(Source: PRNewswire-FirstCall)
RALEIGH, N.C., April 23 /PRNewswire-FirstCall/ -- Capital Bank Corporation , the parent company of Capital Bank, today reported a net loss of $4.5 million, or $0.45 per diluted share, for the quarter ended March 31, 2009 compared to net income of $2.2 million, or $0.19 per diluted share, for the quarter ended March 31, 2008. The decline in earnings was primarily due to an increase in provision for loan losses and a decrease in net interest margin.
"Further weakening in the residential and commercial real estate markets from the global recession and credit crisis has severely impacted the financial health and stability of many businesses within the communities we serve. While our markets continue to remain some of the most resilient in the country, the Company took steps to significantly increase the provision for loan losses in the first quarter in response to softening experienced in the loan portfolio as reflected by certain credit quality ratios," stated B. Grant Yarber, president and CEO. "Increases in nonperforming assets and the loan loss provision reflect aggressive efforts to identify and resolve problem credits in this uncertain economic environment. Despite the difficult economic conditions, our proactive working with borrowers and dealing with problem loans has enabled Capital Bank to maintain credit quality that is superior to peer banks and other banks across the country. In fact, our nonperforming assets to total assets ratio of 1.24% at March 31, 2009 is significantly better than reported regional and national averages of 1.66% and 1.55%, respectively, at the end of the fourth quarter. While the increased loan loss provision has negatively impacted our earnings in the short-term, we believe our strong asset quality will position us well to take advantage of a future market recovery."
Past due loans as a percent of total loans increased to 1.34% at March 31, 2009 from 1.09% at December 31, 2008 and 0.82% at March 31, 2008. Nonperforming assets, which include loans on nonaccrual and other real estate owned, increased to 1.24% as a percent of total assets at March 31, 2009 compared to 0.63% at December 31, 2008 and 0.33% at March 31, 2008. As a result of the weakening credit quality experienced, the Company increased the allowance for loan losses to 1.45% of total loans at March 31, 2009 compared to 1.18% at both December 31, 2008 and March 31, 2008. The allowance for loan losses was 109% of nonperforming loans at March 31, 2009, a decline from 162% at December 31, 2008 and 319% at March 31, 2008.
Provision for loan losses increased $5.4 million for the quarter ended March 31, 2009 compared to the same period one year ago. The increase in the provision was partially due to loan growth of $126.6 million, or 11%, from March 31, 2008, but the increase was primarily driven by deteriorating economic conditions and weaknesses in the local real estate markets which resulted in downgrades to the credit ratings of certain loans in the portfolio. Additionally, the decline in real estate values securing certain nonperforming loans required increased provision during the first quarter. Management continues to thoroughly review its loan portfolio and the adequacy of its allowance for loan losses.
Partially contributing to lower profitability during the first quarter of 2009 was a decline in net interest income. Net interest income decreased $728 thousand, falling from $10.9 million for the quarter ended March 31, 2008 to $10.2 million for the quarter ended March 31, 2009, largely due to unprecedented steps taken by the Federal Reserve to revive an ailing national economy. One of the actions taken by the Federal Reserve was to lower the Prime Rate by 400 basis points during 2008. This rapid decline in rates, coupled with competitive pressures in the marketplace for retail deposits, compressed the net interest margin from 3.23% in the first quarter of 2008 to 2.76% in the first quarter of 2009. The margin compression was partially offset by 10.6% growth in average earning assets over the same periods.
"While our net interest margin has been negatively impacted by dramatic cuts to the prime lending rate and intense competition for retail deposits in late 2008, we have seen positive trends in the margin in recent months and experienced positive growth in net interest income from the fourth quarter," stated Mr. Yarber. "Additionally, earnings before taxes and loan provision, excluding securities gains/losses, were $1.0 million for the first quarter, which was in line with our expectations. The fundamental operations of the bank remain strong, and while economic conditions are difficult and are likely to remain volatile for some time, we believe that Capital Bank is well-positioned for the future."
Loans grew by $22.7 million during the first quarter of 2009 while deposits increased by $25.7 million. Much of the loan growth, $19.3 million, occurred in the Triangle region of North Carolina, which we believe continues to present quality growth opportunities. On the deposit side, checking and savings accounts increased $33.5 million during the three months ended March 31, 2009 as the bank continued to emphasize growth in these critical product areas. Time deposits decreased $1.2 million over the same period while money market accounts declined by $6.6 million.
"Despite tremendous economic uncertainty, we have continued lending to qualified borrowers within the communities we serve as evidenced by our first quarter loan growth," commented Mr. Yarber. "We are committed to doing our part to ensure that capital continues to remain available to qualified borrowers in our markets while maintaining prudent lending standards that we believe to be in the best interests of the Company and its shareholders. We were well capitalized last year but still accepted a capital investment from the Federal Government so that we could continue lending and be part of the economic recovery in our local markets. While the significant provision increase negatively impacted our profitability this quarter, we remain far above the well capitalized threshold and still have the balance sheet strength necessary to further our lending initiatives."
Noninterest income declined $134 thousand, or 6.0%, in the first quarter of 2009 compared to the same period one year ago. The primary reason for the decline was an other-than-temporary impairment charge of $320 thousand recorded on an equity investment in a financial institution during the three months ended March 31, 2009 compared to a gain of $71 thousand on the sale of certain investment securities during the three months ended March 31, 2008. The impairment charge this quarter represents the full amount of the Company's investment in that institution. Mortgage and other loan fees increased a net of $142 thousand, or 37%, compared to the same quarter last year primarily as a result of management's emphasis on increasing loan-related fee income as well as favorable interest rates for the refinancing of residential and commercial loans. Bank-owned life insurance income declined by $44 thousand as the Company recorded a non-recurring gain during the three months ended March 31, 2008 from the receipt of insurance proceeds. Other noninterest income increased $119 thousand primarily due to a reclassification of certain sublease receipts.
Noninterest expense increased from $9.6 million during the first quarter of 2008 to $11.6 million during the first quarter of 2009. Salaries and employee benefits, occupancy, furniture and equipment, and data processing costs increased a combined $1.6 million primarily due additional costs incurred as new branches were opened during the past year in Asheville (May 2008) and Clayton (December 2008) in addition to the four branches purchased in the Fayetteville market in December 2008. FDIC deposit insurance costs rose $182 thousand as the regulatory agency continued to increase premiums to cover higher monitoring costs and claims.
Capital Bank Corporation, headquartered in Raleigh, N.C., with approximately $1.7 billion in total assets, offers a broad range of financial services. Capital Bank operates 32 banking offices in Asheville (4), Burlington (4), Cary, Clayton, Fayetteville (3), Graham (2), Hickory, Mebane, Morrisville, Oxford, Parkton, Pittsboro, Raleigh (5), Sanford (3), Siler City, Wake Forest and Zebulon. The Company's website is http://www.capitalbank-nc.com/.
Information in this press release contains forward-looking statements. These statements involve risks and uncertainties that could cause actual results to differ materially, including without limitation, the effects of future economic conditions, governmental fiscal and monetary policies, legislative and regulatory changes, the risks of changes in interest rates, and the effects of competition. Additional factors that could cause actual results to differ materially are discussed in Capital Bank Corporation's filings with the Securities and Exchange Commission, including without limitation its Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q and its Current Reports on Form 8-K. Capital Bank Corporation does not undertake a duty to update any forward-looking statements in this press release.
