Bank of the Carolinas Corporation Reports Second Quarter Financial Results

MOCKSVILLE, N.C., July 22, 2011 /PRNewswire/ -- Bank of the Carolinas Corporation (Nasdaq: BCAR) today reported financial results for the three- and six-month periods ended June 30, 2011.

For the three-month period ended June 30, 2011, the Company reported a net loss available to common shareholders of $9.9 million as compared to a net loss of $3.4 million for the first quarter of 2011 and a net loss of $415,000 for the second quarter of 2010.  The net loss per diluted common share was $2.53 for the second quarter of 2011 compared with a net loss per share of $0.88 for the first quarter of 2011 and a net loss per share of $0.11 for the second quarter of 2010.

Second quarter results were significantly impacted by increased provisions for loan losses and by valuation provisions related to foreclosed real estate.  The continued decline in real estate values related to non-performing collateral dependent loans led to the provision for loan losses increasing to $6.6 million in the second quarter of 2011 as compared to $2.3 million in the first quarter of 2011 and $1.1 million in the second quarter a year ago.  Additionally, the Company did an extensive revaluation of its foreclosed real estate resulting in valuation provisions of $2.4 million in the second quarter of 2011.  Also during the second quarter, the Company took a $273,000 charge in connection with the prepayment of a $10.0 million long-term borrowing as part of a balance sheet restructuring that will be accretive to the Company's capital ratios, earnings, and net interest margin on a prospective basis starting in the third quarter.

For the six-month period ended June 30, 2011, the Company reported a net loss available to common shareholders of $13.3 million or $3.41 per common share, compared to a net loss of $877,000 or $0.23 per common share for the six month period of 2010.

The Company's net interest margin was 2.69% in the second quarter of 2011.  Excluding the one-time prepayment charge on the long-term borrowing referenced above, the net interest margin would have been 2.92% for the second quarter, down slightly from 3.02% in the previous quarter of 2011 and down from 3.39% in the second quarter in 2010.

Noninterest expense year to date, excluding the costs related to foreclosed real estate, only increased 1.1% in 2011 versus 2010 and for the three month periods increased 7.4% in the second quarter of 2011 versus 2010.  The increase quarter over quarter was mainly driven by increased FDIC premiums and costs related to the Company's compliance with the regulatory consent order put in place in the second quarter.

As of June 30, 2011, the Company's nonperforming assets decreased to $33.1 million and amounted to 6.35% of total assets as compared to $37.2 million or 6.93% of total assets as of the previous sequential quarter-end and compared to $20.8 million, or 3.86% of total assets as of June 30, 2010.  The allowance for loan losses was 1.93% of total loans as of June 30, 2011. Net loan charge-offs amounted to $8.2 million for the second quarter of 2011, an increase from $894,000 in the first quarter of 2011 and $957,000 in the second quarter of 2010.    

Total assets at June 30, 2011 amounted to $521.0 million, a decrease of 3.5% when compared to $539.9 million as of June 30, 2010.   Loans totaled $345.6 million at June 30, 2011, a decline of 6.3% from a year earlier, and deposits increased 2.9% over the prior year to $426.1 million.

The Company's banking subsidiary had a Tier 1 leverage capital ratio and Tier 1 capital to risk-weighted assets ratio of 5.95% and 7.92% respectively, while its total capital to risk-weighted assets ratio was 9.17% as of June 30, 2011.

Bank of the Carolinas Corporation is the holding company for Bank of the Carolinas, a North Carolina chartered bank headquartered in Mocksville, NC with offices in Advance, Asheboro, Cleveland, Concord, Harrisburg, King, Landis, Lexington and Winston-Salem.  The common stock of the Company is traded on the NASDAQ Global Market under the symbol "BCAR".

For further information contact:

Eric E. Rhodes
Executive Vice President and Chief Financial Officer
Bank of the Carolinas Corporation
(336) 998-1799 x 2231

DISCLOSURES ABOUT FORWARD LOOKING STATEMENTS

Statements in this press release relating to plans, strategies, economic performance and 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, may be forward-looking statements as defined in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.  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 documents we file with the Securities and Exchange Commission from time to time.  Copies of those reports are available directly through the SEC's Internet website at www.sec.gov.  Forward-looking statements may be identified by terms such as "may," "will," "should," "could," "expects," "plans," "intends," "anticipates," "feels," "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.  Factors that could influence the accuracy of forward-looking statements include, but are not limited to (a) pressures on our earnings, capital and liquidity resulting from current and future conditions in the credit and capital markets, (b) continued or unexpected increases in nonperforming loans and credit losses in our loan portfolio, (c) continued adverse conditions in the economy and in the real estate market in our banking markets (particularly those conditions that affect our loan portfolio, the abilities of our borrowers to repay their loans, and the values of collateral that secures our loans), (d) the financial success or changing strategies of our customers, (e) actions of government regulators, or change in laws, regulations or accounting standards, that adversely affect our business, (f) changes in the interest rate environment and the level of market interest rates that reduce our net interest margins and/or the values of loans we make and securities we hold,  (g) changes in competitive pressures among depository and other financial institutions or in our ability to compete effectively against other financial institutions in our banking markets, and (h) other developments or changes in our business that we do not expect.  Although we believe that the expectations reflected in the forward-looking statements included in this press release are reasonable, they represent our management's judgments only as of the date they are made, and we cannot guarantee future results, levels of activity, performance or achievements.  As a result, readers are cautioned not to place undue reliance on these forward-looking statements.  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.

Bank of the Carolinas Corporation

Consolidated Balance Sheets

(In Thousands Except Share Data)

(Unaudited)



June 30,



2011


2010

Assets:





Cash and due from banks, noninterest-bearing


$     10,172


$       3,467

Temporary investments


12,431


7,462

Investment securities


118,534


121,916

Loans


345,617


368,843

Less, allowance for loan losses


(6,685)


(7,180)

    Total loans, net


338,932


361,663

Premises and equipment, net


12,681


13,496

Other real estate owned


6,066


9,181

Bank owned life insurance


10,549


10,189

Other assets


11,678


12,482

    Total Assets


$    521,043


$    539,856






Liabilities:





Noninterest bearing demand deposits


$     38,176


$     37,581

Interest-checking deposits


37,139


34,765

Savings and money market deposits


107,717


141,834

Time deposits


243,066


199,807

    Total deposits


426,098


413,987

Securities sold under repurchase agreements


45,710


45,755

Federal Home Loan Bank advances


10,000


25,000

Subordinated debt


7,855


7,855

Other liabilities


2,235


1,797

    Total Liabilities


491,898


494,394

Shareholders' Equity:





Preferred stock,  no par value


13,179


13,179

Discount on preferred stock


(856)


(1,121)

Common stock, $5 par value per share


19,486


19,486

Additional paid-in capital


12,983


12,990

Retained earnings (loss)


(16,571)


(576)

Accumulated other comprehensive income


924


1,504

    Total Shareholders' Equity


29,145


45,462

    Total Liabilities and Shareholders' Equity


$    521,043


$    539,856






Preferred shares authorized


3,000,000


3,000,000

Preferred shares issued and outstanding


13,179


13,179

Common shares authorized


15,000,000


15,000,000

Common shares issued and outstanding


3,897,174


3,897,174






Book value per common share


$         4.10


$         8.28













Bank of the Carolinas Corporation

Consolidated Statements of Income

(In Thousands Except Share Data)

(Unaudited)


Three months ended


Six months ended



June 30


June 30



2011


2010


2011


2010

Interest income









  Interest and fees on loans


$    4,489


$    5,324


$    9,139


$   10,707

  Interest on securities


845


851


1,599


1,785

Other interest income


15


16


26


33

    Total interest income


5,349


6,191


10,764


12,525

Interest expense









  Interest on deposits


1,176


1,209


2,330


2,658

  Interest on borrowed funds


891


684


1,504


1,356

     Total interest expense


2,067


1,893


3,834


4,014

Net interest income


3,282


4,298


6,930


8,511

  Provision for loan losses


6,572


1,086


8,917


2,002

  Net interest income after provision for









    loan losses


(3,290)


3,212


(1,987)


6,509

Noninterest income









  Customer service fees


328


330


633


645

  Increase in value of banked owned life insurance


89


90


178


179

Gains on investment securities


6


94


6


190

  Other income (loss)


2


(2)


10


1

    Total noninterest income


425


512


827


1,015

Noninterest expense









  Salaries and benefits


1,604


1,799


3,190


3,714

  Occupancy and equipment


527


533


1,069


1,128

  FDIC insurance assessments


334


263


604


562

  Data processing expense


224


191


436


397

  Valuation provisions and net operating costs









associated with foreclosed real estate


2,747


343


2,997


712

  Other


1,323


952


2,386


1,803

    Total noninterest expenses


6,759


4,081


10,682


8,316

Loss before income taxes


(9,624)


(357)


(11,842)


(792)

  Provision for income taxes


-


(169)


996


(369)

Net loss


$   (9,624)


$      (188)


$  (12,838)


$      (423)

 Dividends and accretion on preferred stock


(232)


(227)


(464)


(454)

Net loss available to common shareholders


$   (9,856)


$      (415)


$  (13,302)


$      (877)










Loss per common share:









  Basic


$     (2.53)


$     (0.11)


$     (3.41)


$     (0.23)

  Diluted


$     (2.53)


$     (0.11)


$     (3.41)


$     (0.23)










Weighted Average Common Shares Outstanding:









  Basic


3,897,174


3,897,174


3,897,174


3,897,174

  Diluted


3,897,174


3,897,174


3,897,174


3,897,174





















Bank of the Carolinas Corporation

Other Financial Data

(Dollars in thousands except per share amounts)





As of or for the





six months ended June 30





2011


2010


Change*

Average balance sheet data











Average loans


$  359,073



$  379,172



(5.30)

%


Average earning assets


489,116



523,961



(6.65)



Average total assets


539,518



570,948



(5.50)



Average common shareholders' equity


25,818



32,387



(20.28)



Average total shareholders' equity


38,997



45,566



(14.42)














Period-end balance sheet data:











Total loans


$  345,617



$  368,843



(6.30)

%


Allowance for loan losses


(6,685)



(7,180)



(6.89)



Total assets


521,043



539,856



(3.48)



Total deposits


426,098



413,987



2.93



Total common shareholders' equity


15,966



32,283



(50.54)



Total shareholders' equity


29,145



45,462



(35.89)














Asset quality indicators











Net loan charge-offs


$     9,095



$     2,989



204.23

%


Total nonperforming loans


27,032



11,642



132.21



Total nonperforming assets


33,098



20,822



58.96














Asset quality ratios











Net-chargeoffs (recoveries) to average loans **


5.11

%


1.59

%


352

BP


Nonperforming loans to total loans


7.82



3.16



467



Nonperforming assets to total assets


6.35



3.86



250



Nonperforming assets to loan-related assets


9.41



5.51



390



Allowance for loan losses to total loans


1.93



1.95



(1)














Financial ratios











Return on average assets **


(4.80)

%


(0.15)

%


(465)

BP


Return on average common shareholders' equity **


(103.90)



(5.46)



(9,844)



Net interest margin **


2.86



3.28



(42)














Per share amounts available to common shareholders











Basic earnings (loss) per common share


$      (3.41)



$      (0.23)



(1,382.61)

%


Diluted earnings (loss) per common share


(3.41)



(0.23)



(1,382.61)



Book value per common share


4.10



8.28



(50.54)


























*   bps denotes basis points.










** ratio annualized.












Bank of the Carolinas Corporation

Other Financial Data (continued)

(Dollars in thousands except per share amounts)





As of or for the





three months ended June 30





2011


2010


Change*

Average balance sheet data











Average loans


$  353,685



$  372,571



(5.07)

%


Average earning assets


488,919



508,996



(3.94)



Average total assets


538,516



555,762



(3.10)



Average common shareholders' equity


23,075



32,376



(28.73)



Average total shareholders' equity


36,254



45,555



(20.42)














Asset quality indicators











Net loan charge-offs


$     8,200



$        957



757.26

%













Asset quality ratios











Net-chargeoffs (recoveries) to average loans **


9.30

%


1.03

%


827

BP













Financial ratios











Return on average assets **


(7.17)

%


(0.14)

%


(703)

BP


Return on average common shareholders' equity **


(171.32)



(5.14)



(16,618)



Net interest margin **


2.69



3.39



(70)














Per share amounts available to common shareholders











Basic earnings (loss) per common share


$      (2.53)



$      (0.11)



(2,200.00)

%


Diluted earnings (loss) per common share


(2.53)



(0.11)



(2,200.00)



Book value per common share


4.10



8.28



(50.54)


























*   bps denotes basis points.










** ratio annualized.












SOURCE Bank of the Carolinas Corporation



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