NewDominion Bank today reported net income of $30,912 for the first quarter of 2008, down from $821,057 in the same quarter a year ago. Two factors had a particularly large impact on first-quarter earnings: a $770,211 loss on a foreclosed loan and declining interest rates.
NewDominion continued to grow during the quarter. Assets rose 45 percent from a year ago to $465.2 million; loans rose 39.3 percent to $371.2 million, and deposits rose 39.1 percent to $392.1 million.
“The first quarter was one of the most challenging periods we’ve experienced since we opened more than three years ago,” said Bradley Thompson, Chief Executive Officer of NewDominion. “As with most banks our size, during times of fast-changing interest rates, our loan rates adjust much more rapidly than our deposit rates. Most of our loan yields are tied to the prime rate, which has dropped 300 basis points over the past year.
“Fortunately, our core business continues to grow at a very strong pace,” Thompson said. “Our market growth strategy, attention to credit quality, and superior customer service are serving us well in this time of economic turbulence. We are confident that our actions relative to non-performing assets also will serve us well despite the impact on earnings reports in the short-term.”
For the quarter that ended March 31, net interest income grew 11.6 percent to $3.372 million, as the impact of strong loan growth outweighed the effect of declining interest rates. Service charge income increased 24.8 percent from a year ago as a result of the bank’s continued growth in the cash management business.
Total non-interest income declined to $478,248 from $1.039 million, primarily because the year-ago quarter includes results from the bank’s Raleigh-based mortgage unit, which was closed in June 2007. Non-interest expense rose 20.9 percent to $3.404 million. Excluding the results from the Raleigh-based mortgage unit and the $770,211 loss on the foreclosed asset, non-interest income rose 80.5 percent, and non-interest expense rose 29 percent.
Provision for loan losses rose 33 percent to $415,118. This provision, used by all banks, establishes a reserve against future possible losses in the loan portfolio. Non-performing assets rose to $4.9 million, or 1.3 percent of total loans. A year ago, non-performing assets were $2.4 million, or 0.9 percent of total loans. Three loans account for 94 percent of the $4.9 million in non-performing assets as of March 31.
The loss on the foreclosed asset comes from a single loan. Like most of the bank’s non-performing assets, the foreclosed asset comes from the bank’s strategic partners business. This business involves NewDominion participating in loans with strategic partners outside the bank’s primary markets in North Carolina. The strategic partners business represents 16 percent of NewDominion’s loan portfolio as of March 31.
“While we have learned lessons and made adjustments based on our recent experience, the strategic partners business remains an important tool for us to diversify our loan exposure beyond our local markets – just as we broaden our lending across a variety of industries,” Thompson said. “We are encouraged that our local markets remain so strong, and we continue to see solid lending opportunities here at home.”
The bank’s return on average assets was 0.03 percent for first quarter, down from 1.08 percent a year ago. Return on average equity was 0.30 percent for the same period, down from 8.86 percent.
For the latest quarter, the securities portfolio gained $183,713, compared with a loss of $1,209 a year ago. Securities gains and losses are unrealized and reflect changes in the market value of securities the bank holds as a hedge to protect its net interest margin in a downward rate environment.
NewDominion also reported that it issued a subordinated note for additional capital to support the bank’s loan growth. The bank has received a commitment of up to $10 million, of which it has drawn $5 million. The addition to the bank’s capital base was part of the bank’s strategic growth plan when it opened in January 2005.
NewDominion reports operating income in addition to net income. Operating income excludes taxes, changes in the bank’s securities portfolio, losses on foreclosed assets and loan-loss provisions. Operating income declined 17.1 percent from a year ago to $1.033 million, primarily as a result of declining interest rates.
A table of select financial data is attached.
NewDominion, headquartered in Charlotte, N.C., is a niche financial services company serving small and mid-sized businesses with commercial loans, deposits, cash management and advisory services. NewDominion offers retail customers deposit, loan, and mortgage services.
| NewDominion Selected Financial Data (Unaudited) | ||||||||||
| Income Statement | ||||||||||
| Year Ended | ||||||||||
| Mar 31 2008 | Mar 31 2007 | |||||||||
| % Change | ||||||||||
| Interest Income | $ | 7,382,432 | $ | 6,150,835 | 20.0 | % | ||||
| Interest Expense | $ | 4,010,344 | $ | 3,129,490 | 28.1 | % | ||||
| Net Interest Income | $ | 3,372,088 | $ | 3,021,345 | 11.6 | % | ||||
| Provision for Loan Losses | $ | 415,118 | $ | 312,082 | 33.0 | % | ||||
| Securities Gain/Loss | $ | 183,713 | -$1,209 | NA | ||||||
| Service Charge Income | $ | 242,738 | $ | 194,551 | 24.8 | % | ||||
| Other Non-Interest Income | $ | 51,797 | $ | 845,813 | -93.9 | % | ||||
| Total Non-Interest Income | $ | 478,248 | $ | 1,039,155 | -54.0 | % | ||||
| Loss on Foreclosed Assets | $ | 770,211 | $ | 0 | NA | |||||
| Other Non-Interest Expense | $ | 2,634,095 | $ | 2,816,377 | -6.5 | % | ||||
| Total Non-Interest Expense | $ | 3,404,306 | $ | 2,816,377 | 20.9 | % | ||||
| Pretax Income/Loss | $ | 30,912 | $ | 932,041 | -96.7 | % | ||||
| Tax Expense | $ | 0 | $ | 110,984 | NA | |||||
| Net Income | $ | 30,912 | $ | 821,057 | -96.2 | % | ||||
| Return on Average Assets | 0.03 | % | 1.08 | % | -97.5 | % | ||||
| Return on Average Equity | 0.30 | % | 8.86 | % | -96.6 | % | ||||
Operating Income(a) | $ | 1,032,528 | $ | 1,245,332 | -17.1 | % | ||||
(a) Earnings before loan loss provision, loss on foreclosed assets, securities gains or losses, and taxes | ||||||||||
| Balance Sheet | ||||||||||
| (in thousands) | ||||||||||
| Mar 31 2008 | Mar 31 2007 | |||||||||
| % Change | ||||||||||
| Assets | $ | 465,226 | $ | 320,755 | 45.0 | % | ||||
| Loans | $ | 371,234 | $ | 266,577 | 39.3 | % | ||||
| Deposits | $ | 392,089 | $ | 281,800 | 39.1 | % | ||||
| NewDominion | |||||||||||||||
| Selected Financial Data | |||||||||||||||
| Income Statement | |||||||||||||||
| Quarter Ended | % Change From | ||||||||||||||
| June 30 2006 | March 31 2006 | June 30 2005 | March 31 2006 | June 30 2005 | |||||||||||
| Interest Income | $ | 3,939,810 | $ | 2,691,699 | $ | 471,584 | 46.4 | % | 735.4 | % | |||||
| Interest Expense | $ | 1,757,869 | $ | 1,108,066 | $ | 70,682 | 58.6 | % | 2387.0 | % | |||||
| Net Interest Income | $ | 2,181,941 | $ | 1,583,633 | $ | 400,902 | 37.8 | % | 444.3 | % | |||||
| Provision for Loan Losses | $ | 565,479 | $ | 349,509 | $ | 230,562 | 61.8 | % | 145.3 | % | |||||
| Non Interest Income | $ | 537,609 | $ | 574,430 | $ | 4,610 | -6.4 | % | 11561.8 | % | |||||
| Non Interest Expense | $ | 2,161,263 | $ | 2,092,621 | $ | 903,909 | 3.3 | % | 139.1 | % | |||||
| Net Income | -$7,192 | -$284,067 | -$728,959 | NA | NA | ||||||||||
| Balance Sheet (in thousands) | |||||||||||||||
| June 30 2006 | March 31 2006 | Dec. 31 2005 | March 31 2006 | Dec. 31 2005 | |||||||||||
| Assets | $ | 233,101 | $ | 189,239 | $ | 128,616 | 23.2 | % | 81.2 | % | |||||
| Loans | $ | 191,821 | $ | 142,281 | $ | 109,937 | 34.8 | % | 74.5 | % | |||||
| Deposits | $ | 196,805 | $ | 153,180 | $ | 92,070 | 28.5 | % | 113.8 | % | |||||
Contacts:
Benjamin M. Guion
Chief Operating Officer and
Chief Financial Officer
or
Bradley Thompson
Chief
Executive Officer
704-943-5700
