New Century Bancorp's Third Quarter and Year-to-Date Results Impacted by Alleged Fraud

Oct 29, 2010, 17:46 ET from New Century Bancorp

DUNN, N.C., Oct. 29 /PRNewswire-FirstCall/ --

  • Bank adds to provision for loan losses to cover losses resulting from the alleged fraud
  • Core business of the bank is positive, as FDIC data reveals deposit market share increases
  • New Century Bank remains #1 in deposit market share in its headquarters city, Dunn, NC

Late in third quarter 2010, New Century Bancorp President and CEO William L. Hedgepeth II issued a statement concerning an apparent fraud against New Century Bank by a former director.  In anticipation of a loss resulting from the alleged fraud, New Century Bancorp (the "Company" - Nasdaq: NCBC), the holding company for New Century Bank, added $10.7 million to its provision for loan losses, for a total addition to the provision for the quarter of $12.5 million.  As a result, the Company reported a loss for the quarter ended September 30, 2010.  

New Century Bancorp's net loss was ($6.6) million for the quarter ended September 30, 2010, compared to a net loss of ($369,000) for the same period in 2009.  For the nine month period ended as of the same date, the Company reported a net loss of ($5.1) million compared to a net loss of ($214,000) for the nine months ended September 30, 2009.  Basic and diluted losses per share were ($0.96) and ($0.05), respectively, for third quarter 2010 and third quarter 2009, and were ($0.74) and ($0.03), respectively, for the nine month periods ended September 30, 2010, and September 30, 2009.

As of September 30, 2010, the Company held total assets of $643.1 million, total deposits of $548.9 million and total loans of $467.9 million.  As of September 30, 2009, these figures stood at total assets of $636.8 million, total deposits of $533.4 million, and total loans of $472.6 million, for changes, on a year-to-year basis of an increase in assets of 0.99%, an increase in deposits of 2.91% and a decrease in loans of (0.99%), due to the charge-off related to the alleged fraud, as well as overall soft loan demand that is being experienced by all banks.  

Hedgepeth commented on the results, saying, "Our Company was on track for a successful 2010, having reported net earnings through June 30, 2010, of more than $1.6 million.  To be faced with this alleged fraud and a potential loss that could exceed $10.0 million is difficult.   To our shareholders and customers, as well as other friends of our Company, we reiterate these key points:

  • The apparent fraud is an isolated incident and is not indicative of the overall quality of New Century Bank's loan portfolio.  Over the past few years, we have worked hard to improve the credit culture at our bank, using a disciplined approach to lending and maintaining policies and procedures to protect the bank, our customers, and our shareholders.  
  • Although it was not discovered until August 2010, the apparent fraud was committed over a period of many years, with the majority of the loans involved having been outstanding for years.
  • The loans involved were annually reviewed, both internally and externally, and each time were deemed "satisfactory."  In the circumstances surrounding this alleged fraud, it has become clear that for personal reasons the individual involved was committed to the deception, using apparently falsified financial documents, including falsified business receivables, and not disclosing certain assets and liabilities.  All of this made detection of the fraud extremely difficult.    
  • Other local and out-of-state banks held loans with the individual who committed the alleged fraud.  Each bank involved deemed the loans to be sound and the related companies to be profitable.    
  • Loans to directors are generally sound and profitable loans, as directors are typically successful, reputable business and community leaders who are well-known and respected, and who also have significant deposit relationships with the bank.  Also because of their responsibility to shareholders to protect their investment, as well as because of the directors' own relationship with and investment in the bank, directors have a vested interest in the health, well-being and success of the bank
  • We are committed to employing every legal remedy available to us in recovering losses due to this apparent fraud."

New Century remains well-capitalized and deposits held by the bank are insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000 per depositor.

Hedgepeth also said, "In spite of addressing this alleged fraud, we remain in a strong capital position.  The regulatory standard for a bank to be considered "well capitalized" is 10.00%, and New Century is well-capitalized at 12.57%.  We are meeting this challenge head on and from a position of strength, determined to maintain our focus on serving our customers, communities and shareholders.  

"According to FDIC market share data as of June 30, 2010, New Century Bank gained market share in Dunn, our headquarters city, allowing us to maintain the position of #1 in deposit market share in Dunn – a position we have held for 8 straight years.  In addition, we gained deposit market share in Harnett and Cumberland counties, as well as the town of Lillington.  Based on deposit market share, we are now the largest community bank in Harnett, Cumberland, Sampson, and Wayne counties.  These results show the strength of our overall customer and deposit growth strategy and reflect the hard work of our staff in gaining and keeping customer relationships.

"It is the firm belief of our management team that we will return to positive earnings in the near future.  On behalf of everyone at New Century, I again express our deep appreciation for the continued support of our loyal customers and shareholders.  Our focus is on being everything a community bank can and should be in the markets we serve: offering our customers a safe, sound place to conduct business; our employees a great environment in which to work; our communities a partner that is invested in making each community individually, and southeastern North Carolina as a whole, a better place to live and work—in many ways, including supporting  non-profits and other organizations; and, our shareholders a good return on their investment in us.  New Century employs more than 140 people with a total payroll, including benefits, of $7.0 million for the first three quarters of 2010, which has an annualized economic impact in our markets of nearly $10 million.  We enjoy being part of the fabric of the communities we serve."

Customers and shareholders who have any questions are asked to contact the bank's management at the Dunn headquarters.

New Century Bank has offices in Dunn, Clinton, Fayetteville (2), Goldsboro, Lillington, Lumberton, Pembroke, and Raeford, as well as a loan production office in Greenville, NC.

The information as of and for the quarter and nine months ended September 30, 2010 as presented is unaudited.   This news release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including, without limitation, (i) statements regarding certain of our goals and expectations with respect to earnings, earnings per share, revenue, expenses and the growth rate in such items, as well as other measures of economic performance, including statements relating to estimates of credit quality trends, and (ii) statements preceded by, followed by or that include the words "may," "could," "should," "would," "believe," "anticipate," "estimate," "expect," "intend," "plan," "projects," "outlook" or similar expressions.  The actual results might differ materially from those projected in the forward-looking statements for various reasons, including, but not limited to, our ability to manage growth, our limited operating history, substantial changes in financial markets, regulatory changes, changes in interest rates, loss of deposits and loan demand to other savings and financial institutions, and changes in real estate values and the real estate market.  Additional information concerning factors that could cause actual results to materially differ from those in the forward-looking statements is contained in the Company's SEC filings, including its periodic reports under the Securities Exchange Act of 1934, as amended, copies of which are available upon request from the Company.

New Century Bancorp, Inc. 

Selected Financial Information and Other Data

($ in thousands, except per share data)

At or for the three months ended

At or for the nine months ended

September 30, 2010

June 30, 2010

March 31, 2010

December 31, 2009

September 30, 2009

September 30, 2010

September 30, 2009

September 30, 2008

Summary of Operations:

Total interest income

$                            8,428

$                             8,524

$                             8,333

$                           8,433

$                            8,258

$                          25,285

$                            24,483

$                          26,886

Total interest expense

2,439

2,434

2,446

2,821

3,170

7,318

10,302

13,382

Net interest income

5,989

6,090

5,887

5,612

5,088

17,967

14,181

13,504

Provision for loan losses

12,457

639

1,270

995

2,377

14,366

4,477

2,141

Net interest income after provision

(6,468)

5,451

4,617

4,617

2,711

3,601

9,704

11,363

Noninterest income

648

670

667

766

777

1,975

2,449

1,717

Goodwill Impairment

-

-

-

8,674

-

-

-

-

Noninterest expense

4,746

4,497

4,606

4,796

4,075

13,842

12,581

12,359

  Income (loss) before income taxes

(10,566)

1,624

678

(8,087)

(587)

(8,266)

(428)

721

Provision for income taxes (benefit)

(3,955)

549

221

141

(218)

(3,186)

(214)

248

Net income (loss)

$                           (6,611)

$                             1,075

$                                457

$                          (8,228)

$                              (369)

$                          (5,080)

$                               (214)

$                               473

Share and Per Share Data:

Earnings (loss) per share - basic

$                             (0.96)

$                               0.16

$                               0.07

$                            (1.20)

$                             (0.05)

$                            (0.74)

$                              (0.03)

$                              0.07

Earnings (loss) per share - diluted

(0.96)

0.16

0.07

(1.20)

(0.05)

(0.74)

(0.03)

0.07

Book value per share

7.22

8.19

8.03

7.96

9.22

7.22

9.22

9.03

Tangible book value per share

7.11

8.08

7.91

7.83

7.82

7.11

7.82

7.61

Ending shares outstanding

6,913,636

6,891,784

6,837,952

6,837,952

6,837,742

6,913,636

6,837,742

6,827,649

Weighted average shares outstanding:

  Basic

6,908,466

6,846,437

6,837,952

6,837,863

6,837,292

6,864,543

6,833,494

6,808,914

  Diluted

6,908,466

6,862,095

6,845,714

6,837,863

6,837,292

6,864,543

6,833,494

6,869,419

Selected Performance Ratios:

Return on average assets

-3.97%

0.66%

0.30%

-5.09%

-0.23%

-1.05%

-0.05%

0.11%

Return on average equity

-46.47%

7.69%

3.34%

-51.24%

-2.30%

-12.12%

-0.45%

1.01%

Net interest margin

3.85%

4.00%

4.08%

3.74%

3.54%

3.97%

3.31%

3.26%

Efficiency ratio (1)

71.51%

66.52%

70.28%

75.20%

69.48%

69.41%

75.65%

81.20%

Period End Balance Sheet Data:

Loans, net of unearned income

$                        467,876

$                         490,883

$                         496,448

$                       481,176

$                        472,578

$                        467,876

$                          472,578

$                        457,784

Total Earning Assets

594,425

619,867

602,436

588,536

591,973

594,425

591,973

547,965

Goodwill and other intangible assets

737

776

814

853

9,565

737

9,565

9,719

Total Assets

643,185

663,001

642,883

630,635

636,810

643,185

636,810

596,457

Deposits

548,866

566,031

542,348

540,262

533,350

548,866

533,350

501,823

Short term debt

20,138

20,138

21,744

20,564

25,693

20,138

25,693

17,896

Long term debt

18,372

18,372

18,372

12,372

12,372

18,372

12,372

12,372

Shareholders' equity

49,906

56,442

54,934

54,409

63,013

49,906

63,013

61,653

Selected Average Balances:

Gross Loans

$                        486,453

$                         493,396

$                         483,665

$                       476,845

$                        469,668

$                        487,847

$                          469,109

$                        449,362

Total Earning Assets

617,217

610,290

585,277

595,250

570,059

604,379

572,684

552,240

Goodwill and other intangible assets

756

794

832

9,451

9,584

794

9,622

9,776

Total Assets

660,032

651,861

625,307

641,254

634,312

646,134

626,903

597,303

Deposits

560,942

553,067

531,115

538,643

532,427

548,483

524,204

502,603

Short term debt

20,736

20,736

21,802

23,498

23,020

21,178

24,023

17,593

Long term debt

18,372

18,372

13,972

12,372

12,372

16,920

12,372

12,372

Shareholders' equity

56,441

56,093

55,533

63,710

63,588

56,026

63,542

62,187

Asset Quality Ratios:

Nonperforming loans

$                            9,678

$                           13,885

$                           18,956

$                         15,965

$                          16,003

$                            9,678

$                            16,003

$                            9,148

Other real estate owned

3,812

3,215

2,680

2,530

2,346

3,812

2,346

677

Allowance for loan losses

8,081

10,006

11,232

10,359

10,317

8,081

10,317

7,140

Nonperforming loans (2) to period-end loans

2.07%

2.83%

3.82%

3.32%

3.39%

2.07%

3.39%

2.00%

Allowance for loan losses to period-end loans

1.73%

2.04%

2.26%

2.15%

2.18%

1.73%

2.18%

1.56%

Delinquency Ratio (3)

1.23%

0.75%

0.45%

0.41%

1.61%

1.23%

1.61%

0.34%

Net loan charge-offs to average loans

13.57%

1.39%

0.05%

0.79%

0.49%

4.56%

0.86%

1.09%

(1)  Efficiency ratio is calculated as non-interest expenses divided by the sum of net interest income and non-interest income.

(2)  Nonperforming loans consist of non-accrual loans and restructured loans.

(3)  Delinquency Ratio includes 30-89 days past due and excludes non-accrual loans.

www.newcenturybanknc.com

SOURCE New Century Bancorp



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