Net income for the nine months ended, September 30, 2016 was $544,000 (unaudited). Adjusted 2015 earnings for the first nine months were $179,000 as the earnings included $462,000 of extraordinary income. The Bank’s interest income has improved, provision for loan losses has been substantially reduced, and other operating expenses are down, year-over-year. Net income per share for 2016 was $1.73, compared to $2.04 per share before adjusting for extra ordinary income, or $0.57 per share with the adjustment, during the same period one year ago. Core earnings improved when comparing 2016 to 2015. The year-over-year improvement is attributable to lower provisions for loan losses, lower FDIC assessments due to improved performance and lower wages. The improvement in net interest income is due increased loan volume and the reduction in the provision for loan losses, resulting from improvement in loan quality. Non-interest income and non-interest expense each decreased year-over-year. Net interest margin ended the third quarter of 2016 at 3.83% compared to 3.39% for the same period in 2015.
Loans have grown 14.4% or $11.4 million since September 30, 2015. The increases in loans, along with prospective loan growth, remain a driving factor towards ongoing earnings improvement. The loan quality of the bank continues to improve. Past due loans at September 30, 2016 were 1.03%, compared to September 30, 2015 of 1.25%. The allowance for loan losses had a net recovery of $75,013 for the first nine months of 2016, compared to a net charge off $43,641 for the same time period in 2015. The bank reversed $36,000 of excess provision for loan loss during the first nine months of 2016. The reversal of provision, when comparing to the prior year, is directly related to overall improved credit quality in the loan portfolio. This resulted in an allowance of loan loss reserve of 1.80% at September 30, 2016 compared to 2.64% at September 30, 2015. The bank’s classified/problem loans have improved substantially year-over-year. At June 30, 2016 classified loans were 19.64% of total loans, compared to 24.81% at September 30, 2015.
The Bank’s Tier 1 Leverage Ratio was 9.80% at September 30, 2016, which increased from 9.67% at the same time last year. The minimum Tier 1 Leverage Ratio to be considered well capitalized by FDIC standards is 8.00% and the Bank exceeds limits set forth in 2016 for Basel III Capital Conservation Buffer thresholds. The Bank’s capital position continues to improve with stronger earnings each quarter. Book value of Community Bancorp, Inc. stock at September 30, 2016 is $67.06 compared to $64.91 last year.
In the most recent communication to shareholders, we provided an update concerning the merger of Community Bancorp, Inc. with Fentura Financial, Inc. and The State Bank, headquartered in Fenton, Michigan. Fentura’s management met with the Federal Deposit Insurance Corporation in Chicago. The regulators requested that Fentura have more capital before the merger can be consummated. Fentura’s goal is to raise the capital and allow the regulators to finalize their processing, approve the application, and set up a closing date. Fentura remains committed to the combination of the two companies and anticipates being able to announce a closing date for this transaction in the fourth quarter.
We are proud of the management and staff who continue to work diligently to produce these financial results and continue to make our local community bank a financial institution where Local Truly Matters. As always, thank you for your continued support and please refer Community State Bank to your family, friends and associates.
John C. Wendling
President and CEO