NewBridge Bancorp Reports $1.1 Million Fourth Quarter 2010 Net Income
January 26, 2011
- Fourth quarter 2010 net income up sharply
- Year-over-year pre-tax income improvement of $29.9 million
- Net interest income up $654,000 over prior fourth quarter, $10.1 million for year
- Net interest margin 4.00% for quarter and year
- Provision for credit losses declined $14.5 million from prior year on improving asset quality
- Nonperforming loans declined 13% for year. Excluding restructured loans, nonperforming loans fell 42% from prior year and 47% from June 2009 peak
- Cumulative loan related charges for this negative credit cycle total $115 million, or 7.1% of peak level loans, as aggressive loss recognition continued
- Total risk based capital increased to 13.13%; tier one leverage capital reached 9.69%
- Core deposits rose 16% in 2010; 66% of total deposits
- Noninterest expense declined $5.0 million in 2010
GREENSBORO, N.C. – NewBridge Bancorp (NASDAQ: NBBC), parent of NewBridge Bank, today reported financial results for the fourth quarter and fiscal year ended December 31, 2010.
For the fourth quarter, net income totaled $1.1 million compared to $51,000 for the fourth quarter ended December 31, 2009. After dividends and accretion on preferred stock, the Company reported net income available to common shareholders of $390,000, or $0.02 per diluted share. After dividends and accretion on preferred stock in the prior year's fourth quarter, the net loss available to common shareholders was ($679,000), or ($0.04) per diluted share.
For the full fiscal year just ended, net income totaled $3.4 million and net income available to common shareholders amounted to $462,000, or $0.03 per diluted share, compared to a net loss of ($15.1) million and a loss of ($18.1) million available to common shareholders, or ($1.15) per diluted share, in 2009.
The fourth quarter included a $338,000 impairment charge on properties associated with the recently announced agreement to sell the Bank's Harrisonburg, Virginia operations. The fourth quarter of 2009 included a $389,000 pre-tax gain on sale of investment securities. The year ended December 31, 2010 also included a $3.6 million pre-tax gain on sale of investment securities. The 2009 fiscal year included one-time expenses related to restructuring branch operations, terminating certain retired data processing systems and termination of non-executive employment agreements totaling $2.9 million pre-tax, as well as a special industry-wide FDIC assessment expense of $970,000, partially offset by a $1.1 million pre-tax gain on sale of merchant card services.
In making the announcement, Pressley A. Ridgill, President and Chief Executive Officer of NewBridge Bancorp, commented: "We are pleased to report a profit in 2010 on the strength of a number of positive trends that resulted in a $29.9 million pre-tax improvement over the prior year. Our net interest margin remained stable for the quarter and year which resulted in a $10.1 million increase in net interest income. Noninterest expense declined $5.0 million on disciplined cost cutting measures, despite a $3.5 million rise in OREO write-downs and expense. Other credit related costs also declined as nonperforming loans decreased 47% below peak levels, excluding restructured loans. In addition noninterest income and capital levels improved. The Company's tier one leverage capital was 9.69% and total risk based capital was 13.13% at December 31, 2010."
Mr. Ridgill continued, "There are a number of positive trends. However, the results for the fourth quarter were impacted by elevated net loan chargeoffs totaling $11.4 million. As discussed last quarter, management established a $5.0 million reserve for a loan in September 2010 due to its unique risk characteristics. This $10.0 million loan represents subordinated debt to a financial institution. Due to continued deterioration in the borrower's financial condition, in December the Company changed the classification of this relationship to impaired and charged off $6.2 million, leaving a carrying value of $3.8 million. The Company does not have any other loans to financial institutions. The balance of the chargeoffs for the fourth quarter are the result of the Company's continued philosophy of charging off known, quantifiable losses, rather than growing the allowance for credit losses with specific reserves. At December 31, 2010 the allowance for credit losses totaled 2.28% of loans, with 95% of the allowance in general reserves and only 5% in specific reserves."
Net interest income, net margin continued to grow
Net interest income increased $654,000, or 4.0%, to $17.1 million for the fourth quarter of 2010 from $16.5 million for the same quarter the year before. Net interest income totaled $69.5 million for the full year, an increase of $10.1 million, or 17.0%, compared to 2009. The increases for the quarter and year were due to a rise in the net interest margin of 37 basis points and 82 basis points, respectively, to 4.00% for both periods. The wider net interest margin is due primarily to lower interest expense on liabilities resulting in increased net interest income despite a smaller balance sheet. Compared to the September 2010 quarter, the margin fell nine basis points due to cash held on the balance sheet early in the quarter from the sale of municipal securities in September. During the quarter, the Company took a methodical approach to reinvesting this cash which allowed it to take advantage of a steepening yield curve, preventing further margin erosion.
The weighted average cost of deposits fell to 0.94% in the fourth quarter, compared to 1.60% for the quarter ended December 31, 2009 and 2.16% for the full year ended December 31, 2009. Beginning in late 2008, the Company's deposit prices were negatively impacted by irrational pricing pressure from competing financial institutions. This margin pressure continued through the first two quarters of 2009 until the higher rate time deposits began to mature. In mid-2009, the Company began shifting its marketing and strategic focus away from higher cost time deposits toward checking accounts and other core deposit relationships.
While loan demand is improving, loan balances declined $29.9 million for the quarter to $1.31 billion at December 31, 2010. Loans held for sale increased $59.2 million to $77.0 million primarily due to the reclassification of $73.0 million of loans to held for sale status related to the pending sale of the Virginia operations.
Investment securities increased $49.6 million to $325.1 million during the quarter just ended. In the quarter, the Company was able to redeploy excess cash held on the balance sheet into agency issued bonds. As previously discussed, the Company sold $83 million of its $100 million municipal security portfolio in September due to rising credit concerns with municipal securities. The sale proved to be well timed as the remaining $17.4 million of municipal securities' market value declined $1.7 million during the quarter. Volatility impacted the fair market value of the Company's investment portfolio, creating a decrease in shareholders' equity of $3.4 million for the quarter and $1.4 million for the year to $163.2 million. At December 31, 2010 the Company's net unrealized gains in the investment portfolio totaled $3.8 million pre-tax, down from $10.0 million at the previous quarter end, as the yield curve at the average maturity point of the portfolio moved meaningfully during the quarter. The decline in the overall gain position of the investment portfolio reduced the Company's tangible book value by $0.20 per share during the quarter.
Softening loan demand and reduced liquidity demands have allowed the Company to reduce its dependence on retail time deposits. Core deposits increased 16%, or $132.5 million, and amounted to 66% of total deposits at December 31, 2010, up from 55% at December 31, 2009 and 43% at December 31, 2008. Total deposits declined $46.3 million to $1.45 billion at year end, compared to $1.50 billion at December 31, 2009. Time deposits declined $178.8 million, which was offset by the growth in core deposits. NOW and non-interest bearing checking accounts increased $174.7 million, and was partially offset by a $42.1 million decline in money market and savings balances.
The continued growth in core deposits allowed the Company's liquidity to remain strong at December 31, 2010. As a result, the Company has reduced brokered deposits and other sources of wholesale funds. At year end, it had available borrowings, unencumbered investments and access to wholesale deposits exceeding $475 million. Since December 31, 2009, FHLB and other borrowings have declined $95.1 million.
Noninterest income declined $764,000 to $4.1 million for the three months ended December 31, 2010 compared to $4.9 million for the same period a year ago. For the year, noninterest income increased $330,000 to $19.5 million. Gains on sale of investment securities totaled $3.6 million in 2010 compared to $389,000 in 2009. These gains were partially offset by loss on sale of OREO of $1.8 million in 2010 and $591,000 in 2009 and other writedowns on land and fixed assets of $418,000 in 2010. For the quarter and fiscal year just ended, growth in mortgage revenue and investment service income exceeded declines in deposit service income. Mortgage revenue increased $1.8 million, or 261%, for the year and $871,000, or 760%, for the quarter. The growth in mortgage revenue was due primarily to the Company's decision to purchase Bradford Mortgage a year ago. Investment service revenue increased $403,000 for the year to $1.6 million and remains part of the core growth strategy for the Company. Deposit service charge revenue declined 13% for the year, or $1.1 million, due primarily to ongoing regulatory changes in the industry. Merchant processing income decreased by $1.6 million as a result of the Company's sale of its merchant card servicing operation in 2009.
Mr. Ridgill commented, "Growth in fee income continues to be important in the future of banking. Consequently, we are actively exploring opportunities to grow noninterest income. Although talent recruitment remains our best opportunity for future growth of fee income, we are also open to complementary acquisitions similar to the one we accomplished with Bradford Mortgage."
Noninterest expense declined $5.0 million, or 7%, for 2010. For the fourth quarter, noninterest expense was unchanged from the previous quarter at $15.7 million, excluding the one-time impairment of $338,000 on properties associated with the planned sale of the Virginia operations. The results in 2009 were affected by $3.8 million of one time expenses related to an industry-wide FDIC special assessment and certain other one-time expenses described earlier. Excluding the one-time items and the increased costs on OREO, operating costs have declined $4.6 million for the year on lower data processing costs, legal and professional expense, merchant processing costs and various other operating expense reductions.
Mr. Ridgill commented, "Operating expenses are lower and the organization's cost management culture has improved significantly since the merger of equals in 2007. We are pleased with the progress, but believe that opportunities remain for further improvement. Excluding one time items such as costs related to OREO expense, the Company's efficiency percentage has improved from 88% a year ago to 66% in the December quarter."
Asset quality has steadily improved since nonperforming loans peaked in June of 2009 at $64.0 million. At December 31, 2010, nonperforming loans totaled $50.6 million, or 4.01% of total loans, and nonperforming assets totaled $77.3 million, or 4.28% of total assets. Since its peak level of loans outstanding, the Company has added $14.5 million to troubled debt restructured loans, offset by a $27.9 million decrease in nonaccruing loans. The Company's highest risk and most closely monitored nonperforming assets are nonaccruing loans excluding troubled debt restructures. These loans totaled $32.0 million at December 31, 2010, down $19.6 million, or 38%, since December 31, 2009 and down $27.3 million, or 47%, since June 30, 2009. OREO balances continue to cycle through the balance sheet, helping control the level of nonperforming assets over time. At December 31, 2010, OREO balances totaled $26.7 million, down from $27.3 million at December 31, 2009. During 2010, $20.7 million of loans were transferred into OREO, $3.8 million of OREO was written down, and $17.5 million of OREO was sold.
At the end of the year, the allowance for credit losses totaled $28.8 million, or 2.28% of retained loans and 56.8% of nonperforming loans versus 61.56% at December 31, 2009. Provision for credit loss declined $14.5 million for the year to $21.3 million compared to $35.7 million at the previous year end. For the fourth quarter, provision for credit loss totaled $4.6 million compared to $5.6 million for the same period the year before. As previously discussed, the September 2010 quarter provision for credit loss included a $5.0 million expense, and the December 2010 quarter included an additional $1.2 million expense, associated with the establishment of a reserve for the $10.0 million subordinated debt loan to a financial institution. The Company's coverage percentage may not be comparable with other banking institutions due to its practice of charging off specific estimated losses on loans at the time they become measurable. Consequently, the Company's allowance for credit losses consists almost exclusively of general reserves, with 95% being general and 5% specific. Substantially all estimated losses from the Company's $50.0 million of non-performing loans have been recognized through charge-offs. Consequently, the Company's allowance for credit losses is available almost in its entirety for the potential losses that exist in its watch list and other performing loans portfolio. Since the current adverse credit cycle began in 2007, the Company has charged off $115.0 million of loans and other real estate owned, or 7.1% of the highest/peak level of loan balances from June 2008.
Mr. Ridgill expressed his opinion that, "We have modestly improved our outlook for 2011. Through disciplined management of what is within our control, core pre-tax earnings before credit expenses improved $20 million in 2010. Credit costs will likely remain challenging, but we expect to see a continuing decline. Loan demand has improved as our pipeline for new loans is larger than it has been in nearly two years. The Bank became smaller and more profitable in 2010, but it is not our intention to shrink the Bank in the coming year. We anticipate modest growth and continued profitability. Improvement in loan demand is enhanced by less focused competition, which is creating opportunities for new relationships, with customers and prospective bankers.
Looking forward, the Company will remain focused on improving core efficiencies. The net interest margin should rise modestly in 2011. We remain focused on increasing net interest income and will also continue to pursue increased operating efficiencies through reduced operating costs. While noninterest expense has declined significantly in recent years, our goal remains to improve efficiencies to a level that surpasses our peers. We have not yet achieved this objective and will continue to focus on the opportunities before us.
Sweeping consolidation among financial institutions is likely to occur in North Carolina and the Company is positioned to benefit in that cycle. We continue our position of having no near-term plans to raise capital for the purpose of repaying TARP funds. With so many favorable trends, we believe our shareholders will continue to benefit by our current focus on reducing problem assets and further enhancing operating efficiencies so that when the Company seeks to repay TARP funds, investors will not be overly diluted. Over the last year and into 2011, our stock price has performed well. We believe this is because the Company has not allowed external events to shift our focus from improving our financial position. While the Company remains focused on enhancing performance, we will continue to evaluate potential acquisitions with a goal of improving shareholders' long term value."
Disclosures About Forward Looking Statements
The discussions included in this document and its exhibits may contain forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially. For the purposes of these discussions, any statements that are not statements of historical fact may be deemed to be forward looking statements. Such statements are often characterized by the use of qualifying words such as "expects," "anticipates," "believes," "estimates," "plans," "projects," or other statements concerning opinions or judgments of NewBridge and its management about future events. The accuracy of such forward looking statements could be affected by factors including, but not limited to, the financial success or changing conditions or strategies of NewBridge Bancorp's customers or vendors, fluctuations in interest rates, actions of government regulators, the availability of capital and personnel or general economic conditions. Additional factors that could cause actual results to differ materially from those anticipated by forward looking statements are discussed in NewBridge's filings with the Securities and Exchange Commission, including without limitation its annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. NewBridge undertakes no obligation to revise or update these statements following the date of this press release.