JD Bancshares, Inc. Reports Financial Results for Q2 2020

JENNINGS, LA / ACCESSWIRE / July 23, 2020 / JD Bancshares, Inc. (the "Company"), (OTCQX:JDVB), the parent holding company of JD Bank (the "Bank"), reports its unaudited financial results for the three and six month periods ended June 30, 2020.

Net income for the three-month period ended June 30, 2020 was $1,648,996 or $1.06 per common share compared to $1,557,713 or $1.00 per share for the linked quarter ended March 31, 2020 and $2,442,925 or $1.57 per share for the prior year quarter ended June 30, 2019. Financial results for the current year quarters were impacted by large loan loss provisions in consideration of the uncertainty surrounding the COVID-19 pandemic crisis. Due to the large provisions, evaluating the Company on a pre-tax, pre-provision operating income basis provides greater insight when comparing recurring financial performance over periods. Pre-tax, pre-provision operating income for the quarter ended June 30, 2020 was $2,847,642 compared to $2,502,248 for the linked quarter and $2,762,858 for the comparative prior year quarter. Pre-tax, pre-provision operating income excludes taxes, provision for loan losses, losses on the sale of other real estate owned and gains on the sale of investment securities. Pre-tax, pre-provision operating earnings for the current period were positively affected by the recognition of a portion of fees received as a result of our participation in the Small Business Administration (SBA) Paychecks Protection Program. (PPP). Other factors having a significant impact on current quarter earnings include the 150 basis point decline in short-term interest rates occurring in March 2020, the impact on non-PPP loan demand given the uncertainty of economic conditions and the excess liquidity generated as a result of substantial deposit growth since year end.

For the six-month period ended June 30, 2020, net income was $3,206,709 or $2.06 per share compared to $4,483,899 or $2.88 per share for the prior year comparative period. Pre-tax, pre-provision operating earnings for the two comparative six month periods was $5,349,890 and $5,454,444, respectively.

Bruce Elder, President and CEO, commented, "Through the many challenges we face with the COVID-19 pandemic, the Company is pleased with the financial results for the second quarter. Despite the economic headwinds, we were able to add value to our customer base, our employees and the communities we serve while still rewarding stockholders with a $0.59 quarterly dividend. The pandemic has shrouded the future with uncertainty, which needs to be carefully navigated. From asset quality on the existing loan portfolio and prudent underwriting for new loan requests, to the long and short-term economic effects on our communities and the nation, we prepare for various possible scenarios and hope the coming months bring greater clarity."

COVID-19 Activities and Impact

In keeping with our mission to meet the financial needs of our customers and the communities we serve, the Company has responded through several different channels to the pandemic. We participated in the SBA's PPP loan program and made approximately 750 loans totaling $73.5 million. These loans are for terms ranging from two to five years and carry an interest rate of 1%. The Company received approximately $2.5 million in fees from the SBA, of which $633,000 were recognized as interest income during the current quarter. The remaining fees will be recognized over the life of the loans.

We also assisted existing loan customers who experienced challenges as a result of the pandemic by extending 90 day payment deferrals to approximately 1,200 customers with loans totaling $208.6 million. Many of those payment deferrals will have their next regularly scheduled payment due during the early part of the third quarter and while many have indicated a desire to resume their payments, we do anticipate continuing to work with our customers and approving a second 90 day deferral if appropriate.

Past due loans of 90 days or less represent 0.16% of the total loan portfolio at June 30, 2020 compared with 0.52% at December 31, 2019. While the current quarter end results are significantly improved over year-end, the improvement could reflect the intended impact of the payment deferrals previously mentioned. Management is attempting to identify those borrowers and industries that are most impacted by the pandemic, but the overall uncertainty of the length and magnitude of COVID-19 makes it very difficult to determine potential issues with any degree of precision. As a result, the Company has attempted to use certain qualitative factors when trying to assess the adequacy of its loan loss reserve.

As a community bank, our success is closely tied to the prosperity of those communities we serve. In April 2020, the Board of Directors responded to a need in our communities by making a $100,000 donation to fight food insecurity. This donation was allocated throughout the Company's footprint.

Asset Quality

Total nonperforming assets, including loans on non-accrual status, other real estate owned (OREO) and repossessed assets increased to $9.7 million at June 30, 2020 from $8.7 million at December 31, 2019. Loans on non-accrual status increased to $9.2 million from $7.7 million at December 31, 2019. While loans migrate to and from non-accrual status during the past six-months, one loan in the amount of $1.4 million moving to non-accrual in June accounts for the majority of the increase. OREO decreased by $552,000 to $404,000 at June 30, 2020 from $956,000 at the year-end December 31, 2019, reflecting foreclosure activity net of sales and write-downs of certain real estate properties. Management performs a quarterly evaluation of OREO properties and believes their adjusted carrying values are representative of their fair market values, although there is no assurance that the ultimate sales will be equal or greater than the carrying values.

The Bank recorded $897,000 in provisions for credit losses in Q2 2020 compared to $683,000 for the first quarter and $90,000 for the prior year quarter ended June 30, 2019. The allowance for loan losses (ALLL) was $8.1 million at June 30, 2020 or 1.36% of total non-PPP loans compared to $6.6 million at December 31, 2019 or 1.06% of total loans. Net charge offs were $51,000 for 2020 year-to-date compared to $168,000 for the prior year comparative period. While we believe the current level of our ALLL is adequate, there remains a great deal of uncertainty with respect to the impact of the pandemic on asset quality and there is no assurance that regulators, increased risks in the loan portfolio, or changes in economic conditions will not require additional adjustments to the ALLL.

Net Interest Income

Net interest income of $8.7 million for the current quarter was up $132,000 from the $8.6 million for the quarter ended March 31, 2020 and $39,000 lower than the $8.8 million reported for the prior year quarter ended June 30, 2019. The net interest margin for the current quarter was 4.06% and declined by 33 and 36 basis points compared to the March 2020 and June 2019 periods, respectively. The yield on earning assets for the current quarter was 4.62% and was over 40 basis points lower than both comparative periods. As previously mentioned, the Company did recognize $633,000 in SBA PPP fees which had a 38 basis point positive impact on the yield on earning assets. The cost of funds was 0.54% for the current quarter; down from 0.66% for the March 2020 quarter and 0.61% from the prior year comparative quarter.

Net interest margin was impacted by the sharp reduction in short-term interest rates, the high volume of low priced PPP loans, soft new loan demand and a surge in deposit levels causing high levels of liquidity. In March, the Federal Reserve Bank (FRB) reduced short-term interest rates by 150 basis points in response to COVID-19. Since that action, the FRB has announced the anticipation that rates will remain at these low levels through 2022. The Company originated approximately $73.5 million in new PPP loans priced at 1%. The origination of these loans was important for the well-being of small businesses and our communities, but had an adverse impact on net interest margin. The pandemic also suppressed the desire of small businesses to expand and grow, which had a negative impact on new loan demand. Businesses and individuals are paying down debt in anticipation of challenging times ahead. Finally, deposit levels have increased significantly. While the Company continues to look at opportunities to decrease interest rates paid on deposits, there remains uncertainty as to how long deposits remain at current levels and therefore, we are cautious about investing the funds in anything other than short-term assets.

For the six-month period ended June 30, 2020, net interest income was $17.3 million, down $180,000 from $17.5 million for the six-month period ended June 30, 2019. Net interest margin declined during the current six-month period to 4.22% from 4.45% for the prior year comparative period.

Non-Interest Income

Total non-interest income was $2.3 million for both the current and linked quarter, with the current quarter increasing by $48,000, and was $2.8 million for the prior year quarter reflecting a $497,000 decline. Service charges and fees associated with deposit accounts were $1.6 million and declined by $147,000 and $161,000 compared to the March 2020 and June 2019 quarters, respectively. The pandemic has caused customers to be much more cautious with their spending and as a result, NSF fees for the current quarter are down by $339,000 compared to the linked quarter and $270,000 compared to the prior year quarter. After declining significantly in April and May, interchange fees on debit card transactions rebounded nicely and were $893,000 for the current quarter reflecting 18% and 11% increases over the comparative periods, respectively.

Revenue from the sale of mortgage loans in the current period was $266,000, representing a $132,000 increase over the $134,000 recognized for the first quarter of 2020 and a $127,000 increase over the $139,000 recorded in the prior year quarter. Mortgage rates have retraced to historically low levels and both refinance and purchase money activity is robust. Other non-interest income was $484,000 for the current quarter compared to $420,000 for the quarter ended March 31, 2020 and $947,000 for the prior year quarter. The prior year quarter included a $388,000 gain on the sale of securities.

Non-interest income for the six-month period ended June 30, 2020 was $4.6 million, down $400,000 from the $5.0 million reported for the first half of 2019. The aforementioned gain on sale of securities accounts for the majority of the difference. Increased gains on the sale of mortgage loans and trust revenue was more than offset by declines in service charges, related deposit account fees and brokerage fees.

Non-Interest Expense

Total non-interest expense was $8.3 million in the quarter ended June 30, 2020 compared to $8.4 million and $8.5 million for the March 2020 and June 2019 quarters, respectively. Salary and benefits expense is the largest component of non-interest expenses and was $4.5 million for the June 2020 quarter, down $85,000 and $122,000 compared to the linked and prior year quarters, respectively. Expenses for the first quarter of 2020 include approximately $100,000 in pre-tax severance payments. The reductions in personnel expense were not the result of COVID-19 related issues. The Company considers our employees to be our most valuable asset and has continued to compensate the team at normal levels despite a modified operating schedule. We would anticipate personnel expenses to increase in future quarters as we look to increase staff for the commercial lending function and for two additional branch offices in the second half of 2020.

Occupancy expense was $1.3 million in the current quarter, down $27,000 from the linked quarter and $64,000 from the prior year quarter. The realized cost savings are in the area of maintenance and repairs. Current quarter data processing expense was $918,000, down $40,000 from the linked quarter of $958,000 and up $118,000 from the prior year quarter of $800,000. The increase from the June 2019 quarter relates primarily to the outsourcing of our ATM fleet to a third party. Marketing, business development and public relations expenses were $349,000 in the current quarter compared to $368,000 for the March 2020 quarter and $434,000 for the prior year quarter. The pandemic has limited the normal level of activity in these categories. As previously mentioned, the current quarter does include a $100,000 donation to fight food insecurity in our footprint. Other non-interest expenses were $1.2 million for both the current and linked quarter and $1.3 million for the prior year quarter.

Non-interest expenses for the six-month period ended June 30, 2020 were $16.7 million, down $168,000 from $16.8 million for the prior year. We experienced decreases in salary and benefits, occupancy, marketing and business development, amortization of core deposit intangibles, professional fees and travel, which were partially offset by increases in data processing and audit fees.

Income tax expense was $260,000 for the current quarter compared to $236,000 for the March 2020 quarter and $530,000 for the June 2019 quarter. The decline was primarily due to a reduction in the effective tax rate to 13.66% compared to 13.18% for the linked quarter and 17.82% for the prior year quarter. The downward shift in the effective tax rate from 2019 to 2020 is due to the restructure of the investment portfolio in the second quarter of 2019 to a higher concentration of tax-exempt securities. Year-to-date, income tax expense was $497,000 with an effective rate of 13.43% compared to $942,000 and 17.36% for the prior year six-month period.

Balance Sheet

Total assets are $1.0 billion at June 30, 2020, reflecting a $142.0 million or 16% increase over the $885.0 million at December 31, 2019. Categories experiencing the largest increases include cash and interest-bearing deposits with banks up $57.8 million, loans held for investment are up $49.2 million and investment securities are up $30.2 million. As previously mentioned, the Company has originated $73.5 million of PPP loans and the demand for non-PPP loans has been impacted by the economic conditions resulting from the pandemic. Borrowers also appear to be paying down debt in the face of future uncertainty, which has resulted in a decline of approximately $24.4 million in non-PPP loans since December 31, 2019.

As we headed into the pandemic, we were aware of the impact the SBA's PPP program might have on the asset side of our balance sheet and were preparing for a potential liquidity crunch. However, as the PPP loan proceeds and consumer stimulus checks flowed to customer accounts, along with continued success of new customer acquisition, deposit levels increased substantially. We remain cautious with respect to our current liquidity position and continue to maintain large sums of cash.

Total deposits increased by $134.3 million or 17% to $906.4 million at June 30, 2020 from $772.1 million at December 31, 2019. All five primary deposit categories have experienced increases over the six month period. Non-interest bearing checking increased by $75.0 million, savings deposits by $26.2 million, money market by $21.4 million, interest-bearing checking by $6.3 million and time deposits by $5.4 million.

Other liabilities increased by approximately $2.4 million since year-end 2019. A short-term advance we had taken down prior to March 31, 2020 was repaid during the second quarter.

Stockholders' equity increased by $5.4 million to $94.2 million at June 30, 2020 from $88.9 million at December 31, 2019. The increase is comprised of year-to-date net earnings of $3.2 million, plus the increase in other comprehensive income of $4.0 million, less the declared/paid dividend to common shareholders of $1.8 million. The tangible equity to assets ratio decreased to 8.29% at June 30, 2020 from 9.46% at December 31, 2019 due to asset growth. There were 1,560,000 common shares outstanding at both June 30, 2020 and December 31, 2019. Tangible book value per common share increased to $54.61 at June 30, 2020 compared to $53.70 for the 2019 year-end.

Key Performance Ratios

Return on average assets (ROA) declined in for the current quarter compared with linked and prior year periods. ROA is 0.66% for the three months ended June 30, 2020 compared to 0.70% for March 31, 2020 and 1.11% for June 30, 2019. Return on average equity (ROE) is 7.09% for the current period, 6.81% for the linked quarter and 11.55% for the prior year period. ROA and ROE for both 2020 periods were significantly impacted by the large loan loss provision recorded in the current quarter. ROA and ROE for the six-month periods ended June 30, 2020 and 2019 were 0.68% and 1.03%, and 6.97% and 10.82%, respectively.

About JD Bancshares, Inc.

JD Bancshares, Inc. is the bank holding company of JD Bank, a state chartered bank headquartered in Jennings, Louisiana. JD Bank has been serving the citizens of southwest Louisiana since 1947 and offers a variety of personal and commercial lending and deposit products through both physical and digital delivery channels. The Bank also offers both trust and investment services. JD Bank operates through 21 full service branch offices located along the Interstate 10 corridor from Lake Charles to Lafayette, Louisiana. JD Bancshares, Inc. may be accessed on its website at www.jdbank.com/investor relations.

JD Bancshares, Inc. (OTCQX: JDVB) trades on the OTCQX Best Market. Companies meet high financial standards, follow best practice corporate governance, demonstrate compliance with U.S. securities laws, and have a professional third-party sponsor introduction. Investors can find current financial disclosure and Real-Time Level 2 quotes for the Company on www.otcmarkets.com.

Forward-Looking Statements

Statements contained in this release, which are not historical facts, are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks and uncertainties which could cause actual results to differ materially from those currently anticipated due to a number of factors which include the effects of future economic conditions, governmental fiscal and monetary policies, legislative and regulatory changes, the risks of changes in interest rates, the effects of competition, and including without limitation to other factors that could cause actual results to differ materially as discussed in documents filed by the Company with the Securities and Exchange Commission from time to time.

JD BANCSHARES, INC. AND SUBSIDIARIES
JENNINGS, LOUISIANA

CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

JD BANCSHARES, INC. AND SUBSIDIARIES
JENNINGS, LOUISIANA

CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

JD BANCSHARES, INC. AND SUBSIDIARIES
JENNINGS, LOUISIANA

CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

JD BANCSHARES, INC. AND SUBSIDIARIES

Margin Analysis Compare

JD BANCSHARES, INC. AND SUBSIDIARIES

Margin Analysis Compare

JD BANCSHARES, INC. AND SUBSIDIARIES

Margin Analysis Compare

JD BANCSHARES, INC. AND SUBSIDIARIES

SUPPLEMENTAL FINANCIAL INFORMATION

Financial Ratios

Reconcilement of GAAP to Pre-tax, Pre-Provision Operating Income:

For more information contact:

JD Bancshares, Inc. Bruce Elder (CEO) (337-246-5399)
Paul Brummett (EVP) (337-824-1422)
Website: www.jdbank.com

SOURCE: JD Bancshares, Inc.