BIRMINGHAM, Ala.--(Business Wire)--
CapitalSouth Bancorp (NASDAQ-GM:CAPB) (the "Company"), the bank
holding company for CapitalSouth Bank (the "Bank"), today announced a
net loss for the second quarter and six months ended June 30, 2008,
which included a non-cash impairment charge related to goodwill, a
$9.3 million provision for loan losses and a $500,000 reserve against
deferred tax assets. The Bank is adequately capitalized with a Tier I
Leverage Capital Ratio of 6.74% and a Total Risk Based Capital Ratio
of 9.67%. The Board of Directors remains committed to returning the
Bank to well capitalized status. Further, the Bank has liquid
resources in excess of $100 million currently available in cash on
hand and other customary sources. Commenting on the Bank's liquidity,
W. Dan Puckett, the Company's Chairman and Chief Executive Officer,
stated, "We want to reassure our depositors and shareholders that we
are committed to protecting their trust in us."
Puckett continued, "Obviously, we are disappointed with the
Company's second quarter results. The further deterioration in credit
quality we have experienced and the resulting increased allowance for
loan losses reflect the slowing of the real estate sectors and its
impact on our residential real estate construction and residential
acquisition and development loan portfolios, which represent the
largest segment of our nonperforming asset portfolio. The general
economic climate remains very challenging for all financial
institutions; however, since the first quarter we have seen a
significant drop of 47% in our accruing past due loans over 30 days.
We continue to focus our full efforts on working through problem loan
situations and have taken significant steps to navigate the Company
through these difficult times. One such step has been the further
staffing expansion of our Special Assets Department to monitor and
liquidate our nonperforming assets as quickly as possible. Since
quarter end, we have liquidated $1,025,000 in other real estate owned
("OREO"), representing 10.3% of our balance at June 30, 2008, and have
firm commitments on an additional $1,488,000 scheduled to close within
the next three weeks, which represents an additional 15.0% of our OREO
at quarter end. Further, we have hired a new Chief Credit Officer with
extensive experience in credit administration.
"We remain intently focused on our goal to preserve and build our
capital base through our pending rights offering and our recent
decision to suspend payment of a cash dividend," Puckett continued.
"We are confident, based on the commitment of our Board of Directors,
that we will be able to strengthen our balance sheet with an
appropriate level of capital so we can weather this current real
estate downturn. This offering will allow all current stockholders an
opportunity to participate proportionately to their ownership to avoid
significant dilution."
A registration statement relating to these securities has been
filed with the Securities and Exchange Commission but has not yet
become effective. These securities may not be sold nor may offers to
buy be accepted prior to the time the registration statement becomes
effective. You may obtain a written prospectus for the offering
meeting the requirements of Section 10 of the Securities Act of 1933,
as amended, by writing to CapitalSouth Bancorp, 2340 Woodcrest Place,
Birmingham, Alabama 35209, Attention Carol W. Marsh, Chief Financial
Officer. This press release shall not constitute an offer to sell or
the solicitation of an offer to buy any securities. Securities may not
be sold nor may offers to buy be accepted prior to the effectiveness
of a registration statement nor shall there be any sale of the
securities in any state in which such offer, solicitation or sale
would be unlawful prior to registration or qualification under the
securities laws of any state.
Puckett stated, "We have always maintained a conservative approach
to banking by careful planning and by responding aggressively to any
emerging problems. Management and the Board of Directors are committed
to resolving issues in our loan portfolio as quickly as possible. As
with most banks, the bulk of our problem loans are real estate
secured. Of course we cannot predict the future of the real estate
market, but we believe we have provided enough reserves to resolve the
problem loans. However, we will continue to monitor market conditions
and real estate values and take further action if needed."
In light of recent and significant adverse changes in the general
business climate and the continued downturn in financial stocks, the
Company evaluated its remaining goodwill to determine the amount of
impairment indicated in conformity with Statement of Financial
Accounting Standards No. 142. This analysis resulted in a second
quarter non-cash charge of $9.4 million for impaired goodwill,
eliminating the remaining balance of goodwill primarily generated in
the 2007 acquisition of Monticello Bancshares, Inc. This charge had no
effect on the Company's liquidity or regulatory capital.
The net operating loss for the second quarter, which excludes the
non-cash goodwill impairment charge, totaled $7,032,000 or $1.69 per
diluted share compared with net operating income of $897,000 or $0.30
per diluted share for the second quarter of 2007 (see reconciliation
of net operating income and loss - both non-GAAP measures - to net
income and loss at the end of this release). For the first half of
2008, the Company reported a net operating loss of $6,710,000 or $1.62
per diluted share compared with net operating income of $1,603,000 or
$0.53 per diluted share for the year-earlier period. The decline in
net operating income for the 2008 periods was due primarily to a
$9,350,000 provision for loan losses for the second quarter of 2008,
prompted by increased nonperforming assets associated with continued
deterioration in macroeconomic conditions, specifically in the
residential real estate sector. The provision in the second quarter of
2007 was $225,000. Per share amounts for the second quarter and first
six months of 2008 also reflect an increase of 38% in the number of
weighted average diluted shares outstanding due to shares issued in
the Company's September 2007 acquisition of Monticello Bancshares.
Additionally, the Company provided a reserve against its deferred tax
assets in the amount of $500,000 as a result of the net operating loss
in conformity with Statement of Financial Accounting Standards No.
109.
The Company reported nonperforming loans at June 30, 2008, of
$34,963,000 compared with $28,406,000 at March 31, 2008. At June 30,
2008, 93% of the Company's nonperforming loans were secured by real
estate. Based on updated appraisals and other current valuations, the
real estate secured nonperforming loans have an outstanding exposure
(loan balance net of allocated reserves) of 79% of the estimated
current value. Total nonperforming assets, which includes
nonperforming loans, troubled debt restructurings, OREO and
repossessions, increased to $45,392,000 or 7.79% of period-end loans,
OREO and repossessions at June 30, 2008, from $35,100,000 or 5.68% at
March 31, 2008.
Residential acquisition and development and residential
construction loans comprised approximately 14% of the Company's loan
portfolio at the end of the second quarter of 2008, but accounted for
53% of total nonperforming loans. The Company has 45% of its loan
portfolio in commercial acquisition and development loans, and
commercial construction loans, but these loans only represent 21% of
the total non-accrual loans.
The Company recorded annualized net charge-offs, as a percentage
of average loans, of 1.37% in the second quarter of 2008 compared with
net charge-offs of 0.49% in the first quarter of 2008. In evaluating
the adequacy of the allowance for loan losses, the Company continues
to update external appraisals on the properties underlying the
nonperforming loans. Recognizing current deterioration in credit
quality and the increased level of net charge-offs, the Company
increased its loan loss provision to $9,350,000 in the second quarter
of 2008 compared with $658,000 in the first quarter of 2008. The
allowance for loan losses was 2.73% of total period-end net loans and
46.00% of period-end nonperforming loans as of June 30, 2008, compared
with 1.44% and 30.93% respectively, at March 31, 2008.
The Company further noted that the State Banking Department of
Alabama and the Federal Reserve Bank of Atlanta completed the
fieldwork for a regularly scheduled examination of the Bank during the
second quarter. The reported results of the Company reflect
discussions with regulators on the allowance for loan losses and loan
charge-offs, among other matters. The Company has been advised orally
that a formal enforcement action will be issued because of the impact
of the high level of nonperforming assets on the financial performance
of the Bank. Though the particular terms of such enforcement action
are not known at this time, the Company expects that it will require
improvement in Bank earnings, lower nonperforming loan levels,
increased Bank capital, revisions to various policies as well as
possibly other corrective actions. The Company has already been taking
aggressive steps consistent with meeting these requirements.
"We have received expert, unbiased advice about the steps we
should take," Puckett continued, referencing the input of Maria B.
Campbell, former Alabama Superintendent of Banks. "What this bank and
its parent company are now doing and planning to do to address the
issues facing CapitalSouth are the kind of steps I looked for as a
bank regulator," said Campbell. "After nearly 40 years in banking, I
have learned that adverse market conditions impact even good loan
portfolios. What I want to see from a regulator's perspective is that
the bank is aggressive in evaluating and managing its loans when
market conditions change. I was privileged to serve for a time several
years ago on the Board of the Company. From this experience I am
confident that management and the Board of both the Bank and the
Company are determined to protect the interests of both depositors and
stockholders."
Net interest income for the second quarter of 2008 increased
slightly to $4,271,000 from $4,250,000 in the year-earlier period,
reflecting primarily an increase in interest-earning assets due to the
Monticello acquisition. Net interest margin declined in the second
quarter to 2.51% versus 3.61% in the same quarter last year and was
down from 2.74% in the first quarter of 2008 due to the impact of the
decline in the prime rate as well as the increase in nonperforming
assets. Interest income reversed or foregone on nonperforming loans
reduced second quarter 2008 net interest margin by 52 basis points.
For the first six months of 2008, net interest income increased 10% to
$9,018,000 from $8,204,000 in the prior-year period. Net interest
margin declined in the first half of 2008 to 2.63% from 3.56% in the
same period last year. Interest income reversed or foregone on
nonperforming loans reduced net interest margin by 48 basis points in
the first six months of 2008. Management believes margin pressure will
continue throughout the year due to the impact of nonperforming loans.
Noninterest income for the second quarter declined 14% to $734,000
compared with $855,000 in the year-earlier period, due primarily to
less Business Capital Group income, which also has been negatively
affected by softness in the real estate sector. Higher income from
deposit service fees and income from the Bank's newly acquired
mortgage division in the form of gains on sales of mortgage loans
offset some of the impact of the decline in Business Capital Group
income. Losses on the impairment of investment securities were
incurred as the Company repositioned its investment portfolio away
from tax-exempt securities due to its taxable loss for the quarter and
to create additional liquidity. For the six months ended June 30,
2008, noninterest income increased 23% to $1,936,000 from $1,573,000
in the year-earlier period, largely due to gains on sales of mortgage
loans.
Noninterest expense for the second quarter increased to
$15,618,000 from $3,488,000 in the same period last year, due
primarily the impact of the goodwill impairment charge. Noninterest
expense for the second quarter of 2008, excluding the impairment
charge, was $6,256,000, up 79% from the year-earlier quarter,
reflecting the impact of new employees added from the Monticello
acquisition as well as the recent opening of additional offices in
both Jacksonville, Florida and Huntsville, Alabama, higher occupancy
costs associated with the addition of a total of four branches since
June 30, 2007, and expenses associated with an increase in OREO. For
the six months ended June 30, 2008, noninterest expense was
$20,550,000 compared with $7,037,000 in the prior-year period;
excluding the impairment charge, noninterest expense increased 59% to
$11,187,000 in the first half of 2008, reflecting generally the same
factors that accounted for the increase in the second quarter.
Total assets at June 30, 2008, were $736,195,000, representing a
44% increase from $511,047,000 at June 30, 2007. The Company's loan
portfolio totaled $589,060,000 at the end of the second quarter of
2008, up 45% from $405,523,000 at June 30, 2007. Deposits increased
46% to $622,093,000 at quarter's end compared with $425,661,000 at
June 30, 2007. The Company has begun the process of shrinking its
asset base to preserve capital and reposition the Bank's loan
portfolio to reduce its total exposure to the real estate sector.
Stockholders' equity at June 30, 2008, totaled $29,757,000
compared with $42,657,000 at June 30, 2007, with the decline primarily
reflecting the impact of goodwill impairment charges recorded in the
second quarter of 2008 and the fourth quarter of 2007. Book value per
share was $7.16 at June 30, 2008, compared with $14.23 a year ago,
while tangible book value per share declined to $6.96 per share at
June 30, 2008, from $13.80 at June 30, 2007. These changes also
reflect an increase in average shares outstanding.
CapitalSouth Bancorp is a bank holding company operating 12
full-service banking offices through its bank subsidiary, CapitalSouth
Bank, with offices in Birmingham, Huntsville, and Montgomery, Alabama,
and Jacksonville, Florida, as well as a mortgage origination office
through Mortgage Lion, Inc., a wholesale mortgage origination
operation based in Fitzgerald, Georgia. CapitalSouth Bank targets
small to medium-sized businesses in the markets it serves.
CapitalSouth Bank also operates "Banco Hispano," providing financial
services to the growing Latino community. CapitalSouth Bank offers
Small Business Administration lending services and other loan programs
for business owners through its Business Capital Group, which operates
through our full-service offices. CapitalSouth Bank also provides
Internet banking services at www.capitalsouthbank.com as well as
personal investment services.
This press release contains "forward-looking" statements as
defined by the Private Securities Litigation Reform Act of 1995, which
are based on the Company's current expectations, estimates and
projections about future events and financial trends affecting the
financial condition of its business. These statements are not
historical facts or guarantees of future performance, events or
results. Such statements involve potential risks and uncertainties
and, accordingly, actual performance results may differ materially.
The Company undertakes no obligation to publicly update or revise
forward-looking statements, whether as a result of new, updated
information, future events or otherwise.
-0-
*T
CapitalSouth Bancorp
Summary Unaudited Financial Information
(in thousands, except per share amounts)
Second Quarter Ended Six Months Ended
June 30, June 30,
-------------------- -------------------
2008 2007 2008 2007
----------- -------- --------- ---------
Interest income $ 10,132 $ 9,076 $ 21,773 $ 17,756
Interest expense 5,861 4,826 12,755 9,552
----------- -------- --------- ---------
Net interest income 4,271 4,250 9,018 8,204
Provision for loan losses 9,350 225 10,007 362
----------- -------- --------- ---------
Net interest (loss) income
after provision for loan
losses (5,079) 4,025 (989) 7,842
Noninterest income 734 855 1,936 1,573
Noninterest expense 15,618 3,488 20,550 7,037
----------- -------- --------- ---------
Net (loss) income before
provision for income taxes (19,963) 1,392 (19,603) 2,378
(Benefit) provision for
income taxes (3,568) 495 (3,530) 775
----------- -------- --------- ---------
Net (loss) income $ (16,395) $ 897 $(16,073) $ 1,603
=========== ======== ========= =========
Net (loss) income per share:
Basic $ (3.95) $ 0.30 $ (3.87) $ 0.54
=========== ======== --------- =========
Diluted $ (3.95) $ 0.30 $ (3.87) $ 0.53
=========== ======== ========= =========
Goodwill impairment charge $ 9,363 $ -- $ 9,363 $ --
Net operating (loss) income $ (7,032) $ 897 $ (6,710) $ 1,603
Net operating (loss) income
per common share:
Basic $ (1.69) $ 0.30 $ (1.62) $ 0.54
Diluted $ (1.69) $ 0.30 $ (1.62) $ 0.53
Weighted average shares
outstanding:
Basic 4,154 2,993 4,153 2,987
=========== ======== ========= =========
Diluted 4,154 3,011 4,153 3,013
=========== ======== ========= =========
June 30, June 30,
2008 2007
--------- ---------
Total assets $736,195 $511,047
Loans 589,060 405,523
Allowance for loan losses (16,082) (4,709)
--------- ---------
Net loans 572,978 404,814
Interest-bearing deposits 555,255 366,244
Noninterest-bearing deposits 66,838 59,417
--------- ---------
Total deposits 622,093 425,661
Stockholders' equity 29,757 42,657
Book value per share 7.16 14.23
Tangible book value per share 6.96 13.80
Unaudited supplemental financial information for the second quarter
and six months ended June 30, 2008 and 2007, may be obtained by
following this link: http://www.irinfo.com/CAPB/CAPB2Q08tdl.pdf.
*T
CapitalSouth Bancorp
W. Dan Puckett, 205-870-1939
Chief Executive Officer
or
W. Flake Oakley, IV, 334-395-7925
President
or
Carol W. Marsh, 205-870-1939
Chief Financial Officer
Copyright Business Wire 2008
