Q1 2021 Community Bankers Trust Corp Earnings Call
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Good day and welcome to the Bankers Trust Corporation first quarter 2021 earnings Conference call. All participants will be in listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero. After today's presentation there will be.
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Please note. This event is being recorded on.
Now I'd like to turn the conference over direct Smith, President and CEO. Please go ahead.
I want to thank you for joining us today as we review the results on the first quarter of 2021 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 risk and uncertainties are included in our earnings release and most recent form 10-K.
And the other reports that community Bankers Trust Corporation files with or furnishes to the Securities and Exchange Commission.
You can access all these documents through our website at Www Dot C B Trustcorp dotcom.
We will follow our normal format on today's call by starting with a brief overview of the quarter and then Bruce Thomas Our Chief Financial Officer will cover detailed financial highlights and lastly, I will share our thoughts as we look forward for the rest of 2021.
The past year, it's been very challenging, but we were well prepared to press on and move the company forward as.
As the vaccine for COVID-19 becomes more widely distributed we are seeing very positive economic signs in most of our local community.
Unfortunately, some of our customers are still being affected either directly or indirectly by the pandemic and the changes in how we work and live.
Even though most signs pointing to recovery, we are still working closely with our customers to help provide continued support and relief where needed.
We participated in the payroll protection program round two processing, some 500 loans for over $45 million of relief for our customers.
Overall loan growth other than P. P. P loans was not as strong as we anticipated for the quarter.
The first two months showed very positive growth, but margin was affected by a large T. R E pay off and negative growth in the consumer portfolio as arms and he locks were paid off from refinancing in the secondary market.
As I said early on in the year, we expect net loan growth may be a bit choppy quarter to quarter, but we still expect to see 7% to 8% overall growth for the year.
Loans, excluding purchased credit impaired loans and P. P. P loans grew $2 million for the first quarter and $55 $8 million or five 2% year over year.
Our focus continues to be on maintaining credit quality and holding our pricing by focusing on building full relationships.
Credit quality continues to improve and nonperforming assets decreased by $1.6 million from one year ago.
The ratio of nonperforming assets to loans and other real estate was 0.65 per cent at March 31 2021.
Per the 0.67% at December 31st 2020, and 0.89% one year earlier.
Deposit growth continues to be strong and the growth in non interest bearing deposits continues to help lower our cost of funds.
Deposits grew $46 million or two 9% during the first quarter of 2021 led by a $35 million of growth in noninterest bearing demand deposits.
We continue to reduce the amount of certificates of deposit accounts, which declined by $46 $9 million for the quarter.
This change in deposit mix, coupled with our disciplined approach to loan pricing kept on net interest margin stable at 3.66 per cent quarter over quarter.
There was also positive news in both the non interest income and non interest expense areas.
Non interest income increased $293000 or 22 per cent year over year.
The main driver of the increase was from insurance commissions mortgage loan income gains on securities and an increase in service charges on deposits.
Additionally, non interest expenses remained stable with an increase of only $161000 year over year.
Mostly by an increase in the FDIC assessment from the increase in total deposits.
While we have a significant increase in net income and negative provision of $1 $4 million is obviously a big driver.
But if you normalized earnings for the negative provision in the P. P. T growth in fees. The net income number is still impressive and above all previous estimates.
The increase in net interest income and non interest income with a controlled expenses is truly the story.
And it will help build future earnings.
Now I'll turn the call over to Bruce Thomas for the details of the positive financial results of the first for good morning, and thank you to all of you that have taken time to lessen for the discussion regarding first quarter 2021 results.
First quarter 2021 net income of 6.6 for $3 million or <unk> 30 cents per fully diluted earnings per share is an increase of 1.1 $86 million over fourth quarter 2020 income of five point for five 7 million or 20.
For fence fully diluted earnings per share.
Year over year, the increase is $5.2 million to $8 million at first quarter 'twenty 'twenty net income was one point for one 5 million for six cents per fully diluted earnings per share.
To assist in analyzing the progress of the company I will review the results on a pretax pre provision basis and after that analysis the impact of P. P. P fees recognized in net income will be excluded.
As a backdrop provision for loan losses was negative $1 $4 million in the first quarter of 2021 compared with non in the fourth quarter of 'twenty 'twenty and a provision of $3.3 million in the first quarter of 'twenty 'twenty at the onset of the COVID-19.
Debit.
Pretax pre provision income was $6.951 million for the first quarter of 2021 compared with 6.785 million in the fourth quarter up 2020 <unk>.
Increased on a linked quarter basis is $166000 or two four per cent.
P. P. P fee income was $609000 in the first quarter of 2021 and 1.115 million in the fourth quarter on 'twenty 'twenty incur.
Income before taxes provision and P. P. P fee income would have been 6.3 for $2 million in the first quarter of 2021 an increase of $672000 or 11, 9% over the previous quarter.
Pre tax pre provision income increased 1.972 million or 39, 6% year over year and excluding the impact of P. P. P fee income the increase would have been $1.363 million or 27 point for per se.
Net.
We are pleased with the direction of our core earnings as growth in noninterest bearing deposits like shift away from certificates of deposit funding and an increase in the level of earning assets over interest bearing liabilities are all aiding in a stable net interest margin.
Non interest bearing deposits were $333 $9 million at March 31, 2021 day.
Is 23, 2% of total deposits at March 31, 'twenty 'twenty noninterest bearing deposits were $188 $3 million or 15, 4% of total deposits.
The dollar increase year over year is $145 $6 million.
Time deposits, Meanwhile, declined $109 $3 million year over year and declined from 52, 7% of deposits at March 31, 'twenty 'twenty, 237.1% at March 31, 2021 and the second quarter of 'twenty.
'twenty one.
17, 7% of Cds or $94.6 million will mature or reprice at a weighted average rate of 0.86%.
While the left we will see in CD repricing will be less than in previous quarters. We expect that the impact will be roughly 50 basis points on a meaningful amount of the bucket.
Additionally, the bulk of the decrease in Cds has not been on accidents from the bank, but our move into other non maturity deposit categories as.
Many depositors have become indifferent between CD rates and rate and other non maturity deposit categories.
This change in deposit mix has resulted in an increase based on quarterly averages and the percentage of interest earning assets over interest bearing liabilities from 123 per cent for the first quarter of 'twenty 'twenty, two 135 per cent and the first quarter of 2021.
This increase has been beneficial to our net interest margin as well as the margin increased to 3.66% in the first quarter of 2021 from 361% in the fourth quarter of 2020, excluding PPP from the margin calculation there was actual.
Rate increase.
And both the spread and the net interest margin.
The interest spread excluding P. P P. What if increased from 3.27% in the fourth quarter on 'twenty 'twenty 2345 per cent and the first quarter of 2021 day.
Net interest margin would have increased without P. P. P fees from three point for 3% to 359%, while the yield on earning assets. Excluding P. P. P fees would have been for 0.07 per cent for both periods the cost of interest bearing liabilities declined from.
0.80% in the fourth quarter of 'twenty 'twenty to 0.62% in the first quarter of 2021 year.
Year over year, excluding P. P. P fees the interest spread would have increased slightly from three point for 2% to 345%, while the margin would've declined from 368% to 359%.
With that I will turn on the call back over to Rex for closing remarks.
Thank you Bruce.
During the pandemic, we stayed focused on their customers in ways to help them and to our communities. We remain true to our core values and to gather whether the brunt of the storm quite successfully.
While we are not yet done with the pandemic, we believe that the strategic plan. We have in place will continue to enhance value through 2021 and be on air.
Ranch lobbies are scheduled to reopen on may the third and hopefully will resume something close to business as usual.
Besides posting an R O a a a 1.6 per cent and then our O N E. A 15 point for six per cent for the first quarter. We have originated over $45 million in round two P. P. P loans that should lead to $2.4 million and fee recognition in the remainder of the year.
Additionally, we sold our oldest and largest Oreo property in early April for a game that will add to the second quarter earnings and will significantly lower nonperforming assets.
Aaron Associates have worked tirelessly to provide safe and secure banking and financial support during this turmoil and we will continue to do so until we are fully beyond its effect.
We are pleased by the core results for the quarter and very optimistic for the remainder of 2021.
We hope that you our shareholders are also pleased and we thank each of you for your ongoing support for the company.
I will now open the call for any questions.
Okay.
We will now begin the question answer session to ask a question on press Star then one on your phone if youre using a speakerphone. Please pick up on your handset before pressing the keys.
If it Ain't on your question has been addressed and you would like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Our first question comes from Casey Whitman with.
Piper Sandler. Please go ahead.
Yeah.
Hey, good morning, Rex Bruce how are you.
Good cash how're you doing.
Good morning, good morning.
Morning.
So some really nice core margin expansion this quarter and we just you guys just discussed some of the opportunities to bring deposit costs are down from there. So it seems like there's more room to go there, but we also saw some liquidity come on closer to quarter end suggest sort of on.
Wondering how you see the core margin X P. B P are kind of trending in the second quarter given all those puts and takes you up down kind of flat what are your thoughts.
It it would be very well it is unusual and we're experienced experiencing it now.
For the the spread to increase but the margin.
Go down and that's because of that liquidity that you're speaking of.
And the current rate structure as opposed to the season.
Loans and securities on the book.
So as a result of that.
I think it's going to put some pressure on the asset side.
That is being.
Rebutted somewhat on the liability side by the shift out of Cds repricing of Cds and the growth and.
Demand deposits.
So that's giving us a little relief, there, but yes that that excess liquidity.
It would also be very unusual for a the level of earning assets in relation to.
Interest bearing liabilities to increase such as were experiencing currently from a 123 per cent to 135% year over year that typically would indicate margin expansion.
But with the increase in spread that we've had.
That has helped us keep the margin stable.
And on a linked quarter basis in fact, even grow. So there are a lot of dynamics I guess is what I'm pointing to that are going on currently and our.
Our net interest margin.
Mhm, Yeah, I think some of the case is going to be related to you know we.
Are we going to be able to get the loan growth, we feel like we're going to get and if we do get it depending on the mix of it too I mean, the CRE stuff tends to be we've had very good pricing discipline and that some of the C&I things or more variable rate, which but they come on at a lower rate at the time, but.
But I think if we can if we can use up that liquidity on the loan side you know.
We will see the margin at least stable on I think that's what we're trying to get to.
Got it and and where do you guys see deposit costs for the bottling bottoming now from the 45 basis point level, just sort of ballpark with the combination of the Cds.
Going off and just how low can we really do.
Well I still get from Cds that are repricing, you know, but I think Bruce you can correct me, but I think in June.
The the dramatic repricing sort of stops and so the repricing of Cds is going to be more like 15 basis points to 20 basis points as opposed to 60 or 80 basis points and then of course, you get the effect of it 30 days later and beyond so.
Probably maybe bottoming out in the July time frame I would thank Bruce you. You know you can correct me here, but I would say it will go down until the third quarter and then it would bottom out.
And you're you're looking for a level while linked quarter, we had a decrease of 18 basis points and Costa from funds from 80 to 62.
And I would say that debt linked quarter.
The decrease is going to be less in the second quarter and then less again in.
In the third quarter.
So maybe.
A 12 basis point decline I would think in the second.
Second quarter, followed by an eight basis point decline in the third quarter.
And of course that depends on mix and maturity on what stays and what goes on non maturity category, but that's kind of my gut feel.
Okay got it helpful and maybe it's a clarification racks I think you just gave.
$2 4 million in fees related to P. P. P is that for just a round two around around three went around you on a call at the latest round Oh, Yeah for me or does that include what you might have left from the 2020 originations.
Know that that is just around the latest round cases, that's just that okay. That's attributed to those 500. Some lines you know that we've just done.
For the year.
Okay and do you have what is remaining from the original round.
Bruce on all that.
Yeah. It's.
I think right now.
I anticipated that that question was coming and I started charging here. We've had so many numbers that are a new.
New and unusual and here we go.
My controller to the rescue she just emailed me $364000.
Thank you Laurie.
Right.
Thank you for taking my questions.
Okay take care.
Our next question comes from Stuart Lotz with <unk> W. Please go ahead.
Hey, guys good morning.
Good morning, Scott.
Hum.
Well first off congrats on a great quarter, but yeah. If we could start just on on your outlook for the reserves and no.
Provision provision this year after last year's build.
Were kind of surprised to see you know the large released this quarter could we expect you know.
Stable provision or you know kind of a zero provision next few quarters or do you anticipate further decreases in your a O L.
I think that you know credit quality has ended up a lot better than we than we really anticipated. It looks like you know based on what we're seeing in our local economies that debt credit quality will stay fairly stable.
So I think what's going to drive the provision is just going to be you know the growth or if there's any.
Are there any particular industry is still affected by COVID-19 that might leak into maybe you know a few loans that might leak into the substandard category.
But I would I wouldn't envision that you know, we probably I don't I don't see us taking a provision in the next quarter, but depending on growth and where things go maybe some small provisions.
In the third and fourth.
Got it.
Did you you mentioned the Oreo property I'm moving off the balance sheet in April.
Can you remind us how large about.
The dollar basis of that and what you expect for the gain.
In second quarter from that so yeah. It was a it was on the books at $3.8 million and gain it's gonna be it's you know it will have a decent gain on it nothing crazy, but we're still kind of pushing some numbers around we've got a few legal bills still trickling in associated with getting that thing closed in <unk>.
Done so we will we'll have a we'll have more clarity on that as we get down into the quarter.
But it's you know.
One thing is it's going to be a significant drop in net Oreo balance cause that that was the big one.
Great. Yeah, I was just saying I think that's the about the.
Almost the entirety of your.
Total for Ya.
Yeah right.
And maybe.
Maybe one more on the buyback announcement back in March a million shares and obviously with the with the Russell reconstitution coming up.
How active do you anticipate being on the buyback front, you know and you know over the next quarter or two if we do see some pressure around the shares from the start from the Russell.
Yeah, and that's I think given your capital levels.
Yeah, we we've held our powder a little bit looking towards you know what was going to happen with the Russell and.
We're working on analysis right now you know we've been in a closed window period, but we're working on their analysis for win when the window opens on where we're going to look at buying back some shares and I think you'll probably see us get active.
Especially from that May 7th of June seven timeframe on the Russell, where he works itself.
Got it.
And sorry, maybe just one more.
You know if we maybe the outlook for expenses this year, Bruce and was there anything any deferred costs related to PPP originations this quarter and that came out of the run rate.
Yeah.
Yeah.
Detailed guidance in my comments, it was 600 and non.
<unk> thousand I believe.
Uh huh.
The amount between for internal cost in the first quarter of this year the fourth quarter of last year and the first quarter of 2020, we're all pretty stable.
So I was.
Actually contemplating.
<unk> doing on analysis without the risk, but given the stability of those yes 609000 PPP.
That was kind of that did not include the AR the internal costs were 622.
<unk> hundred 14 in the fourth quarter and for 19 in the first quarter of 2020, so are those where the internal cost now on the expense front those aside.
One other thing that's been on aid to our net income.
Hum.
If you back out.
The industry noise created by P. P P.
Our noninterest income grew $293000 year over year.
Our expenses grew 161000, so our noninterest income has.
Paid for the increase in non interest expenses was $132000 last dollar.
Which you know is pretty good when you can cover the increase in your non interest expenses that being said, we will see an uptick and air on noninterest expenses in the third and fourth quarter are basically due to.
Primarily due to an increase in data processing costs.
As we get into a new phase of our contract and of course, a number of accounts that we have and so forth are that all increases it but aside from D. P cost.
You will always see a little uptake chicken salaries and employee benefits.
But we try to contain that.
And a reasonable single digit range other than that I don't look for a major expansion in our non interest expenses.
Okay. So you do you anticipate you you'll kind of hold that 8.8 million run rate until the back half for the year.
Some higher some higher debt is okay got it great. Thanks for taking all my questions sure.
Okay.
Okay.
Our next question comes from John Rogers with Janney. Please go ahead.
Good morning, guys.
Hey, John Hey, John I guess I got to tell you. If you asked me how I feel I was going to say I feel a lot better than neutral.
[laughter] How're you doing.
I get it [laughter].
Well I'm doing well, it's our day, but it's almost hard to believe it's almost day.
Yeah.
It did.
On the the P.
P. P. P. Pes just just to be clear the remaining I guess roughly $2 7 million Bruce just.
That's what that's all going to flow through net interest income correct. The two points at the $2 7 million from Rod Warner on.
Okay, and then Rex you you mentioned you know loan growth seven to eight per cent for the year does that include or exclude the P. P. P run off.
That's that's a that's saying P. P. P. J I was just going to be taking where we were with.
Our loans at year end sales P P P and going with the.
The new loans okay.
So just just core loans and assets.
Correct, Okay. Okay.
Just you know sort of any thoughts you know there's you know there's been some acquisition activity in your market just any thoughts on potential new hires how are you guys can benefit from the market disruption and so forth.
Yeah. We you know, we we have our feelers out and obviously you know some other good good publicity we've gotten as a community bank during during the COVID-19 crisis has helped us.
We've got and we got to folks from the truest.
Merger and you know, we keep a year's out there's a we're picking up a really good banker in the second quarter up in Maryland.
A larger larger organization so.
You know, it's a it has been beneficial and I think.
You'll keep going that way.
Okay sounds good thank you guys.
Thanks, John.
Again, if he would like to ask a question press Star then one.
Our next question comes from Eric God Blake.
With private Investor. Please go ahead.
Hi, Good morning, Rex just wanted to follow up on the.
The buyback question earlier, so if I'm not mistaken your tangible capital ratio is around 10%.
Where do you feel comfortable.
Buying back your stock to a level of capital ratio or maybe as a percentage of earnings on a given year right now notwithstanding what may.
On behalf of happened with the Russell between now and then and you know.
Pressure on the price.
What's your thought on that.
Well, we worry about we're working on some on analysis going forward because the last last group. We did you know.
We were doing it based on upon our first quarter budget, which obviously we'd beat significantly.
And we back then we were comfortable with you know spending about $8 million on it.
On a buyback and that we're going to re look at that number as we go into the into the Russell reconstitution.
Okay. So I mean youre looking at other numbers up more based on what you know your your earnings trajectory is we're just tell you. We think we've got too much too much capital we can take it down on this level on and keep it there.
It's it's it's you know.
Obviously with the fed is concerned about is where's your capital on a day and then what's going to go back into it which you know is from their earnings screens, So where we're trying to balance and we feel like we did have too much capital we feel like we got to do something with it to.
To help the shareholders value and and obviously the dividend on the buyback from the two best places we can do it the buyback I think being the more significant one so we're where we have a heightened sense of that right now I can tell you.
And then just a more from a 50000 foot for you could you provide a little bit of color just on the general condition of sort of our greater Richmond, the real estate markets. Both on the commercial on maybe the residential development side. You know what are the opportunities. There is there any kind of concern in terms of valuations you're on you hear this.
Stories about people go on crazy buying houses on the suburbs during the COVID-19 pandemic.
Just curious about your thoughts on the on the local market.
Yeah I'm in the local markets had been had been phenomenal in terms of pricing I mean, we've seen significant price increases in the residential market marketplace and.
We do have we do have a group of builders.
We manage some builder lines, both in Maryland, and Virginia, and the homebuilders are doing great. Even despite some of the you know the supply costs, which have had significant increases also.
They're still they're still getting good margins on on the homes, they're still getting good sales, we do mostly contract type of lines for these guys, they're still doing great.
I do know from a high level, we've talked about with friends May go post COVID-19 as people babies to keep working from home and there's more of that and more commuting and flex space.
We haven't done a lot of large shopping center type deals or anything, but I think you know I I'm concerned about that too we've seen some larger tenants and some other big centers here in Richmond Nordstroms closed.
You know accounted for about a.
On a quarter of the space and one of the large regional malls.
There's a lot of things and of course, you know I've been in this business since 1980, when the first housing bubble started blowing up with rates and back and forth. So I think you know when prices go that fast that debt that are that high debt fast you got to worry about it.
The bubble situation. So we're keeping our eyes on it and just keeping with.
A good view of it you know we we've kept the list of what we think are COVID-19 sensitive industries that we're looking at and looking at their concentration exposure to and we're going to continue to do that because.
Because I do think so.
So, but advanced some trends that we're gonna happen anyway, but I think now they're going to happen a little bit faster.
Okay, great. Thanks, very much for your your color on that I appreciate it yeah.
This concludes our question and answer session I would like to turn the conference back over direct Smith for any closing remarks.
I'd like to thank everybody, who participated this morning, and remind you that Bruce and I are available for any follow up questions. We certainly appreciate your support and hope you all have viewed for success and stay healthy.
The conference.
France has now concluded. Thank you for attending today's presentation you may now disconnect.