NewBridge Bancorp Announces Problem Asset Disposition Plan Successful and Enters Agreements to Raise $56 Million of Capital
November 1, 2012
- Company announces $56 million capital raise
- Company reports third quarter loss of $32 million due to the acceleration of the disposition of problem assets under its previously announced plan; as a result of the loss, the Company records an $11 million impairment on its deferred tax asset
- Total problem (classified) assets decline $46 million for the quarter and $74 million year to date
- Nonperforming assets decline $21.0 million to $38.2 million, or 2.23% of assets, for the quarter
- Other real estate owned declines $14.0 million, or 57%, to $10.5 million for the quarter
- The allowance for credit losses increases $9.8 million to $35.0 million, or 126% of nonperforming loans from 73% the prior quarter
- Total risk based capital was 12.07% at quarter end and exceeded the 10.0% “well capitalized” minimum requirement
- Net interest margin averages 4.02% for the quarter and 4.11% year to date
- Cost of interest bearing deposits drops to 0.35% for the quarter
- Quarterly mortgage banking revenues increase 85% over same period a year ago
- Loans increase $6.1 million for the quarter despite the liquidation of $44.5 million of problem loans
- New commercial loan production climbs year to date to $178 million, increasing 59% from the prior year
GREENSBORO, N.C. – NewBridge Bancorp (NASDAQ: NBBC), parent of NewBridge Bank, today announced that it has accelerated its previously announced problem asset disposition plan (the “Plan”) and has entered into securities purchase agreements with select investors and insiders of the Company pursuant to which it expects to raise $56 million of convertible preferred equity. The Company also reported results for the three month and nine month periods ended September 30, 2012. For the three months then ended, the Company reported a net loss $32.5 million compared to net income of $1.1 million for the quarter ended September 30, 2011. After dividends and accretion on preferred stock, the Company reported net loss to common shareholders of $2.12 per diluted share. The results for the quarter included one-time items of an $11 million valuation allowance against the Company’s deferred tax asset and $1.9 million of expense to write down facilities and other assets. For the nine months ended September 30, 2012, the Company reported a net loss of $30.0 million compared to net income of $3.2 million for the same period a year ago. The prior year nine month period benefitted from a one-time gain of $2.0 million on the sale of investment securities.
The Company’s financial results were affected by its previously disclosed Plan to accelerate the disposition of problem assets. The Plan objective was to reduce classified assets by $71 million from $149.0 million as measured at March 31, 2012. As of September 30, 2012, the Company had substantially completed this objective. Classified assets declined $46 million during the quarter, totaling $85.0 million at September 30, 2012. Management estimates the Company will exceed the Plan objective by year end. This increase in credit costs is partially reflected through the reduction in problem assets under the Plan, as well as in the higher allowance for credit loss levels. The allowance for credit losses increased $9.8 million in the third quarter to $35.0 million and as a percentage of nonperforming loans from 73% to 126%. The increase in reserves was also attributed to higher general reserve levels principally for homogenous residential and home equity loans resulting from management’s review of these portfolios and the subsequent identification of pools of high risk performing loans.
On November 1, 2012, the Company entered into securities purchase agreements with select investors and insiders pursuant to which it expects to raise $56 million of equity, subject to receipt of customary regulatory approvals and determinations. The capital raise will be executed through a private placement of two series of mandatorily convertible preferred stock at a price of $4.40 per share. The two series of preferred stock will automatically convert into shares of NBBC voting and nonvoting, respectively, common stock in the first quarter of 2013 after the Company has received shareholder approval at a Special Meeting of Shareholders expected to be held in the first quarter of 2013.
Pressley A. Ridgill, President and Chief Executive Officer of NewBridge Bancorp, commented: “I am pleased to share the news of our capital raise and to report the positive results from the problem asset disposition plan. Although the implementation of the Plan resulted in what we anticipate will be a temporary impairment of our deferred tax asset, we believe the resolution of our problem assets fortifies our balance sheet and will immediately result in stronger earnings and positions the Company for improved profitability in the coming years. In addition, the new capital enhances the Company’s ability to address the $52 million preferred equity held by the U.S. Treasury through the Troubled Asset Relief Program (TARP).”
Mr. Ridgill continued, “Our third quarter operating results remain strong but also reflect some of the challenges we face in this operating environment. The Company’s net interest margin declined for the second consecutive quarter on the purging of high risk and high yield loans as well as the ordinary repricing of loans and investments in the low rate environment; liability cost declined but is increasingly limited in its future benefit; personnel expense climbed as the Company expanded its investment in loan production professionals in Charlotte and Raleigh, and certain assets were written down as the Company plans for efficiency improvement over the coming year. The low rate environment and flattening yield curve present unique challenges to our industry. As always, we will meet these challenges thoughtfully by investing in people, reducing costs and planning for disciplined growth.”
Net interest income
Net interest income declined $944,000, or 5.7%, to $15.7 million for the quarter compared to $16.6 million a year ago. Year to date net interest income declined 4.7%, or $2.4 million, to $48.2 million. The Company’s net interest margin declined to 4.02% for the quarter compared to 4.20% for the same period last year. The net interest margin for the nine month period ending September 30, 2012 was 4.11%, down from 4.21% for the first nine months of last year. For the nine month period, the average balance of loans declined $111.9 million from the prior year’s nine month average, and the average yield on loans declined 24 basis points to 4.95%, resulting in a $6.5 million year to date reduction in interest income from loans. This decline was partially offset by lower interest expense on interest bearing liabilities, which fell by $3.7 million primarily due to a decline in deposit rates, and a higher balance of investment securities, which increased $81 million over the prior year. Interest income on investments increased 3.9% for the year, or $398,000. Yield on the investment portfolio for the three months ending September 30, 2012 declined 92 basis points to 3.44% from 4.36% for the same period a year ago.
The sustained low interest rate environment continues to impact loan yields. The annualized average yield on loans decreased to 4.81% for the three months ended September 30, 2012 compared to 5.18% for the three months ended September 30, 2011. The continuing implementation of the Plan adversely impacted loan yields in two ways: the impairment of performing loans reversed previously accrued interest in prior periods, and the $35.6 million of accruing loans disposed of in the September quarter had a 6.2% average yield, whereas new loans added during the quarter had an average yield of 4.2%.
Total assets decreased $34.5 million during the third quarter and $20.7 million for the year to $1.71 billion at September 30, 2012. Loans held for investment increased $6.1 million for the quarter, but declined $31.3 million for the year. Under the Plan, approximately $35.6 million of loans were sold or paid out, and $4.5 million were moved to other real estate owned (“OREO”). During the quarter, $19.1 million of net chargeoffs were recorded. Separately, $25.9 million of loans were purchased, and internal loan growth was $12.5 million during the quarter. During the past nine months, the Company has been actively building its commercial and private banking sales teams in the largest metropolitan areas of North Carolina, including the Piedmont Triad, Wilmington, Raleigh and Charlotte markets. Commercial loan production totaled $178 million for the year to date, an increase of 59% from the prior year period. Cash and cash equivalents decreased $19.2 million for the quarter and $11.3 million for the nine months. Investment securities decreased $1.6 million for the quarter to $387.4 million but have increased $49.6 million since the beginning of the year.
Total deposits declined $59.5 million to $1.39 billion at quarter end. Core deposits, excluding time deposits, declined $33.1 million to $1.01 billion. This decline in core deposits resulted from changes in fee structures targeted at simplifying product offerings and growing fee income and from lower rates being offered to certain deposit customers. The weighted average rate on core deposits declined from 0.26% at June 30, 2012 to 0.17% at September 30, 2012. Time deposit balances decreased $26.3 million during the quarter. For the quarter, the weighted average cost of time deposits declined from 0.62% to 0.55%.
Shareholders’ equity decreased $30.2 million during the quarter due primarily to credit related costs of approximately $40 million and the $11 million partial impairment of the Company’s deferred tax asset. Comprehensive income increased $2.9 million. Tangible book value declined $1.92 to $5.35.
Operating noninterest income, which excludes gains and losses on sales of securities and OREO, totaled $4.2 million for the third quarter of 2012 compared to $4.1 million for the third quarter of 2011. Mortgage revenues increased $337,000, or 85%, to $732,000 for the quarter. The growth in mortgage revenue was partially offset by lower retail banking revenue and a $57,000 decline in wealth management services revenue. While top line wealth management fee income declined, overall year to date profitability increased by $379,000 over 2011. For the respective nine month periods, operating noninterest income totaled $12.2 million and $14.1 million.
Losses on sales and writedowns of OREO totaled $10.6 million for the quarter and $14.6 million for the year to date compared to $799,000 and $3.9 million for the same periods in 2011.
Securities gains totaled $3,000 during the nine months ended September 30, 2012, compared to $2.0 million in gains during the nine months ended September 30, 2011.
Noninterest expense increased $1.7 million from the prior year quarter to $16.5 million, and included $1.9 million of one-time occupancy and other noninterest expense that related to future planned efficiency initiatives. Personnel expense was $344,000 below the prior year level despite the addition of 11 commercial and private bankers during the current year to staff expansion of Raleigh and Charlotte operations.
Total classified loans decreased 30%, or $32 million, during the quarter. Total classified loans crested later than many of the Company’s other credit metrics, rising until the third quarter of 2010. Since then, classified loans have declined 56%, or $93 million. As a percentage of the Bank’s tier one capital plus reserves, classified assets declined to 48% from 78% at December 31, 2011 and 93% at September 30, 2010. Nonperforming loans declined 20.1%, or $7.0 million, during the quarter. Nonperforming loans peaked at June 30, 2009 at $64.1 million. Since then, they have declined 56.8%, or $36.4 million. Nonperforming loans represent 2.37% of total loans held for investment. OREO decreased $14.0 million during the quarter to $10.5 million at September 30, 2012, primarily resulting from additional writedowns to estimated liquidation values, which is 43% of the previous carrying value of the properties.
Including OREO, total nonperforming assets decreased $21.0 million to $38.2 million, or 2.23% of total assets, at September 30, 2012. For the third quarter, troubled debt restructured loans totaled $10.9 million of the $27.7 million of nonperforming loans. Accruing restructured loans totaled $4.8 million, and nonaccruing restructured loans totaled $6.1 million.
The allowance for credit losses totaled $35.0 million at September 30, 2012, or 3.00% of loans held for investment. The Company’s allowance for credit losses as a percentage of nonperforming loans totaled 126% at September 30, 2012, compared to 73% at June 30, 2012 and 71% at December 31, 2011. The allowance consists of general reserves (93.4%) and specific reserves (6.6%). The confirmed losses from the Company’s nonperforming loans have been previously recognized through chargeoffs. Consequently, the Company’s allowance for credit losses is generally applicable to inherent losses within the Company’s watch list and other performing loans portfolio. Since the current adverse credit cycle began in 2007, the Company has charged off $183.8 million of loans and OREO, or 11.3% of our highest/peak level of loan balances of $1.627 billion at September 30, 2008. The annualized average quarterly net loss percentages over this 23 quarter period for commercial loans, mortgage loans, credit reserves and home equity lines, retail loans and credit cards were 2.16%, 0.77%, 1.67%, 1.91% and 1.44%, respectively.
The Bank is well within the regulatory commercial real estate high concentration guidelines in land acquisition, development and construction (the “AD&C portfolio”) loans, as well as total commercial real estate loans. At September 30, 2012, the Bank’s concentration levels were 39.61% and 178.96%, respectively, of total regulatory capital, which compares favorably to the interagency regulatory guidance maximum concentrations of 100% and 300%, respectively. The AD&C portfolio totaled $63 million at September 30, 2012, including $23 million of speculative residential construction and residential acquisition and development. This portfolio is largely graded as classified loans.
Mr. Ridgill stated that “as previously discussed, we believe that our decision to accelerate the resolution of our remaining problem assets will result in earnings largely unencumbered by credit costs beginning in the fourth quarter of 2012. We believe there will be continued pressure on the margin in coming quarters, although we believe this will be largely offset by a recently implemented deposit account revenue enhancement strategy, further cost reductions and modest growth in earning assets.”
About NewBridge Bancorp
NewBridge Bancorp is the parent company of NewBridge Bank, a full service state chartered community bank headquartered in Greensboro, North Carolina. The stock of NewBridge Bancorp trades on the Nasdaq Global Select Market under the symbol of “NBBC”.
As one of the largest community banks in the state, NewBridge Bank serves small to midsize businesses, professionals and consumers with a comprehensive array of financial services including retail and commercial banking, private banking, wealth management and mortgage banking. NewBridge Bank has assets of approximately $1.7 billion with 30 banking offices in North Carolina.
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, successful completion of the capital raise described above, receipt of customary regulatory approvals and determinations referenced above, receipt of the shareholder approval referenced above, the financial success or changing conditions or strategies of NewBridge Bancorp’s clients 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.Please click here to review the Financial Summary, Investment Portfolio, Common Stock Data, and Non-GAAP Measures. Download Adobe Acrobat Reader