Banks on my Mind: NewBridge Bancorp
This is the second part of Banks in my Mind written for the Complete Growth Investor a couple of weeks ago .
The following are direct quotes from the latest earnings report. They seem to show a well capitalized bank that once again is profitable and where loan problems peaked almost a year ago while provisions and non performing loans seem to have stabilized and started to decline. It is almost impossible to believe that this bank is priced at 0.35x tangible equity (TE) and 0.5x tangible common equity (TCE).
- Local Market Share: With approximately $2.0 billion of total assets, NewBridge Bank is one of the largest community banks in North Carolina, and based on deposit market share is the largest community bank in the Piedmont Triad Region of North Carolina. The Bank has 33 offices in the Piedmont Triad Region of North Carolina, the Wilmington, NC area and Harrisonburg, VA.
- Growing Core Deposits: increased 7% in the quarter to $886 million
- Well Capitalized: tier one capital as a percentage of average assets was 9.02% and total capital as a percentage of total risk weighted assets was 12.44%, well above the levels required to meet the “well capitalized” standards of 5% and 10%, respectively.
- Well Reserved: Allowance for credit losses was $35.5 million, 2.48% of total loans, or 63% of nonperforming loans. Excluding loans for which the full anticipated loss has been charged off, the allowance for credit losses totaled 108% of nonperforming loans, compared to 105% at December 31, 2009.
- Nonperforming Assets Stabilizing: increased $462,000 to $86.0 million, or 4.40% of total assets, at March 31, 2010, from $85.6 million, or 4.40% of total assets, at December 31, 2009.
- Nonperforming Loans Declining: declined 11% from June 2009 peak to $56.7 million or 2.90% of total assets
- Profitable: We achieved a first quarter improvement in pre-tax income of $7.0 million from the quarter ended March 31, 2009, to $476,000 from a loss of $6.5 million.
- High Net Interest Margin: increased 98 bps over prior year’s first quarter, 34 bps over fourth quarter 2009, to 3.97%
- Net Interest Income Increasing: 23% over prior year’s first quarter
- Provision Expense Declining: 56% from prior year’s first quarter
- Efficiency Improving: excluding $1.7 million expense/loss related to Other Real Estate Owned, efficiency improved to 70% in the quarter comparing favorably to 84% for the three months ended March 31, 2009.”
- Bolt-on acquisitions: We are actively exploring opportunities to grow noninterest income through acquisitions such as Bradford Mortgage, although organic recruitment of talent is likely to remain our best opportunity for growth in the near future.
- Low Interest Rate Risk: NewBridge Bank maintains a largely neutral interest rate risk position and would generally be unaffected by most rising interest rate scenarios.
It seems too good to be true, so I tried a more stringent capital ratio: tangible common equity over tangible assets (TCE/TA) to avoid including the preferred equity and intangibles. And it is a healthy 5.5%, better than several national banks.
Next, having seen how some banks hide non performing assets (NPAs) problems by selling fast and furious their Other Real Estate Owned (OREO) and taking big equity hits, I checked the common equity trend. And it has stabilized, even though the expected loss for a significant part of their non performing loans has been charged off.
Tangible Common Equity per share
Q1 2010 $6.85
Q4 2009 $6.83
Q3 2009 $6.94
Q2 2009 $6.98
Q1 2009 $7.38
And what about the future? The review of the loan portfolio risk profile is unavoidable in these times. The 12.1% of the portfolio in construction and development loans (C&D) seems OK in my book. The only reason I could find for this bank deep discount, besides the new regulation uncertainty, is the 29.7% in commercial real estate loans but this does not include the risky CRE construction and development loans that are included in C&D. As we have discussed the risk profile of these loans is much safer than C&D and bad underwriting should be transparent by now; but simply it is not there in the numbers.
Did I mention the insider buying? This is another small bank where its CFO has been buying shares: 40,000 shares over the last year with the last few in May. And consider the optimistic outlook after several quarters of conservative guidance:
Through the first three months of this year our financial results have closely tracked our 2010 profit plan. We are optimistic we will have a profitable year that will reward our shareholders. Tough actions we took early in this credit cycle are resulting in improvements thus far this year. We made realistic mark-to-market adjustments on our problem assets and established strategies to reduce expenses and improve our operating margins. These factors should benefit us for the rest of the year. While our net interest margin has steadily grown over the last four quarters, the benefits of lowering deposit costs has largely been realized; therefore, we anticipate a flattening but stable net interest margin in the range of 4%. NewBridge Bank maintains a largely neutral interest rate risk position and would generally be unaffected by most rising interest rate scenarios. The strong expense controls demonstrated throughout 2009 are continuing in 2010 as we maintain our disciplined cost management culture. We are actively exploring opportunities to grow noninterest income through acquisitions such as Bradford Mortgage, although organic recruitment of talent is likely to remain our best opportunity for growth in the near future. – NewBridge Bancorp CEO