WILMINGTON, N.C., July 31, 2007 (PRIME NEWSWIRE) -- Cape Fear Bank Corporation (Nasdaq:CAPE) today reported net income for the second quarter of 2007 of $499,000 compared with $522,000 for the second quarter of 2006, a decrease of 4.4 percent. Diluted earnings per share were $0.13, unchanged from the prior-year second quarter. Compared with the first quarter of 2007, net income and diluted earnings per share increased 14.7 percent and 18.2 percent, respectively.
For the first six months of 2007, earnings were $933,000, or $0.24 per diluted share, compared with $1.1 million, or $0.29 per diluted share, for the prior six-month period, a decline of 17.1 percent and 17.2 percent, respectively. Year-over-year and six months year-to-date performance reflects slower loan growth, margin compression and increased expenses associated with branch expansion.
Cameron Coburn, Chairman, President and CEO, commented, "We are beginning to see some positive results from our expansion efforts. Revenue has improved and the net interest margin is stabilizing. In addition, we are seeing further improvement in our already-strong asset quality. We are pleased to be returning to lower levels of nonperforming assets. We remain optimistic that expenses will be offset in the near future as our revenue grows."
Total revenue, comprised of net interest income and non-interest income, was $3.6 million for the second quarter of 2007 compared with $3.5 million for the 2006 second quarter, an increase of 3.1 percent. Net interest income increased 3.3 percent to $3.3 million from the prior-year second quarter, reflecting 14.7 percent growth in average earning assets, partially offset by a 34 basis point decline in net interest margin, to 3.08 percent. Compared with the first quarter of 2007, net interest income increased 2.0 percent; the net interest margin declined only three basis points from the first quarter, an indication that the margin decline is slowing.
Second quarter 2007 non-interest income was $341,000, up $4,000, or 1.2 percent from the year-ago quarter. Service fees and charges, while still the largest contributor to non-interest income, decreased $79,000, or 31.9 percent from the year-ago period. Offsetting the decline in service fees and charges was a $51,000 increase in income from bank-owned life insurance, and a $30,000 increase in other non-interest income. Compared with the first quarter of 2007, non-interest income increased $31,000, or 10.0 percent.
The Company did not record a provision for loan losses this quarter due to the improvement in asset quality as well as slower loan growth. This compares with a $75,000 provision recorded in the previous quarter, and $391,000 recorded in the second quarter of 2006. Loan charge-offs have been nominal over the past five quarters. Mr. Coburn explained, "The quality of our balance sheet improved with the sale of $616,000 of foreclosed real estate. Our allowance for loan losses is more than three and a half times nonperforming assets, indicative of our conservative approach."
Higher operating expenses reflect our continuing expansion. The bank now has six full-service banking offices in operation, a seventh -- Sunset Beach -- will open as a full-service branch in August, and an eighth banking office, in Southport, Brunswick County, is planned for the second quarter of 2008. Mr. Coburn added, "We are expanding our branch network in order to gain market share in a highly competitive market." Second quarter non-interest expense was $3.0 million, an increase of 30.5 percent over the 2006 second quarter; compared with the linked quarter, operating expenses increased 3.7 percent. Expansion-related activities accounted for the majority of the year over year increase of $696,000 in non-interest expense; salaries and benefits rose $431,000, or 35.0 percent, from the addition of 25 full-time equivalent (FTE) employees over the past twelve months, of which four were added in the second quarter of 2007. This represents a 33.8 percent increase year over year, to 99 FTE employees. Occupancy expenses increased $76,000, or 20.3 percent, and other expenses rose an additional $189,000 or 28.0 percent. The efficiency ratio was 82.3 percent for the second quarter of 2007 compared with 81.4 percent for the first quarter of 2007, and 65.0 percent for the prior-year second quarter.
Non-performing assets decreased by $639,000, or 32.6 percent, to $1.3 million, equivalent to 0.30 percent of total assets at June 30, 2007, compared with $2.0 million, or 0.44 percent of assets, for the prior quarter-end; non-performing assets at June 30, 2006 were $920,000, or 0.23 percent of total assets. The foreclosed real estate was sold in the second quarter, accounting for the decline in non-performing assets. The allowance for loan losses was $4.7 million, or 1.39 percent of total loans, at June 30, 2007; this compares with a reserve of $3.9 million, or 1.23 percent of quarter-end loans at June 30, 2006, and $4.7 million, or 1.37 percent of loans, at March 31, 2007.
Total assets were $441.3 million at June 30, 2007, an increase of $44.0 million, or 11.1 percent, from twelve months ago, and a $7.0 million, or 1.6 percent decrease from the previous quarter. Loans outstanding totaled $341.0 million, a year-over-year increase of $25.9 million, or 8.2 percent; compared with the first quarter of 2007, loans declined $3.7 million or 1.1 percent. Year over year, commercial real estate (CRE) loans accounted for nearly half of loan growth, increasing $12.5 million, or 13.6 percent; currently, CRE loans account for 30.7 percent of Cape Fear's loan portfolio. Construction and land development (C&D) loans remain the largest component of the Bank's portfolio, accounting for 43.3 percent of loans. While C&D loans contributed $10.3 million to year-over-year loan growth, they have declined by $16.6 million, or 10.1 percent, since March 31, 2007, in keeping with the slowdown in residential construction.
Loan growth over the past twelve months was funded primarily by a $41.7 million, or 12.7 percent, increase in deposits, reaching $370.9 million at June 30, 2007. Since March 31, 2007, deposits have decreased by $9.1 million, or 2.4 percent. Consistent with the reduction in demand for construction lending, high-cost time deposits were allowed to decrease, declining $14.9 million from the prior quarter and offset by a $6.0 million increase in lower-cost Money Market and NOW accounts.
Shareholders' equity at June 30, 2007 was $27.4 million, a twelve-month increase of $2.5 million, or 10.0 percent. The Company's total risk-based capital ratio at June 30, 2007 was 11.80 percent. Shares outstanding at quarter-end were 3,766,020, adjusted for a five percent stock dividend that was paid on June 29, 2007.
Mr. Coburn concluded, "We are pleased with the trends we are starting to see in our deposit mix through our branching efforts. Going forward, our focus will be to maintain our asset quality while improving net interest margin with lower cost deposits gathered through our expanded branch network. Our expansion initiatives are on-going. As we expand, we will begin to recognize greater operating efficiencies as a result of our recent infrastructure investments."
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 six full-service banking offices, including three 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 Quarterly
except per 2007 2007 2006 2006 2006
share data) 2nd Qtr 1st Qtr 4th Qtr 3rd Qtr 2nd Qtr
-------------------------------------------------------------------
EARNINGS
Net interest
income $ 3,276 3,213 3,287 3,351 3,170
Provision for
loan and
lease losses $ -- 75 220 436 391
NonInterest
income $ 341 310 248 267 337
NonInterest
expense $ 2,976 2,869 2,577 2,393 2,280
Net income $ 499 435 588 558 522
*Basic
earnings per
share $ 0.13 0.12 0.16 0.15 0.14
*Diluted
earnings per
share $ 0.13 0.11 0.15 0.14 0.13
*Average
shares
outstanding 3,765,955 3,766,191 3,766,119 3,766,080 3,765,844
*Average
diluted
shares
outstanding 3,844,366 3,860,982 3,904,233 3,912,182 3,898,215
*Actual common
shares
outstanding 3,766,020 3,766,257 3,766,119 3,766,119 3,765,844
PERFORMANCE
RATIOS
Return on
average
assets 0.45% 0.40% 0.55% 0.55% 0.54%
Return on
average
common equity 7.22% 6.33% 8.77% 8.60% 8.30%
Net interest
margin (fully
tax-equivalent) 3.08% 3.11% 3.14% 3.33% 3.42%
Efficiency
ratio 82.28% 81.44% 72.90% 66.14% 65.01%
Full-time
equivalent
employees 99 95 90 86 74
CAPITAL
Equity to
assets 6.21% 6.14% 6.37% 6.21% 6.28%
Regulatory
leverage
ratio 8.58% 8.50% 9.22% 8.80% 9.14%
Tier 1 capital
ratio 10.40% 9.99% 10.30% 10.24% 10.68%
Total risk-
based capital
ratio 11.80% 11.43% 11.80% 11.77% 12.23%
*Book value per
share $ 7.28 7.31 7.18 6.98 6.62
ASSET QUALITY
Gross loan
charge-offs $ 2 -- 2 3 --
Net loan
charge-offs
(recoveries) $ (8) (127) (12) (1) (75)
Net loan
charge-offs
to average
loans -0.01% -0.15% -0.01% 0.00% -0.10%
Allowance for
loan losses $ 4,746 4,738 4,536 4,305 3,868
Allowance for
losses to
total loans 1.39% 1.37% 1.36% 1.31% 1.23%
Nonperforming
loans $ 1,320 1,343 350 329 920
Other real
estate and
repossessed
assets $ -- 616 616 616 --
Nonperforming
assets to
total assets 0.30% 0.44% 0.23% 0.22% 0.23%
END OF PERIOD
BALANCES
Loans $ 341,030 344,743 334,409 329,163 315,113
Total earning
assets (before
allowance) $ 420,102 426,359 407,992 410,667 386,167
Total assets $ 441,342 448,318 424,885 423,151 397,321
Deposits $ 370,915 380,054 353,617 360,846 329,248
Shareholders'
equity $ 27,427 27,539 27,052 26,281 24,935
AVERAGE
BALANCES
Loans $ 344,742 339,563 330,799 325,044 302,759
Total earning
assets
(before
allowance) $ 426,682 419,059 414,855 398,712 371,984
Total assets $ 446,653 437,009 425,089 407,156 383,697
Deposits $ 374,978 364,986 365,293 343,788 318,983
Shareholders'
equity $ 27,633 27,487 26,811 25,966 25,145
Year to Date
------------------------
2007 2006
----------- -----------
EARNINGS
Net interest income $ 6,487 6,256
Provision for loan and lease losses $ 75 684
NonInterest income $ 652 578
NonInterest expense $ 5,844 4,354
Net income $ 933 1,126
*Basic earnings per share $ 0.25 0.30
*Diluted earnings per share $ 0.24 0.29
*Average shares outstanding 3,765,901 3,765,844
*Average diluted shares outstanding 3,850,956 3,881,186
*Actual common shares outstanding 3,766,020 3,765,844
PERFORMANCE RATIOS
Return on average assets 0.42% 0.60%
Return on average common equity 6.81% 9.01%
Net interest margin (fully tax-equivalent) 3.09% 3.45%
Efficiency ratio 81.86% 63.71%
Full-time equivalent employees 99 74
CAPITAL
Equity to assets 6.21% 6.28%
Regulatory leverage ratio 8.58% 9.14%
Tier 1 capital ratio 10.40% 10.68%
Total risk-based capital ratio 11.80% 12.23%
*Book value per share $ 7.28 6.62
ASSET QUALITY
Gross loan charge-offs $ 2 402
Net loan charge-offs (recoveries) $ (135) 326
Net loan charge-offs to average loans -0.08% 0.22%
Allowance for loan losses $ 4,746 3,868
Allowance for losses to total loans 1.39% 1.23%
Nonperforming loans $ 1,320 920
Other real estate and repossessed assets $ -- --
Nonperforming assets to total assets 0.30% 0.23%
END OF PERIOD BALANCES
Loans $ 341,030 315,113
Total earning assets (before allowance) $ 420,102 386,167
Total assets $ 441,342 397,321
Deposits $ 370,915 329,248
Shareholders' equity $ 27,427 24,935
AVERAGE BALANCES
Loans $ 342,167 294,254
Total earning assets (before allowance) $ 422,892 365,524
Total assets $ 441,858 376,093
Deposits $ 370,010 313,871
Shareholders' equity $ 27,393 25,005
*Restated for 5% stock dividend for shareholders of record 6/22/07,
paid out effective 6/29/07
CAPE FEAR BANK CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
---------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
2007 2006 2007 2006
---------- ---------- ---------- ----------
(In thousands, except share and per share data)
INTEREST INCOME
Loans $ 7,107 $ 5,983 $ 14,019 $ 11,385
Investment securities
available for sale 859 695 1,697 1,285
Federal funds sold
and interest-earning
deposits 103 79 200 253
---------- ---------- ---------- ----------
TOTAL INTEREST INCOME 8,069 6,757 15,916 12,923
---------- ---------- ---------- ----------
INTEREST EXPENSE
Money market, NOW and
savings deposits 646 369 1,194 678
Time deposits 3,593 2,685 7,139 5,108
Short-term borrowings 2 57 44 59
Long-term borrowings 552 476 1,052 822
---------- ---------- ---------- ----------
TOTAL INTEREST
EXPENSE 4,793 3,587 9,429 6,667
---------- ---------- ---------- ----------
NET INTEREST INCOME 3,276 3,170 6,487 6,256
PROVISION FOR LOAN
LOSSES -- 391 75 684
---------- ---------- ---------- ----------
NET INTEREST INCOME
AFTER PROVISION FOR
LOAN LOSSES 3,276 2,779 6,412 5,572
---------- ---------- ---------- ----------
NON INTEREST INCOME
Service fees and
charges 169 248 334 399
Gain/(Loss) on sale
of investments (7) (9) (4) (18)
Income from bank owned
life insurance 99 48 181 95
Other 80 50 141 102
---------- ---------- ---------- ----------
NON-INTEREST INCOME 341 337 652 578
---------- ---------- ---------- ----------
NON INTEREST EXPENSE
Salaries and employee
benefits 1,661 1,230 3,210 2,283
Occupancy and
equipment 450 374 873 701
Other 865 676 1,761 1,370
---------- ---------- ---------- ----------
TOTAL NON-INTEREST
EXPENSE 2,976 2,280 5,844 4,354
---------- ---------- ---------- ----------
INCOME BEFORE INCOME
TAXES 641 836 1,220 1,796
INCOME TAXES 142 314 287 670
---------- ---------- ---------- ----------
NET INCOME $ 499 $ 522 $ 933 $ 1,126
========== ========== ========== ==========
NET INCOME PER COMMON
SHARE*
Basic $ 0.13 $ 0.14 $ 0.25 $ 0.30
========== ========== ========== ==========
Diluted $ 0.13 $ 0.13 $ 0.24 $ 0.29
========== ========== ========== ==========
WEIGHTED AVERAGE
COMMON SHARES
OUTSTANDING*
Basic 3,765,955 3,765,844 3,765,901 3,765,844
Effect of dilutive
stock options 78,411 132,371 85,055 115,342
---------- ---------- ---------- ----------
Diluted 3,844,366 3,898,215 3,850,956 3,881,186
========== ========== ========== ==========
*All per share and outstanding share data has been restated for the
5% stock dividend effective 6/29/07
CAPE FEAR BANK CORPORATION
CONSOLIDATED BALANCE SHEETS
---------------------------------------------------------------------
June 30,
2007 December 31,
(Unaudited) 2006*
--------- ---------
(In thousands, except
share data)
ASSETS
Cash and due from banks $ 7,375 $ 7,209
Interest earning deposits in other banks 4,322 1,639
Investment securities available for sale, at
fair value 72,293 69,565
Time deposits in other banks 298 298
Loans 341,030 334,409
Allowance for loan losses (4,746) (4,536)
--------- ---------
NET LOANS 336,284 329,873
Accrued interest receivable 2,191 2,195
Premises and equipment, net 3,447 2,954
Stock in Federal Home Loan Bank of Atlanta,
at cost 2,159 2,081
Foreclosed real estate and repossessions -- 616
Bank owned life insurance 9,673 5,491
Other assets 3,300 2,964
--------- ---------
TOTAL ASSETS $ 441,342 $ 424,885
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Demand $ 34,497 $ 33,066
Savings 6,890 11,154
Money market and NOW 65,463 41,317
Time 264,065 268,080
--------- ---------
TOTAL DEPOSITS 370,915 353,617
Short-term borrowings -- 3,000
Long-term borrowings 40,310 38,310
Accrued interest payable 760 745
Accrued expenses and other liabilities 1,930 2,161
--------- ---------
TOTAL LIABILITIES 413,915 397,833
Shareholders' Equity
Common stock, $3.50 par value, 12,500,000
shares authorized; 3,766,020 and 3,766,119
shares issued and outstanding at June 30,
2007 and December 31, 2006, respectively 13,181 12,554
Additional paid-in capital 13,997 12,739
Accumulated retained earnings 1,197 2,092
Accumulated other comprehensive loss (948) (333)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 27,427 27,052
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 441,342 $ 424,885
========= =========
*Derived from audited financial statements