Three Insiders Helped Porter Bancorp Avoid Default
Porter Bancorp Inc. (NASDAQ:PBIB) had three different insiders buy massive blocks of shares this past week, which is the kind of insider trading activity investors should pay close attention to. To start with, President and Chief Executive Officer John T. Taylor bought 250,000 shares on Friday at $1.25 apiece, boosting his ownership to 675,000 shares. Moreover, Director Bradford T. Ray also purchased 250,000 units of common stock on Friday for $1.25 each, which lifted his overall holding to 303,148 shares. Last but not least, James M. Parsons, another member of the company’s Board, snapped up 100,000 shares on Friday at the same price tag of $1.25 per share, after which Mr. Parsons holds a stake of 106,350 shares. All of these shares were purchased in a private placement of common stock through which the company issued 2.9 million common shares and 1.1 million non-voting common shares. The private placement generated total proceeds of $5.0 million, of which $2.8 million was used to make interest payments and bring current the company’s trust preferred securities.
In 2011, Porter Bancorp entered into a consent order with the Federal Deposit Insurance Corporation (FDIC) and the Kentucky Department of Financial Institutions (KDFI), agreeing to obtain written consent from both agencies before declaring or paying any dividends. The consent order established benchmarks for the bank to improve asset quality, and reduce loan concentrations, among other things. As a result, Porter Bancorp started deferring interest payments on the junior subordinated notes related to its trust preferred securities in late 2011. However, if Porter defers interest payments on those trust preferred securities for 20 consecutive quarters, the company must either pay all deferred interest or default. Therefore, the aforementioned private placement enabled the company to avoid a possible default.
Porter Bancorp is a Kentucky-based bank holding company that operates one of the largest banks in the Commonwealth of Kentucky through wholly-owned subsidiary PBI Bank. The company operates 15 banking offices in 12 counties in Kentucky. The bank’s Tier 1 leverage ratio improved to 6.08% from 6.01% year-over-year during the final quarter of 2015 and the total risk-based capital ratio improved to 10.58% from 10.50%, but both measures remained below the minimums of 9.0% and 12.0% required by the aforementioned consent order. Nonetheless, the company’s management and Board continues to implement necessary steps to meet the requirements of the consent order, which may eventually enable the bank to pay dividends again. Shares of Porter Bancorp are up by 58% in the past 52 weeks and are 2% in the green thus far in 2016. George Hall’s Clinton Group had 512,819 shares of Porter Bancorp Inc. (NASDAQ:PBIB) in its equity portfolio at the end of 2015.
