NewBridge Reports 45% Growth In Pre-Tax Core Net Operating Income Following Its Merger With Capstone Bank

GREENSBORO, N.C., July 24, 2014 /PRNewswire/ --

Second-Quarter 2014 Highlights

• CapStone merger completed, assets expanded 19% to $2.4 billion from March 31, 2014
• Net income totaled $1.2 million, after $5.3 million of merger and severance expenses
• Pre-tax core net operating income, a non-GAAP measure, was $7.2 million, up 45% from second quarter 2013
• Net interest income rose 31% to $20.3 million
• Loan balances grew $283 million
• Deposits expanded $233 million
• Wealth management revenue increased 17% from prior year quarter
• Nonperforming assets were 0.61% of total assets at June 30, 2014
• Realignment of retail banking led to a 5% reduction in the Company's work force
• Capital levels rose to 12.5% total risk-based and 8.3% tier 1 leverage
• Book value per share increased to $6.05 from $5.50 in first quarter 2014 and $5.12 in second quarter 2013

Subsequent Second-Quarter Events

• Launched banking team to serve middle market corporations in the region generating annual revenue from $25 million to $250 million

Second-Quarter Results Include

• Merger costs totaled $4.8 million, and severance expenses totaled $533,000
• $15.5 million of subordinated debt issued in late first quarter 2014 – redeemed preferred stock

NewBridge Bancorp (NASDAQ: NBBC) today reported earnings for the three- and six month periods ended June 30, 2014.  Net income available to common shareholders totaled $1.2 million, or $0.03 per diluted share for the quarter, compared to $11.6 million, or $0.38 per diluted share reported for the quarter ended June 30, 2013.  Earnings for the current quarter were reduced by $4.8 million of merger related expenses and severance expenses of $533,000.  The 2013 quarter included a reversal of a tax valuation allowance, which resulted in an income tax benefit of $6.6 million.  Pre-tax core net operating income, which excludes merger and severance expenses, gains on sale of investment securities and provisions for tax, increased $2.2 million, or 45%, to $7.2 million in the second quarter of 2014 compared to the same period a year ago.  For the six months ended June 30, 2014, net income totaled $4.6 million, or $0.13 per diluted share, compared to $16.4 million, or $0.51 per diluted share, for the prior year.  For the six-months ended June 30, 2014, merger and severance expenses totaled $5.4 million.

Pressley A. Ridgill, President and Chief Executive Officer, said, "The Company's initiatives to grow loan and deposit market share in core geographic markets are gaining momentum.  A multi-faceted strategy to build our commercial, retail, and wealth management businesses demonstrated traction through improved operating results.  We are expanding our presence in key markets, including Charlotte, North Carolina and Greenville, South Carolina.  The Company achieved a 45% increase in pre-tax core net operating income in the recent quarter, due in part to the merger with CapStone Bank.  The CapStone merger followed the addition of Security Savings Bank in Southport, North Carolina, in the fourth quarter of 2013.  Our balance sheet has grown by nearly $500 million over the first six months of 2014, which helped deliver a 31% increase in second quarter net interest income over the prior year.  While revenue growth remains a key focus, the Company maintains disciplined cost management aimed at improving efficiency.  We have achieved approximately 30% cost savings from each merger.  We have also taken additional steps to create efficiencies throughout the organization and realigned the retail banking group to improve productivity and efficiency.  This realignment resulted in a 5% overall reduction in the Company's total number of employees, and we expect ongoing cost savings from the initiative."

Ridgill continued, "We also were pleased to announce the addition of an experienced commercial banking team, led by Michael J. McMahan, Executive Vice President and Director of Middle Market Banking.  This group will focus on serving businesses with revenues from $25 million to $250 million.  We believe this market is underserved, requiring the specialized banking, treasury management and lending capabilities NewBridge Bank is in a position to provide."

Net Interest Income

Net interest income increased 31.4%, or $4.8 million, to $20.3 million for the quarter ended June 30, 2014 compared to the quarter ended June 30, 2013.  The growth in net interest income was due primarily to a rise in the average balance of earning assets, primarily of loans, following the mergers with CapStone and Security Savings Bank, combined with strong organic growth over the last year.  The quarterly average balance of earning assets increased $641.0 million over the prior year.  While earning asset yield declined 26 basis points, interest income increased $5.4 million over the prior year's quarter.  Interest on loans contributed $4.8 million of the $5.4 million increase.  The net interest margin declined 27 basis points from the prior year's quarter to 3.70% due to the ongoing repricing of assets in the continued low interest rate environment.  For the six month period ending June 30, 2014, net interest income increased $6.4 million, or 21.1%, over the prior year period to $36.9 million.  For the six-month period, the net interest margin declined 22 basis points to 3.72%. 

Noninterest Income

Excluding $70,000 of securities gains for the second quarter of 2013 and $278,000 of gains for the six-month period in 2013, noninterest income increased $61,000 to $4.2 million for the quarter, but declined $78,000 for the six-month period.  The decline in noninterest revenue was caused by a $246,000 drop in mortgage revenue for the quarter and $675,000 decline for the six-month period, which was due to the reduced mortgage refinance market activity.  Retail banking revenue, wealth management fees and other noninterest income grew over the prior year periods, offsetting much of the decline.  Retail banking revenues increased $120,000, or 4.7%, wealth management revenue climbed $105,000, or 17.3%, and other sources of noninterest income increased $82,000, or 16.5%, for the quarter.  For the six-month period, retail banking revenues increased $274,000, or 5.5%, wealth management revenue climbed $179,000, or 14.3%, and other sources of noninterest income increased $144,000, or 10.8%. 

Noninterest Expense

Noninterest expense was affected by $5.3 million of merger and severance expenses for the quarter ending June 30, 2014, which contributed to a 62.5%, or $8.5 million, overall increase in noninterest expense, totaling $22.0 million for the quarter.  For six months, noninterest expense increased 36.0%, or $9.9 million, to $37.5 million.  Merger expenses for the three- and six-months totaled $4.8 million and $4.9 million, respectively.  Severance expenses, associated primarily with the retail realignment strategy, totaled $533,000 for the quarter ending June 30, 2014.  Excluding merger and severance expenses, the rise in expense in each category was due to the acquisitions of Security Savings Bank and CapStone Bank.  The number of full time employees increased by just 28 due primarily to the reduction in staff associated with the realignment strategy within retail banking.

Balance Sheet

Total assets increased $390.8 million for the quarter and $463.9 million for the year to $2.43 billion at June 30, 2014.  Loans held for investment increased $282.7 million, or 19.6%, for the quarter and $309.8 million, or 21.9%, for the six-month period.  Excluding CapStone acquired loans, loans increased $49.1 million for the year, an annualized growth rate of 7.0%.  Also contributing to the growth in assets, investments increased $59.1 million for the quarter and $100.3 million for the six-month period, and totaled $469.2 million at June 30, 2014.   Growth in the investment portfolio occurred in US government agency issued securities and select corporate debt securities.  The average duration of these investments was less than 5 years and had a weighted average yield of 2.64% at June 30, 2014. The investment portfolio remains highly liquid with $353.4 million available for sale with an average duration of 4.2 years.  Intangible assets increased $19.9 million during the quarter due to the CapStone transaction.

Total liabilities increased $323.0 million during the quarter and $406.0 million for the six-month period, including a $301.6 million increase in deposits.  Total deposits were $1.86 billion at June 30, 2014.  Core, non-time transaction, savings and money market accounts comprise 67% of the Company's deposits.  These core accounts increased $121.3 million due primarily to the CapStone transaction.  The weighted average cost of the Company's $1.25 billion of core accounts was 0.14% at June 30, 2014.  Time deposit balances increased $112.0 million during the quarter, which included a $50.4 million increase in broker originated deposits.  At June 30, 2014, brokered deposits were 14% of the Company's deposit balances.  In March 2014, the Company issued $15.5 million of subordinated debt notes.  The notes were issued as an efficient form of regulatory tier two eligible capital, and the proceeds were used for the redemption of the balance of the TARP issued preferred securities.  The weighted average cost of these notes is 7.25%; however, the after tax cost to common shareholders is below 5%.

Shareholders' equity increased $67.8 million for the quarter and $57.9 million for the six-month period.  In the second quarter of 2014, equity from the CapStone merger and from stock options exercised following the merger totaled $64.4 million.  Retained earnings increased $1.2 million, and other comprehensive income expanded $1.9 million.  Equity in the first quarter of 2014 declined $10.0 million due to the redemption of $15.0 million of preferred securities.  The Company's tangible book value increased from $5.05 per share at December 31, 2013 to $5.30 at June 30, 2014.

Asset Quality

Asset quality continued to improve during the second quarter of 2014 as total classified assets declined $5.1 million for the quarter and $11.2 million for the six-month period, to $40.1 million.  Nonperforming assets decreased $2.1 million to $14.9 million, representing 0.61% of total assets.  Nonperforming loans totaled $11.3 million at June 30, 2014.  Net chargeoffs were $2.4 million for the six-month period, or 0.30% annualized of loans.  Compared to the prior year, net chargeoffs increased $99,000 from $2.3 million to $2.4 million through six months.  The allowance for credit losses was $22.9 million at June 30, 2014, or 1.33% of total loans held for investment and 203.2% of nonperforming loans.  Excluding loans acquired from CapStone Bank, the allowance for credit losses was 1.57% of loans held for investment.

Outlook

Ridgill concluded:  "NewBridge has executed two successful mergers over the past 12 months, growing total assets by more than 40% to $2.4 billion.  In addition to these transactions, the Company has continued to grow its core business lines organically.  We remain committed to our companywide culture of excellence, which encompasses a drive for efficiency, enhanced productivity, and a relentless focus on service.  Our team is also committed to unlocking additional earnings power not only within the acquired institutions but through our existing core franchise.  We are improving the versatility of our sales team, while providing them with better technology and an improved suite of products.  The Company also implemented a necessary staff and strategic realignment within its retail banking group and replaced a traditional branch staffing model with a more efficient and effective one.  Anticipated cost savings from this initiative will be recognized in future periods. 

"Our net interest margin is expected to remain under pressure in the near term; however, we are mitigating the impact of potential margin compression with diligent deposit management and through continued growth in earning assets.

"We recently launched a middle market banking group through the addition of a seasoned team of commercial bankers with significant experience serving businesses with revenues from $25 million to $250 million.  NewBridge will offer a full suite of highly tailored commercial banking and treasury management services that will be competitive with larger national and regional banking institutions.  The Company has developed the reach and resources required to enter this attractive new market segment, and we expect an immediate positive impact from the middle market banking team. 

"As we move into the second half of 2014, we remain optimistic about the Company's prospects for organic growth, our ability to recruit talented revenue producing bankers and our initiatives to further enhance efficiency and productivity across the organization.  Management continues to evaluate vibrant potential new geographic markets for organic or inorganic expansion, and we are exploring prudent acquisition opportunities on an ongoing basis.  Our decision-making is centered upon maximizing shareholder value, and we remain committed to the pursuit of ongoing growth in the value of our franchise."

Use of Non-GAAP Measures

Tangible common shareholders' equity percentages have become a focus of some investors.  Because tangible common shareholders' equity is not formally defined by generally accepted accounting principles ("GAAP"), this measure is considered to be a non-GAAP financial measure, and other entities may calculate it differently.  Since analysts and banking regulators may assess our capital adequacy using tangible common shareholders' equity, management believes that it is useful to provide investors with the ability to assess the Company's capital adequacy on the same basis.

Management also believes that the presentation of pre-tax core net operating income, which excludes merger and severance expenses, gains on sale of investment securities and provisions for tax, provides a meaningful base for period-to-period comparisons, which management believes will assist investors in assessing the performance of the Company on the same basis as applied by management.

About NewBridge Bancorp

NewBridge Bancorp is the bank holding company for 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 "NBBC."

As one of the largest community banks in North Carolina, 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 $2.4 billion and 40 branches and several loan production offices.

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's customers or vendors, fluctuations in interest rates, actions of government regulators, the availability of capital and personnel or general economic conditions.  These forward looking statements express management's current expectations, plans or forecasts of future events, results and condition, including financial and other estimates and expectations regarding the acquisitions of Security Savings Bank and CapStone Bank and the general business strategy of engaging in bank acquisitions.  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.

SOURCE NewBridge Bancorp