-interest expense for the third quarter and nine months ended September 30, 2012, were primarily attributable to decreased other real estate owned expense due to lower loss on sales of OREO, lower valuation write-downs, and lower property maintenance expense; and lower FDIC insurance due to decreased deposit levels. Additionally, non-interest expense the first nine months of 2011 included a non-recurring 100% goodwill impairment charge of $23.8 million. These improvements were partially off-set by higher salaries and employee benefits expense due primarily to additions to staff in our credit administration and workout divisions, and higher professional fees due primarily to increased audit and accounting fees, and loan review fees.

Net loss on sales, write-downs, and operating expenses for OREO totaled $7.7 million for the nine months ended September 30, 2012, compared with $40.5 million for the same period of 2011. During the three months ended September 30, 2012, fair value write-downs of $4.3 million were recorded to reflect declining values as evidenced by new appraisals and reduced marketing prices in connection with our sales strategies. The 2011 results were significantly impacted by our determination in the 2011 second quarter that certain properties held in other real estate were not likely to be successfully disposed of in an acceptable time-frame using routine marketing efforts. It became apparent that certain condominium projects were going to require extended holding periods to sell the properties at their most recent appraised values. Accordingly, during June 2011, the Company sold, in a single transaction, 54 finished condominium property units from several condominium developments in our OREO portfolio, with a carrying value of approximately $11.0 million for $5.2 million, resulting in a pre-tax loss of $5.8 million. In addition, management adjusted its valuations for similar condominium and residential development properties held in other real estate through provision of an allowance of $10.6 million on other real estate held, with the objective of marketing these properties more aggressively.

Our loan loss reserve, as a percentage of total loans at September 30, 2012, increased to 5.68% from 3.27% at September 30, 2011, and from 4.63% at December 31, 2011. Provision for loan losses increased $17.5 million to $25.5 million for the third quarter of 2012 compared with $8.0 million for the third quarter of 2011. Provision for loan losses increased $6.5 million to $33.3 million for the nine months ended September 30, 2012 compared with $26.8 million for the same nine months of 2011. The increase in the third quarter of 2012 is attributable to the continued decline in credit trends in our portfolio that resulted in higher net charge-offs compared to the prior period. More specifically, the 2012 provision for loan losses was negatively impacted by collateral value declines for certain larger commercial real estate loans as evidenced by new appraisals received during the third quarter. In addition, the third quarter 2012 provision for loan losses was negatively impacted by a strategy change during the third quarter related to classified loans which we expect to more quickly remediate by litigation or foreclosure. For loans subject to this expectation, we applied an additional fair value discount to the underlying collateral in our impairment analysis estimates as it has been our experience that resolution of this nature generally results in receiving lower values for real estate collateral in a more aggressive sales environment.

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