Bank of the Carolinas Corporation Reports Third Quarter Financial Results

MOCKSVILLE, N.C., Nov. 5 /PRNewswire-FirstCall/ -- Bank of the Carolinas Corporation (Nasdaq: BCAR) reported today financial results for the three and nine month periods ended September 30, 2009.

For the three month period ended September 30, 2009, the Company reported net income of $782,000, as compared to a net loss of $2,720,000 in the third quarter of 2008. Net income available to common shareholders for the three months ended September 30, 2009 was $470,000, or $.12 per diluted share, compared to a net loss of $.69 per common share in the 2008 quarter.

For the nine month period ended September 30, 2009, the Company reported a net loss of $1,352,000 compared to a net loss of $2,984,000 for the same period of 2008. The net loss available to common shareholders for the nine month period of 2009 was $1,763,000, or $.45 per common share compared to a net loss of $.76 per share incurred during the first nine months of 2008.

While the Company continues to be negatively affected by the economic downturn, the third quarter of 2009 was the most profitable since the third quarter of 2007. Improved interest margins from lower funding costs, gains from sales of securities and moderating provisions for loan losses were mainly responsible for the improvement in the 2009 periods' results as compared to 2008.

Net interest income, the Company's most significant source of revenue, totaled $4.1 million in the third quarter of 2009, a 36.1% increase from the 2008 quarter. For the first nine months of 2009 net interest income was $10.3 million, a 9.4% increase from the comparable period of 2008. These positive results were due to increased interest margins principally brought about by reduced cost of interest-bearing deposits.

As the result of the resolution of several large nonaccrual loans during the third quarter of 2009, the Company's nonperforming assets decreased by $6.3 million, or 28.8%, and totaled $15.5 million, or 2.33% of total assets, at September 30, 2009. In comparison, non-performing assets at September 30, 2008 were $15.1 million, or 2.64% of total assets.

The provision for loan losses totaled $1,046,000 for the quarter ended September 30, 2009, a reduction of 66.8% from the provision of $3,150,000 for the third quarter of 2008. For the nine-month period of 2009 the loan loss provision totaled $2,466,000, a 41.9% decline from the $4,245,000 provision recorded in the previous year. The allowance for loan losses was 1.58% of total loans as of September 30, 2009, and year-to-date annualized net charge-offs were .85% of average loans outstanding. While the level of nonperforming assets has declined and credit losses have abated from 2008, we and the banking industry as a whole, continue to face credit challenges. As always, we remain committed to helping our customers weather the current economic storm to the best of our ability while being aggressive in identifying troubled assets in our portfolio.

Non-interest expenses totaled $3,846,000 for the third quarter of 2009, a decrease of 7.1% from the comparable quarter of 2008. For the nine months ended September 30, 2009 noninterest expenses were $12,817,000, an increase of 18.5% from the same nine month period of 2008. The most significant drivers in the cost increase for the nine-month period were substantially higher costs related to foreclosed real estate and an increase in FDIC insurance expense due to the increased assessment rate levied on all banks this year. Non-interest income, exclusive of securities gains, remained relatively flat for the three and nine month periods.

Total assets at September 30, 2009 amounted to $664.1 million, an increase of 16.3% when compared to the $570.9 million as of September 30, 2008. Loans totaled $391.6 million, a decline of 3.8% from a year earlier, while deposits grew 20.5% over the prior year to $545.2 million. The Company continues to be well-capitalized with a Tier 1 Leverage Ratio of 7.73%, a Tier 1 capital to risk-weighted assets ratio of 11.22% and a Total Capital to risk-weighted assets ratio of 13.05% at the end of the third quarter of 2009.

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. Common stock of the Company is traded on the NASDAQ Global Market under the symbol BCAR.

    For further information contact:

    Michelle L. Clodfelter
    Principal Financial Officer
    Bank of the Carolinas
    (336) 998-1799 x 207

DISCLOSURES ABOUT FORWARD LOOKING STATEMENTS

This press release may 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 our actual results could differ materially from those currently anticipated due to a number of factors, which include, but are not limited to, risk 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 Commission's website at www.sec.gov. Other factors that could influence the accuracy of forward-looking statements include, but are not limited to, (a) pressures on the earnings, capital and liquidity of financial institutions resulting from current and future adverse conditions in the credit and equity markets and the banking industry in general; (b) changes in competitive pressures among depository and other financial institutions or in our ability to compete successfully against the larger financial institutions in our banking markets; (c) the financial success or changing strategies of our customers; (d) actions of government regulators, or changes in laws, regulations or accounting standards, that adversely affect our business; (e) changes in the interest rate environment and the level of market interest rates that reduce our net interest margins and/or the volumes and values of loans we make and securities we hold; (f) changes in general economic or business conditions and real estate values in our banking markets (particularly changes that affect our loan portfolio, the abilities of our borrowers to repay their loans, and the values of loan collateral); and (g) other developments or changes in our business that we do not expect. Although we believe 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 we do not intend, to update these forward-looking statements.

    Bank of the Carolinas Corporation
    Consolidated Balance Sheets
    (In Thousands Except Share Data)
    (Unaudited)
                                                              September 30,
                                                              -------------
                                                             2009       2008
                                                             ----       ----
    Assets:
    Cash and Due from Banks                               $44,519    $12,734
    Federal Funds Sold and Interest Bearing
     Deposits with Banks                                   24,136     10,407
    Investment Securities                                 165,499    106,587
    Loans                                                 391,592    406,886
     Less, Allowance for Loan Losses                       (6,197)    (4,218)
                                                           ------     ------
         Total Loans, Net                                 385,395    402,668
    Properties and Equipment                               14,289     15,245
    Other Assets                                           30,263     23,229
                                                           ------     ------
         Total Assets                                    $664,101   $570,870
                                                         ========   ========

    Liabilities:
    Non-interest Bearing Demand Deposits                  $38,139    $33,303
    Interest Bearing Demand Deposits                       31,529     23,076
    Money Market Deposits                                 264,492    175,127
    Savings Deposits                                       11,257     22,259
    Time Deposits                                         199,827    198,831
                                                          -------    -------
         Total Deposits                                   545,244    452,596

    Federal Home Loan Bank Borrowings                      15,000     25,000
    Securities Sold Under Repurchase Agreements            46,358     47,369
    Subordinated Debt                                       7,855      7,855
    Other Liabilities                                       1,651      1,750
                                                            -----      -----
         Total Liabilities                                616,108    534,570
                                                          -------    -------
    Shareholders' Equity:
    Preferred Stock,  No Par Value:
    Authorized 10,000,000 shares: Issued 13,179 shares
     (with a liquidation preference of $1,000 per share)
      at September 30, 2009 and None at September 30, 2008 13,179          -
    Discount on Preferred Stock                            (1,306)         -
    Common Stock, Par Value $5 Per Share:
       Authorized 15,000,000 Shares; Issued 3,897,174
        Shares at September 30, 2009 and 3,891,174 Shares
        at September 30, 2008                              19,486     19,456
    Additional Paid-In Capital                             12,972     11,593
    Retained Earnings                                       2,304      4,902
    Accumulated Other Comprehensive Income                  1,358        349
                                                            -----        ---
         Total Shareholders' Equity                        47,993     36,300
                                                           ------     ------
         Total Liabilities and Shareholders' Equity      $664,101   $570,870
                                                         ========   ========

    * Derived from audited information
    Bank of the Carolinas Corporation
    Consolidated Statements of Income
    (In Thousands Except Share and Per Share Data)
    (Unaudited)
                             Three Months Ended        Nine Months Ended
                                September 30              September 30
                                ------------              ------------
                              2009           2008       2009           2008
                              ----           ----       ----           ----
    Interest Income
       Interest and
        Fees on Loans       $5,875         $6,268    $17,904        $19,962
       Interest on
        Securities           1,641          1,202      4,539          2,638
       Other Interest
        Income                  13             61         56            181
                               ---            ---        ---            ---
         Total Interest
          Income             7,529          7,531     22,499         22,781
                             -----          -----     ------         ------
    Interest Expense
       Interest on
        Deposits             2,657          3,764      9,843         11,958
       Interest on
        Borrowed Funds         776            757      2,364          1,418
                               ---            ---      -----          -----
          Total Interest
           Expense           3,433          4,521     12,207         13,376
                             -----          -----     ------         ------
    Net Interest Income      4,096          3,010     10,292          9,405
       Provision for
        Loan Losses          1,046          3,150      2,466          4,245
                             -----          -----      -----          -----
       Net Interest
        Income After
        Provision for
        Loan Losses          3,050           (140)     7,826          5,160
                             -----           ----      -----          -----
    Noninterest Income
       Customer Service
        Charges and
        Fees                   368            384      1,019          1,105
       Increase in Cash
        Value of Life
        Insurance               92             93        272            273
       Gains on sales
        of Securities        1,246              -      1,341              -
       Other Income              9             (7)        31             62
                               ---            ---        ---            ---
         Total Other
          Income             1,715            470      2,663          1,440
                             -----            ---      -----          -----
    Noninterest Expense
       Salaries and
        Benefits             1,611          1,720      4,959          5,329
       Occupancy and
        Equipment              553            502      1,647          1,482
       FDIC Insurance
        Expense                217             80        932            240
       Valuation
        Provisions and
        Net Operating
        Costs Associated
        With Foreclosed
        Real Estate            297            195      1,759            215
       Goodwill
        Impairment
        Charge                   -            591          -            591
       Data Processing
        Expense                330            217        785            643
       Other
        Noninterest
        Expense                838            835      2,735          2,312
                               ---            ---      -----          -----
         Total
          Noninterest
          Expense            3,846          4,140     12,817         10,812
                             -----          -----     ------         ------
    Income (Loss)
     Before Income
     Taxes                     919         (3,810)    (2,328)        (4,212)
       Provision for
        Income Taxes           137         (1,090)      (976)        (1,228)
                               ---         ------       ----         ------
    Net Income
     (Loss)                    782         (2,720)    (1,352)        (2,984)
      Dividends and
       Accretion on
       Preferred
       Stock                  (312)             -       (411)             -
                              ----            ---       ----            ---
    Net Income
     (Loss)
     Available
     to Common
     Shareholders             $470        $(2,720)   $(1,763)       $(2,984)
                              ====       ========   ========       ========

    Earnings (Loss)
     Per Common
     Share:
       Basic                 $0.12         $(0.69)    $(0.45)        $(0.76)
       Diluted               $0.12         $(0.69)    $(0.45)        $(0.76)

    Weighted Average
     Common Shares
     Outstanding:
       Basic             3,897,174      3,936,649  3,893,350      3,941,582
       Diluted           3,901,735      3,936,649  3,893,350      3,941,582
     Bank of the Carolinas Corporation
     Performance Ratios

                                                    As of or for the
                                             Nine Months Ended September 30
                                            ------------------------------
                                          2009            2008        Change*
                                          ----            ----        ------

     Financial Ratios
         Return On Average Assets **     -0.29%          -0.76%        47  BP
         Return On Average Common
          Shareholders' Equity **        -6.76%         -10.46%       370
         Net Interest Margin **           2.43%           2.58%       (15)


     Asset Quality Ratios
         Net-chargeoffs to
          Average Loans **                0.85%           1.41%       (56) BP
         Nonperforming Loans To
          Total Loans                     1.79%           1.76%         3
         Nonperforming Assets To
          Total Assets                    2.33%           2.64%       (31)
         Allowance For Loan Losses To
          Total Loans                     1.58%           1.04%        55

     * BP denotes basis points.
     ** Ratio annualized.

SOURCE Bank of the Carolinas Corporation



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