For Q2 2014, Community Bank Shares of Indiana (CBIN) reported net income up 12.2% from the prior year period. Unlike a lot of other banks, CBIN's large position in adjustable rate loans, coupled with declining interest expense yields, helped the bank maintain the same NIM it did in the same quarter last year, at 4.14%.
For the quarter, the company earned $0.59 per share, or $2.0 million. A larger loan portfolio, up $26.7 million YOY, helped increase net interest income to $7.937 million. Aside from the earnings driven by the increased portfolio, the real story this quarter centered on several benefits from improvements in asset quality. Non-interest expenses related to foreclosed assets declined $189 thousand (due to a smaller balance) and provision expenses decreased by $2.5 million YOY. Last year's higher charge was related to one, non-recurring, commercial land development loan.
The results confirm my original thesis that the bank's core earnings are undervalued based on the current market price. This quarter was absent a lot of noise that was clouding prior earnings and it's encouraging that we continue to see pre-tax income on track for $10 million plus this year. Not too bad for a bank with a market cap of only ~$90 million. I'm keeping track of this one, and looking for next quarter's results to benefit from improved efficiencies from the new branches acquired in April, as well as whether or not asset quality can be maintained if and when interest rates start to move upward - something that could negatively affect customers with adjustable rate loans.
Disclosure: The author is long CBIN. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.
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