WILMINGTON, N.C., May 4, 2007 (PRIME NEWSWIRE) -- Cape Fear Bank Corporation (Nasdaq:CAPE) today reported net income for the first quarter of 2007 of $435,000 compared with $604,000 for the first quarter of 2006, a decrease of 28.0 percent. Diluted earnings per share were $0.12 compared with $0.16 for the prior-year first quarter, a decrease of 25.0 percent. Compared to the fourth quarter of 2006, diluted earnings per share declined from $0.16. Year-over-year and linked-quarter performances reflect net interest margin compression and increased expenses associated with branch expansion, partially offset by increased loan growth.
Cameron Coburn, Chairman, President and CEO, commented, "While we continue to report strong loan growth, margin pressures are increasingly impacting net interest income. At the same time, we are dealing with our expansion-related initiatives from last year's opening of two full-service banking offices in Surf City and Waterford. While we believe these branches should provide us with opportunities for positive loan and deposit growth going forward, near term, funding costs along with personnel costs associated with expansion initiatives continue to exert downward pressures on earnings."
Total revenue, comprised of net interest income and non-interest income, for the first quarter of 2007 was $3.5 million compared with $3.3 million for the 2006 first quarter, an increase of 5.9 percent. Net interest income increased 4.1 percent to $3.2 million from the prior-year first quarter, reflecting 16.7 percent growth in average earning assets, partially offset by a 38 basis point decline in net interest margin. Compared with the fourth quarter of 2006, net interest income declined 2.3 percent.
Non-interest income was $310,000 in the current quarter, compared with $240,000 for the prior-year first quarter, up 29.2 percent. Excluding a gain of $3,000 in the current quarter and a loss of $10,000 in the year-ago quarter from the sale of securities, non-interest income increased $57,000, or 22.8 percent. Income from bank-owned life insurance accounted for the majority of the increase, rising $35,000 over the year-ago period. Service fees were $165,000, up $14,000 from last year's first quarter. Further excluding $41,000 in losses from the sale of securities in the fourth quarter of 2006, first quarter non-interest income increased $18,000, or 6.2 percent from the linked quarter.
First quarter non-interest expense was $2.9 million, an increase of 38.3 percent over the 2006 first quarter. Expansion-related activities accounted for the majority of the $795,000 increase; salaries and benefits rose $422,000, or 37.4 percent, from the addition of 22 full-time equivalent employees over the past twelve months -- five of which were added in the first quarter of 2007. This represents a 30.1 percent increase year over year, to 95 full-time equivalent employees. Mr. Coburn added, "We expect minimal additions to our support staff going forward although our branch expansion continues. We plan to devote the remainder of 2007 to growing our low-cost deposit base, especially in our new locations." Occupancy expenses grew $96,000, and other expenses rose an additional $277,000; together, these two categories grew $373,000, up 39.4 percent above the prior year's first quarter. Included in other expenses were increases in the cost of data processing, costs associated with compliance with Section 404 of the Sarbanes Oxley Act of 2002, and increased advertising expenses. Operating expenses rose $292,000, or 11.3 percent, from the prior quarter. The efficiency ratio was 81.4 percent for the first quarter of 2007 compared with 72.9 percent for the fourth quarter of 2006, and 62.3 percent for the prior-year first quarter.
Loan charge-offs remained exceptionally low these past four quarters, although both non-accruing loans and foreclosed real estate have increased during this period. The Bank had no charge-offs in the current quarter, compared with gross charge-offs of $402,000, or 0.56 percent of average loans annualized, for the prior-year quarter. Recoveries were $127,000 this quarter, compared with recoveries of $12,000 in the fourth quarter of 2006.
Non-performing assets increased to $2.0 million, equivalent to 0.44 percent of total assets at March 31, 2007, compared with $966,000, or 0.23 percent of assets, for the prior quarter, and $948,000, or 0.25 percent, twelve months ago. Coburn added, "We believe that in the near future we will resolve the majority of our non-performing assets; $1.7 million of the total is currently undergoing contract negotiations and is expected to close by year end 2007 with no losses anticipated." Loan loss reserves were $4.7 million, or 1.37 percent of total loans, at March 31, 2007; this compares with a reserve of $3.4 million at March 31, 2006, equivalent to 1.17 percent of quarter-end loans.
Total assets were $448.3 million at March 31, 2007, an increase of $66.5 million, or 17.4 percent, from twelve months ago. Loans outstanding totaled $344.7 million, a year-over-year increase of $54.2 million, or 18.7 percent. Construction and land development loans accounted for 80.1 percent of loan growth, increasing by $43.4 million over the year-ago period; commercial real estate, 1 to 4 family, and home equity lending contributed the remainder of loan growth, up a combined $13.1 million year over year. A $1.7 million decline in consumer loans and $638,000 decline in commercial and industrial loans partially offset overall growth. Since the 2006 fourth quarter, loans grew $10.3 million, or 3.1 percent, with construction and land development accounting for the highest percentage of growth.
Loan growth over the past twelve months was funded primarily by a $57.4 million, or 17.8 percent, increase in deposits, to $380.1 million at March 31, 2007. Wholesale funds increased $65.0 million, or 57.1 percent year-over-year, and now account for 47.1 percent of deposits compared with 35.3 percent a year ago. However, the mix was fairly stable since fourth quarter 2006, with wholesale funds comprising 46.7 percent of the fourth quarter total. The two newest branches, Waterford and Surf City, have gathered approximately $22 million of core deposits since their opening in April of 2006.
Shareholders' equity at March 31, 2007 was $27.5 million, a twelve-month increase of $2.6 million, or 10.4 percent. The Company's total risk-based capital ratio at year-end was 11.43 percent. Mr. Coburn concluded, "This has been a difficult quarter for the banking industry as a whole. We believe that in the long run, our shareholders are best served when we position ourselves to expand market share, as we have done this past year by opening new banking offices in fast-growing counties like Brunswick and Pender. It is still too early yet to obtain the full benefits of our ongoing expansion initiatives."
About the Company
Cape Fear Bank (the "Bank"), formerly known as Bank of Wilmington, was established in 1998 as a community bank, developed and managed by local residents of the communities it serves, who are committed to improving the quality of their local banking experience. Cape Fear Bank Corporation, the parent company, was formed in June 2005. The Bank serves the southeastern North Carolina market area with five full-service banking offices, including two in New Hanover County, two in Pender County, and one in Brunswick County. The Company's stock is listed on the NASDAQ Capital Market under the symbol CAPE.
Forward-Looking Statements
This Report and its exhibits contain statements relating to our financial condition, results of operations, plans, strategies, trends, projections of results of specific activities or investments, expectations or beliefs about future events or results, and other statements that are not descriptions of historical facts. Those statements may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements may be identified by terms such as "may," "will," "should," "could," "expects," "plans," "intends," "anticipates," "believes," "estimates," "predicts," "forecasts," "potential" or "continue," or similar terms or the negative of these terms, or other statements concerning opinions or judgments of our management about future events. Forward-looking information is inherently subject to risks and uncertainties, and actual results could differ materially from those currently anticipated due to a number of factors, which include, but are not limited to, factors discussed in our Annual Report on Form 10-K and in other reports we file with the Securities and Exchange Commission from time to time. Copies of those reports are available directly through the Commission's website at www.sec.gov. Other factors that could influence the accuracy of those forward-looking statements include, but are not limited to: (a) the financial success or changing strategies of our customers; (b) customer acceptance of our services, products and fee structure; (c) changes in competitive pressures among depository and other financial institutions or in our ability to compete effectively against larger financial institutions in our banking market; (d) actions of government regulators, or changes in laws, regulations or accounting standards, that adversely affect our business; (e) our ability to manage our growth and to underwrite increasing volumes of loans; (f) the impact on our profits of increased staffing and expenses resulting from expansion; (g) changes in the interest rate environment and the level of market interest rates that reduce our net interest margin and/or the volumes and values of loans we make and securities we hold; (h) weather and similar conditions, particularly the effect of hurricanes on our banking and operations facilities and on our customers and the coastal communities in which we do business; (i) changes in general economic or business conditions and the real estate market in our banking market (particularly changes that affect our loan portfolio, the abilities of our borrowers to repay their loans, and the values of loan collateral); and (j) other developments or changes in our business that we do not expect. Although our management believes that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. All forward-looking statements attributable to us are expressly qualified in their entirety by the cautionary statements in this paragraph. We have no obligation, and do not intend, to update these forward-looking statements.
Cape Fear Bank Corporation
CONSOLIDATED FINANCIAL HIGHLIGHTS
(Unaudited)
(dollars in thousands except per share data)
Quarterly
------------------------------------------------------
2007 2006 2006 2006 2006
1st Qtr 4th Qtr 3rd Qtr 2nd Qtr 1st Qtr
--------- --------- --------- --------- ----------
EARNINGS
Net interest
income $ 3,213 3,287 3,351 3,170 3,087
Provision for
loan and
lease losses $ 75 220 436 391 293
NonInterest
income $ 310 248 267 337 240
NonInterest
expense $ 2,869 2,577 2,393 2,280 2,074
Net income $ 435 588 558 522 604
*Basic earnings
per share $ 0.12 0.16 0.16 0.15 0.17
*Diluted
earnings per
share $ 0.12 0.16 0.15 0.14 0.16
*Average
shares out-
standing 3,586,849 3,586,780 3,586,743 3,586,518 3,586,518
*Average
diluted
shares out-
standing 3,677,126 3,718,317 3,725,888 3,712,586 3,680,149
*Actual common
shares out-
standing 3,586,911 3,586,780 3,586,780 3,586,518 3,586,518
PERFORMANCE
RATIOS
Return on
average assets 0.40% 0.55% 0.55% 0.54% 0.66%
Return on
average common
equity 6.33% 8.77% 8.60% 8.30% 9.65%
Net interest
margin (fully
tax-equivalent) 3.11% 3.14% 3.33% 3.42% 3.49%
Efficiency ratio 81.44% 72.90% 66.14% 65.01% 62.34%
Full-time
equivalent
employees 95 90 86 74 73
CAPITAL
Equity to
assets 6.14% 6.37% 6.21% 6.28% 6.53%
Regulatory
leverage ratio 8.50% 9.22% 8.80% 9.14% 9.33%
Tier 1 capital
ratio 9.82% 10.12% 10.24% 10.68% 11.23%
Total risk-based
capital ratio 11.43% 11.80% 11.77% 12.23% 12.80%
*Book value
per share $ 7.68 7.54 7.33 6.95 6.96
ASSET QUALITY
Gross loan
charge-offs $ 0 2 3 0 402
Net loan
charge-offs
(recoveries) $ (127) (12) (1) (75) 401
Net loan
charge-offs to
average loans -0.15% -0.01% 0.00% -0.10% 0.56%
Allowance for
loan losses $ 4,738 4,536 4,305 3,868 3,402
Allowance for
losses to
total loans 1.37% 1.36% 1.31% 1.23% 1.17%
Nonperforming
loans $ 1,343 350 329 920 948
Other real
estate and
repossessed
assets $ 616 616 616 0 0
Nonperforming
assets to
total assets 0.44% 0.23% 0.22% 0.23% 0.25%
END OF PERIOD
BALANCES
Loans $ 344,743 334,409 329,163 315,113 290,524
Total earning
assets (before
allowance) $ 426,359 408,176 410,667 386,167 371,661
Total assets $ 448,318 424,885 423,151 397,321 381,777
Deposits $ 380,054 353,617 360,846 329,248 322,634
Shareholders'
equity $ 27,539 27,052 26,281 24,935 24,948
AVERAGE BALANCES
Loans $ 339,563 330,799 325,044 302,759 285,654
Total earning
assets (before
allowance) $ 419,059 414,855 398,712 371,984 358,991
Total assets $ 437,009 425,089 407,156 383,697 368,403
Deposits $ 364,986 365,293 343,788 318,983 308,702
Shareholders'
equity $ 27,487 26,811 25,966 25,145 25,041
Year Ending
----------------------
2006 2005
--------- ---------
EARNINGS
Net interest income $ 12,894 9,299
Provision for loan and lease losses $ 1,340 1,499
NonInterest income $ 1,093 1,048
NonInterest expense $ 9,324 6,381
Net income $ 2,272 1,682
*Basic earnings per share $ 0.63 0.47
*Diluted earnings per share $ 0.61 0.46
*Average shares outstanding 3,586,641 3,586,361
*Average diluted shares outstanding 3,709,236 3,671,619
*Actual common shares outstanding 3,586,780 3,586,518
PERFORMANCE RATIOS
Return on average assets 0.57% 0.62%
Return on average common equity 8.86% 6.96%
Net interest margin (fully tax-equivalent) 3.34% 3.54%
Efficiency ratio 66.66% 61.67%
Full-time equivalent employees 90 62
CAPITAL
Equity to assets 6.37% 7.18%
Regulatory leverage ratio 9.22% 10.69%
Tier 1 capital ratio 10.12% 12.09%
Total risk-based capital ratio 11.80% 13.29%
*Book value per share $ 7.54 6.87
ASSET QUALITY
Gross loan charge-offs $ 407 184
Net loan charge-offs (recoveries) $ 314 95
Net loan charge-offs to average loans 0.10% 0.04%
Allowance for loan losses $ 4,536 3,510
Allowance for losses to total loans 1.36% 1.26%
Nonperforming loans $ 350 1,174
Other real estate and repossessed assets $ 616 0
Nonperforming assets to total assets 0.23% 0.34%
END OF PERIOD BALANCES
Loans $ 334,409 278,386
Total earning assets (before allowance) $ 407,992 334,053
Total assets $ 424,885 343,327
Deposits $ 353,617 284,134
Shareholders' equity $ 27,052 24,635
AVERAGE BALANCES
Loans $ 311,226 217,604
Total earning assets (before allowance) $ 386,323 262,669
Total assets $ 396,272 271,258
Deposits $ 334,373 226,823
Shareholders' equity $ 25,643 24,167
* Restated for 5% stock dividend for shareholders of record
6/22/06, paid out effective 6/30/06
CAPE FEAR BANK CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
---------------------------------------------------------------------
(In thousands, except share and per share data)
Three Months Ended Years Ended
March 31, December 31,
(Unaudited) (Audited)
--------------------- ---------------------
2007 2006 2006 2005
--------- --------- --------- ---------
INTEREST INCOME
Loans $ 6,912 $ 5,402 $ 24,857 $ 14,728
Investment securities
available for sale 839 571 2,816 1,453
Federal funds sold
and interest-earning
deposits 97 193 523 231
--------- --------- --------- ---------
TOTAL INTEREST INCOME 7,848 6,166 28,196 16,412
--------- --------- --------- ---------
INTEREST EXPENSE
Money market, NOW and
savings deposits 548 309 1,681 619
Time deposits 3,546 2,422 11,800 5,702
Short-term borrowings 42 228 115 0
Long-term borrowings 499 120 1,706 792
--------- --------- --------- ---------
TOTAL INTEREST EXPENSE 4,635 3,079 15,302 7,113
--------- --------- --------- ---------
NET INTEREST INCOME 3,213 3,087 12,894 9,299
PROVISION FOR LOAN
LOSSES 75 293 1,340 1,499
--------- --------- --------- ---------
NET INTEREST INCOME
AFTER PROVISION FOR
LOAN LOSSES 3,138 2,794 11,554 7,800
--------- --------- --------- ---------
NON INTEREST INCOME
Service fees and charges 165 151 713 644
Gain/(Loss) on sale of
investments 3 (10) (60) (10)
Income from bank owned
life insurance 82 47 195 199
Other 60 52 245 215
--------- --------- --------- ---------
NON-INTEREST INCOME 310 240 1,093 1,048
--------- --------- --------- ---------
NON INTEREST EXPENSE
Salaries and employee
benefits 1,549 1,127 4,949 3,438
Occupancy and equipment 423 327 1,533 977
Other 897 620 2,842 1,966
--------- --------- --------- ---------
TOTAL NON-INTEREST
EXPENSE 2,869 2,074 9,324 6,381
--------- --------- --------- ---------
INCOME BEFORE INCOME
TAXES 579 960 3,323 2,467
INCOME TAXES 144 356 1,051 785
--------- --------- --------- ---------
NET INCOME $ 435 $ 604 $ 2,272 $ 1,682
========= ========= ========= =========
NET INCOME PER COMMON
SHARE*
Basic $ 0.12 $ 0.17 $ 0.63 $ 0.47
========= ========= ========= =========
Diluted $ 0.12 $ 0.16 $ 0.61 $ 0.46
========= ========= ========= =========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING*
Basic 3,586,849 3,586,518 3,586,641 3,586,361
Effect of dilutive
stock options 90,277 93,631 122,896 85,258
--------- --------- --------- ---------
Diluted 3,677,126 3,680,149 3,709,537 3,671,619
========= ========= ========= =========
* All per share and outstanding share data has been restated for
the 5% stock dividend effective 6/30/06
CAPE FEAR BANK CORPORATION
CONSOLIDATED BALANCE SHEETS
---------------------------------------------------------------------
March 31, 2007 December 31,
(Unaudited) 2006*
--------- ---------
(In thousands, except
share data)
ASSETS
Cash and due from banks $ 8,406 $ 7,209
Interest earning deposits in other banks 8,452 1,639
Investment securities available for sale,
at fair value 70,941 69,565
Time deposits in other banks 199 298
Loans 344,743 334,409
Allowance for loan losses (4,738) (4,536)
--------- ---------
NET LOANS 340,005 329,873
Accrued interest receivable 2,219 2,195
Premises and equipment, net 3,108 2,954
Stock in Federal Home Loan Bank of Atlanta,
at cost 2,024 2,081
Foreclosed real estate and repossessions 616 616
Bank owned life insurance 9,573 5,491
Other assets 2,775 2,964
--------- ---------
TOTAL ASSETS
$ 448,318 $ 424,885
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Demand $ 34,277 $ 33,066
Savings 7,378 11,154
Money market and NOW 59,473 41,317
Time 278,926 268,080
--------- ---------
TOTAL DEPOSITS 380,054 353,617
Short-term borrowings -- 3,000
Long-term borrowings 38,310 38,310
Accrued interest payable 766 745
Accrued expenses and other liabilities 1,649 2,161
--------- ---------
TOTAL LIABILITIES 420,779 397,833
Shareholders' Equity
Common stock, $3.50 par value,
12,500,000 shares authorized; 3,586,911
and 3,586,780 shares issued and
outstanding at March 31, 2007 and
December 31, 2006, respectively 12,554 12,554
Additional paid-in capital 12,768 12,739
Accumulated retained earnings 2,528 2,092
Accumulated other comprehensive loss (311) (333)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 27,539 27,052
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 448,318 $ 424,885
========= =========
* Derived from audited financial statements