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| NCBC > SEC Filings for NCBC > Form 10-K on 31-Mar-2009 | All Recent SEC Filings |
31-Mar-2009
Annual Report
The following presents management's discussion and analysis of our financial condition and results of operations and should be read in conjunction with the financial statements and related notes contained elsewhere in this annual report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ significantly from those anticipated in these forward-looking statements as a result of various factors, many of which are beyond our control. The following discussion is intended to assist in understanding the financial condition and results of operations of New Century Bancorp, Inc. Because New Century Bancorp, Inc. has no material operations and conducts no business on its own other than owning its consolidated subsidiary, New Century Bank, and its unconsolidated subsidiary, New Century Statutory Trust I, the discussion contained in this Management's Discussion and Analysis concerns primarily the business of the bank subsidiary. However, for ease of reading and because the financial statements are presented on a consolidated basis, New Century Bancorp, Inc and, New Century Bank are collectively referred to herein as the Company unless otherwise noted.
The Company is a commercial bank holding company that was incorporated on September 19, 2003 and has only one banking subsidiary, New Century Bank, which became a subsidiary of the Company as part of a holding company reorganization, (referred to as the "Bank"). In September 2004, the Company formed New Century Statutory Trust I, which issued trust preferred securities to provide additional capital for general corporate purposes, including the current and future expansion of New Century Bank. New Century Statutory Trust I is not a consolidated subsidiary of the Company. The Company's only business activity is the ownership of the Bank. Accordingly, this discussion focuses primarily on the financial condition and operating results of the Bank.
The Board of Directors of New Century Bancorp as well as the boards of directors of New Century Bank and New Century Bank South, voted to merge the two banks in early 2008. The merger was completed on March 28, 2008. The merged bank is called New Century Bank and the headquarters and operations center of the merged bank are in Dunn, North Carolina. A 15-member holding company board also serves as the board of directors of the Bank.
The Bank's lending activities are oriented to the consumer/retail customer as well as to the small-to-medium sized businesses located in southeastern North Carolina. The Bank offers the standard complement of commercial, consumer, and mortgage lending products, as well as the ability to structure products to fit specialized needs. The deposit services offered by the Bank include small business and personal checking, savings accounts and certificates of deposit. The Bank concentrates on customer relationships in building its customer deposit base and competes aggressively in the area of transaction accounts.
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
YEARS ENDED DECEMBER 31, 2008 AND 2007
First Second Third Fourth
Quarter Quarter Quarter Quarter
(dollars in thousands, except share and per share data)
2008
Interest Income $ 9,382 $ 8,827 $ 8,678 $ 8,348
Interest Expense 5,040 4,299 4,043 3,991
Net Interest Income 4,342 4,528 4,635 4,357
Provision for loan losses 873 374 895 2,142
Net interest income after provision
for loan losses 3,469 4,154 3,740 2,215
Non interest income 487 610 620 690
Non interest expense 4,098 4,153 4,108 4,058
Income (loss) before taxes (142 ) 611 252 (1,153 )
Income taxes (benefit) (52 ) 207 93 (487 )
Net income (loss) $ (90 ) $ 404 $ 159 $ (666 )
Net income (loss) per share
Basic $ (.01 ) $ .06 $ .02 $ (.10 )
Diluted (.01 ) .06 .02 (.10 )
Average shares outstanding
Basic 6,764,291 6,816,966 6,826,481 6,829,731
Diluted 6,764,291 6,860,016 6,879,919 6,829,731
2007
Interest Income $ 10,020 $ 10,638 $ 10,599 $ 10,341
Interest Expense 4,883 5,153 5,289 5,329
Net Interest Income 5,137 5,485 5,310 5,012
Provision for loan losses 150 2,894 2,474 456
Net interest income after provision
for loan losses 4,987 2,591 2,836 4,556
Non interest income 911 1,161 899 901
Non interest expense 3,874 4,138 4,156 4,062
Income (loss) before taxes 2,024 (386 ) (421 ) 1,395
Income taxes (benefit) 755 (189 ) (147 ) 534
Net income (loss) $ 1,269 $ (197 ) $ (274 ) $ 861
Net income (loss) per share
Basic $ .20 $ (.03 ) $ (.04 ) $ .13
Diluted .19 (.03 ) (.04 ) .13
Average shares outstanding
Basic 6,500,367 6,540,736 6,639,617 6,730,874
Diluted 6,790,465 6,540,736 6,639,617 6,741,132
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The quarterly financial data may not aggregate to annual amounts due to rounding.
Overview
Total assets at December 31, 2008 were $605.8 million, which represents an increase of $14.7 million or 2.5% from December 31, 2007. Earning assets at December 31, 2008 totaled $560.5 million and consisted of $451.8 million in net loans, $82.9 million in investment securities, $23.7 million in overnight investments and interest-bearing deposits in other banks and $2.1 million in non-marketable equity securities. Total deposits and shareholders' equity at December 31, 2008 were $505.1 million and $62.7 million, respectively.
Investment Securities
Investment securities increased to $82.9 million from $76.5 million at December 31, 2007. The Company's investment portfolio at December 31, 2008, which consisted of U.S. government agency securities, mortgage-backed securities and bank-qualified municipal securities, aggregated $82.9 million with a weighted average yield of 4.97%. The Company also holds an investment of $1.1 million in the form of Federal Home Loan Bank Stock with a weighted average yield of 5.06%. This dividend has been recently adjusting downward due to declining interest rates and the current trend of financial institutions to preserve capital during these uncertain economic times. The investment portfolio increased $6.4 million in 2008, the result of $30.6 million in purchases, $26.4 million of maturities and prepayments and an increase of $2.0 million in the market value of securities held available for sale and net accretion of investment discounts. There were no sales of investment securities during 2008.
The following table summarizes the securities portfolio by major classification:
Tax
Amortized Fair Equivalent
Cost Value Yield
U. S. government agency securities:
Due within one year $ 8,366 $ 8,484 4.65 %
Due after one but within five years 25,407 26,308 3.28 %
Due after five but within ten years 2,548 2,611 3.25 %
36,321 37,403 3.59 %
Mortgage-backed securities:
Due within one year 45 45 4.92 %
Due after one but within five years 6,744 6,980 4.74 %
Due after five but within ten years 7,413 7,683 4.87 %
Due after ten years 23,416 24,155 5.44 %
37,618 38,863 5.20 %
State and local governments:
Due within one year 300 303 5.36 %
Due after one but within five years 1,164 1,191 5.19 %
Due after five but within ten years 2,914 2,970 5.35 %
Due after ten years 2,271 2,202 5.73 %
6,649 6,666 5.45 %
Total securities available for sale:
Due within one year 8,711 8,832 4.67 %
Due after one but within five years 33,315 34,479 3.64 %
Due after five but within ten years 12,875 13,264 4.66 %
Due after ten years 25,687 26,357 5.07 %
$ 80,588 $ 82,932 4.50 %
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Loans Receivable
Loans receivable increased by $17.8 million, or 4.0% to $460.6 million as of December 31, 2008. The growth was primarily due to our growth in existing markets. The loan portfolio at December 31, 2008 was comprised of $363.1 million in real estate loans, $76.9 million in commercial and industrial loans, and $20.9 million in loans to individuals. Also included in loans outstanding are $338,000 in net deferred loan fees.
The following table describes our loan portfolio composition by category:
At December 31,
2008 2007 2006 2005 2004
% of % of % of % of % of
Total Total Total Total Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
(dollars in thousands)
Real estate loans:
One-to-four family
residential $ 67,353 14.6 % $ 61,738 13.9 % $ 59,867 14.0 % $ 47,531 14.8 % $ 39,417 15.0 %
Commercial 169,856 36.9 % 132,649 30.0 % 113,790 26.6 % 94,051 29.2 % 70,307 26.8 %
Multi-family residential 18,744 4.1 % 13,379 3.0 % 13,399 3.1 % 15,653 4.9 % 13,616 5.2 %
Construction 65,807 14.3 % 84,795 19.1 % 79,607 18.6 % 63,000 19.6 % 43,150 16.4 %
Home equity lines of credit 41,352 9.0 % 42,016 9.5 % 42,130 9.8 % 14,554 4.5 % 12,317 4.7 %
Real estate loans held for
sale - 0.0 % - 0.0 % - 0.0 % - 0.0 % - 0.0 %
Total real estate loans 363,112 78.9 % 334,577 75.5 % 308,793 72.2 % 234,789 73.0 % 178,807 68.1 %
Other loans:
Commercial and industrial 76,936 16.7 % 81,832 18.5 % 88,626 20.7 % 66,062 20.5 % 66,071 25.1 %
Loans to individuals 20,916 4.5 % 26,756 6.0 % 30,827 7.2 % 21,104 6.6 % 18,188 6.9 %
Other loans held for sale - 0.0 % - 0.0 % - 0.0 % - 0.0 % - 0.0 %
Total other loans 97,852 21.2 % 108,588 24.5 % 119,453 27.9 % 87,166 27.1 % 84,259 32.1 %
Less:
Deferred loan origination
(fees) cost, net (338 ) -0.1 % (290 ) -0.1 % (298 ) -0.1 % (285 ) -0.1 % (316 ) -0.1 %
Total loans 460,626 100.0 % 442,875 100.0 % 427,948 100.0 % 321,670 100.0 % 262,750 100.0 %
Allowance for loan losses (8,860 ) (8,314 ) (7,496 ) (5,298 ) (3,598 )
Total loans, net $ 451,766 $ 434,561 $ 420,452 $ 316,372 $ 259,152
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The following table presents as of December 31, 2008 (i) the aggregate maturities of loans in the named categories of our loan portfolio and (ii) the aggregate amounts of such loans, by variable and fixed rates that mature within one year, after one year but within five years, and after five years:
At December 31, 2008
Due after one
Due within year but within Due after
one year five years five years Total
(dollars in thousands)
Fixed rate loans:
One-to-four family residential $ 11,622 $ 36,314 $ 2,306 $ 50,242
Commercial real estate 11,878 85,001 17,395 114,274
Multi-family residential 1,053 10,075 391 11,519
Construction 7,051 13,449 174 20,674
Home equity lines of credit 31 87 15 133
Commercial and industrial 6,147 25,598 1,451 33,196
Loans to individuals 4,401 11,400 495 16,296
Total at fixed rates 42,183 181,924 22,227 246,334
Variable rate loans:
One-to-four family residential 7,704 6,999 1,271 15,974
Commercial real estate 14,857 33,281 3,688 51,826
Multi-family residential 5,126 2,098 - 7,224
Construction 36,295 6,404 1,197 43,896
Home equity lines of credit 1,992 145 38,528 40,665
Commercial and industrial 27,178 10,840 3,966 41,984
Loans to individuals 1,619 1,600 1,212 4,431
Total at variable rates 94,771 61,367 49,862 206,000
Subtotal 136,954 243,291 72,089 452,334
Non-accrual loans 3,403 2,338 2,889 8,630
Gross loans $ 140,357 $ 245,629 $ 74,978 $ 460,964
Deferred loan origination (fees) costs, net (338 )
Total loans $ 460,626
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Past Due Loans and Nonperforming Assets
In 2007, the Company's management identified certain underwriting and credit administration weaknesses that existed. Management and the Board subsequently took actions to identify problem loans and improve internal controls in the lending and credit administration areas. These actions included conducting extensive loan risk rating reviews; addressing problem loans and enhancing the credit administration department; improving loan documentation, lender training, enhanced collection efforts, policies and procedures; and addressing known violations of rules, regulations and policies.
At December 31, 2008, the Company had nearly $1.5 million in loans that were 30 days or more past due. This represented 0.32% of gross loans outstanding on that date. This is a decrease from December 31, 2007 when there was $5.8 million in loans that were past due 30 days or more, or 1.31% of gross loans outstanding. Non-accrual loans increased $3.5 million from December 31, 2007 to $8.5 million at December 31, 2008.
The table below sets forth, for the periods indicated, information about the Company's non-accrual loans, loans past due 90 days or more and still accruing interest, total non-performing loans (non-accrual loans plus restructured loans), and total non-performing assets.
As December 31,
2008 2007 2006 2005 2004
(dollars in thousands)
Non-accrual loans $ 8,630 $ 5,007 $ 2,657 $ 823 $ 190
Restructured loans - - 562 - -
Total non-performing loans 8,630 5,007 3,219 823 190
Real estate owned 2,799 542 164 443 135
Repossessed assets - 34 - 5 -
Total non-performing assets $ 11,429 $ 5,583 $ 3,383 $ 1,271 $ 325
Accruing loans past due 90 days or more $ - $ 1 $ 1,197 $ 189 $ -
Allowance for loan losses $ 8,860 $ 8,314 $ 7,496 $ 5,298 $ 3,598
Non-performing loans to period end loans 1.87 % 1.13 % 0.75 % 0.26 % 0.07 %
Non-performing loans and accruing loans past
due 90 days or more to period end loans 1.87 % 1.13 % 1.03 % 0.31 % 0.07 %
Allowance for loans losses to period end
loans 1.92 % 1.88 % 1.75 % 1.65 % 1.37 %
Allowance for loan losses to non-performing
loans 103 % 166 % 233 % 644 % 1,894 %
Allowance for loan losses to non-performing
assets 78 % 149 % 222 % 417 % 1,107 %
Allowance for loan losses to non-performing
assets and accruing loans past due 90 days
or more 78 % 149 % 164 % 363 % 1,107 %
Non-performing assets to total assets 1.89 % 0.94 % 0.61 % 0.29 % 0.10 %
Non-performing assets and accruing loans
past due 90 days or more to total assets 1.89 % 0.94 % 0.83 % 0.33 % 0.10 %
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In addition to the nonperforming assets summarized above, the Company had $0.5 million in loans that were considered to be impaired for reasons other than their past due status. In total, there were $9.1 million of loans that were considered to be impaired at December 31, 2008, a decrease of $3.0 million from the $12.1 million at December 31, 2007. Impaired loans have been evaluated by management in accordance with SFAS 114 and $3.4 million has been included in the allowance for loan losses as of December 31, 2008 for these loans.
Allowance for Loan Losses
The allowance for loan losses increased 4 basis points to 1.92% of gross loans at December 31, 2008 from 1.88% at December 31, 2007. The increase resulted from increases allocable to the downgrading of loans, resulting from both internal and external loan reviews, an increase in the level of non-performing loans and the impact on the actual loss experience resulting from net charge-offs of $3.7 million in 2008. In evaluating the adequacy of the allowance, management considers the growth, composition and industry diversification of the portfolio, historical loss experience, current delinquency levels, trends in past dues, adverse situations that may affect a borrower's ability to repay, estimated value of underlying collateral, prevailing economic conditions and other relevant factors derived from the Company's history of operations. During 2008, management continued to make enhancements to the Company's process for determining the allowance for loan losses, including the aforementioned loan review process. Other steps taken include regular management meetings and past due conference calls to review and monitor problem assets and improved processes for identification and measurement of impaired loans in accordance with SFAS 114.
While the Company believes that it uses the best information available to establish the allowance for loan losses, future adjustments to the allowance may be necessary and results of operations could be adversely affected if circumstances differ substantially from the assumptions used in making determinations regarding the allowance. While the Company believes that the allowance for loan losses has been established in conformity with generally accepted accounting principles, there can be no assurance that banking regulators, in reviewing the loan portfolio, will not require adjustments to the allowance for loan losses. In addition, because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance for loan losses is adequate or that increased provisions to the allowance will not be necessary should the quality of any loans deteriorate. Any material increase in the allowance for loan losses may adversely affect the Company's financial condition and results of operations and the value of the Company's common stock.
Management believes the allowance for loan losses as of December 31, 2008 is appropriate in light of the risk inherent within the Company's loan portfolio.
The following table presents the Company's allowance for loan losses as a percentage of loans at December 31 for the years indicated.
At December 31,
% of % of % of % of % of
Total Total Total Total Total
2008 loans 2007 loans 2006 loans 2005 loans 2004 loans
(dollars in thousands)
One-to-four family residential $ 1,437 14.62 % $ 682 13.94 % $ 133 13.99 % $ 209 14.78 % $ 99 15.00 %
Commercial real estate 2,761 36.88 % 2,135 29.95 % 2,078 26.59 % 1,786 29.24 % 816 26.76 %
Multi- family residential 115 4.07 % 64 3.02 % 241 3.13 % 196 4.87 % 170 5.18 %
Construction 1,039 14.29 % 586 19.15 % 1,593 18.60 % 1,235 19.59 % 867 16.43 %
Home equity lines of credit 499 8.97 % 319 9.49 % 169 9.84 % 35 4.52 % 28 4.69 %
Commercial and industrial 2,381 16.70 % 4,270 18.52 % 2,022 20.71 % 893 20.54 % 826 25.15 %
Loans to individuals 563 4.54 % 221 6.04 % 1,254 7.20 % 789 6.56 % 622 6.92 %
Deferred loan originations fees, net - (0.07 )% - (0.11 )% - (0.07 )% - (0.09 )% - (0.12 )%
100.00 % 100.00 % 100.00 % 100.00 % 100.00 %
Total allocated 8,795 8,277 7,490 5,143 3,428
Unallocated 65 37 6 155 170
Total $ 8,860 $ 8,314 $ 7,496 $ 5,298 $ 3,598
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The following table presents information regarding changes in the allowance for loan losses for the years indicated:
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