News Column

VantageSouth Bancshares, Inc. Reports Fourth Quarter 2013 Net Income of $3.3 Million and Pre-Tax, Pre-Provision Earnings of $6.8 Million Reflecting Continued Business Momentum and Earnings Growth

January 29, 2014

RALEIGH, N.C. , Jan. 29, 2014 (GLOBE NEWSWIRE) -- VantageSouth Bancshares, Inc. (NYSE MKT:VSB) (the "Company"), the parent company of VantageSouth Bank , today reported fourth quarter and year end financial results for 2013. The following list summarizes the Company's fourth quarter 2013 financial highlights and other significant events: The Company recently announced a proposed merger with Yadkin Financial Corporation, which will create the largest community bank in North Carolina . The Company also recently announced a private placement of $46.9 million of its common stock, which will be used to redeem its outstanding preferred stock and warrants previously issued to the U.S. Department of Treasury . Net income in 4Q 2013 was $3.3 million , which was an improvement from $1.5 million in 3Q 2013 and $2.1 million in 4Q 2012. Pre-tax, pre-provision operating earnings totaled $6.8 million in 4Q 2013, an increase from $6.2 million in 3Q 2013 and $1.5 million in 4Q 2012. Annualized net loan growth was 11 percent in 4Q 2013 while loan originations and commitments totaled $164.6 million in the quarter. Net interest margin was 4.31 percent in 4Q 2013 compared to 4.39 percent 3Q 2013 and 4.37 percent in 4Q 2012. Government-guaranteed, small business lending income increased to $1.9 million in 4Q 2013 from $1.5 million in 3Q 2013 and $1.7 million in 4Q 2012 while loan originations by this group totaled $21.5 million in the fourth quarter. The Company was named the top small business lender in North Carolina by the U.S. Small Business Association ("SBA"). Operating efficiency ratio improved to 71.9 percent in 4Q 2013 from 74.5 percent in 3Q 2013 and 85.5 percent in 4Q 2012. "We continued our positive earnings trend and again achieved robust loan growth in the quarter" stated Scott Custer , CEO of the Company, commenting on the Company's financial performance in the fourth quarter of 2013. Mr. Custer continued, "our SBA lending group notched its highest quarterly revenue number in the history of our bank and continues to grow its government-guaranteed, small business loan production platform. We are proud of the reputation we've built in our communities by partnering with the SBA to provide financing solutions to small businesses throughout the Southeast and Mid-Atlantic regions. In fact, the SBA recently recognized our bank as the top small business lender in North Carolina . As we continue to grow our business by meeting the banking needs of our customers, we have also focused on cutting costs and improving our operating efficiency to the level of a high performing community bank. We improved our operating efficiency ratio in each successive quarter in 2013 and will continue this priority into 2014." Discussing the proposed merger with Yadkin Financial Corporation ("Yadkin"), Mr. Custer commented, "We are obviously excited about our pending merger with Yadkin. We believe that the combination of these two banks will not only create the largest community bank in North Carolina but will create a more efficient, more profitable combined organization that we can all be proud of. Our franchises are complementary in many ways and will enable us to better serve the needs of both our customers and shareholders." Results of Operations and Asset Quality 4Q 2013 compared to 3Q 2013 Net income was $3.3 million in the fourth quarter of 2013, which was an improvement from $1.5 million in the third quarter of 2013. After preferred stock dividends and accretion, net income available to common stockholders was $2.6 million , or $0.06 per common share, in the fourth quarter of 2013 compared to $776 thousand , or $0.02 per common share, in the third quarter of 2013. Net operating earnings, which excludes merger and conversion costs and a non-recurring income tax charge, improved to $3.8 million , or $0.07 per common share, in the fourth quarter of 2013 from $3.0 million , or $0.05 per common share, in the third quarter of 2013 as the Company cut costs and continued to improve its operating efficiency. Similarly, pre-tax, pre-provision earnings increased to $6.8 million in the fourth quarter of 2013 from $6.2 million in the third quarter of 2013. Net interest income was $19.8 million in the fourth quarter of 2013 compared to $19.9 million in the third quarter of 2013. The decrease in net interest income was primarily due to the Company's net interest margin declining from 4.39 percent in the third quarter of 2013 to 4.31 percent in the fourth quarter of 2013. Partially offsetting the net interest margin reduction was an increase in earning assets from organic business and lending activity. Average earning assets increased from $1.80 billion in the third quarter of 2013 to $1.83 billion in the fourth quarter of 2013. Over this period, average loan balances increased by $18.7 million while average investment securities balances increased by $29.9 million . The lower net interest margin was largely due to higher costs on long-term debt following the Company's issuance of $38.1 million of subordinated debt in August 2013 . Core net interest margin, which excludes the impact of acquisition accounting, was 3.46 percent in the fourth quarter of 2013 compared to 3.47 percent in the third quarter of 2013. Income accretion on purchased loans totaled $5.2 million in the fourth quarter of 2013, which consisted of $3.2 million of accretion on purchased credit-impaired ("PCI") loans and $2.1 million of accretion income on purchased non-impaired loans. Income accretion on purchased loans in the third quarter of 2013 totaled $5.7 million , which included $3.1 million of accretion on PCI loans and $2.5 million of accretion income on purchased non-impaired loans. Accretion income on purchased non-impaired loans in the fourth quarter of 2013 included $573 thousand of accelerated accretion due to principal prepayments compared to $895 thousand of such income in the third quarter of 2013. Time deposit fair value amortization, which reduced interest expense, totaled $739 thousand in the fourth quarter of 2013 compared to $857 thousand in the third quarter of 2013. Provision for loan losses was $757 thousand in the fourth quarter of 2013, which was a decline from $1.3 million in the third quarter of 2013. The reduction in provision for loan losses was primarily due to a $439 thousand decrease in provision expense on PCI loans from improvements in expected cash flows in the fourth quarter. Annualized net loan charge-offs were 0.22 percent of average loans in the fourth quarter of 2013 compared to 0.20 percent in the third quarter of 2013. The following table summarizes the changes in the Company's allowance for loan losses ("ALLL") in the third and fourth quarters of 2013. (Dollars in thousands) Non-PCI Loans PCI Loans Total Q4 2013: Balance at October 1, 2013 $ 4,591 $ 2,443 $ 7,034 Net charge-offs (748) (748) Provision for loan losses 839 (82) 757 Balance at December 31, 2013 $ 4,682 $ 2,361 $ 7,043 Q3 2013: Balance at July 1, 2013 $ 4,339 $ 2,086 $ 6,425 Net charge-offs (671) (671) Provision for loan losses 923 357 1,280 Balance at September 31, 2013 $ 4,591 $ 2,443 $ 7,034 The ALLL was $7.0 million , or 0.51 percent of total loans, as of December 31, 2013 , compared to $7.0 million , or 0.52 percent of total loans, as of September 30, 2013 , and $4.0 million , or 0.52 percent of total loans, as of December 31, 2012. Adjusted ALLL, which includes the ALLL and net acquisition accounting fair value adjustments for acquired loans, represented 2.75 percent of total loans as of December 31, 2013 compared to 3.05 percent as of September 30, 2013 and 2.70 percent as of December 31, 2012. Nonperforming loans as a percentage of total loans was 1.51 percent as of December 31, 2013, which was an increase from 1.40 percent as of September 30, 2013 and a decline from 1.67 percent as of December 31, 2012. Total nonperforming assets (which include nonaccrual loans, loans past due 90 days or more and still accruing, and foreclosed assets) as a percentage of total assets was 1.50 percent as of both December 31, 2013 and September 30, 2013 compared to 1.71 percent as of December 31, 2012. The decline in the nonperforming assets ratio over the past year was due to the Company's acquisition of ECB Bancorp, Inc. (the "ECB merger") as well as its continuing efforts to resolve legacy problem assets while maximizing value. These resolution efforts have included a combination of asset sales through various channels and successful loan workout plans. Non-interest income totaled $4.6 million in the fourth quarter of 2013 compared to $4.5 million in the third quarter of 2013. Government-guaranteed, small business lending income, which includes gains on sales of the guaranteed portion of certain SBA loans originated by the Company as well as servicing fees on previously sold SBA loans, increased by $359 thousand due to increased production and loan sales. Mortgage banking income increased by $158 thousand from higher production volume and widening profit margins on loans sold to investors. These increases in income were partially offset by a reduction in other non-interest income of $469 thousand resulting primarily from a third quarter gain on a non-marketable investment and lower merchant income. Non-interest expense totaled $18.1 million in the fourth quarter of 2013, which was a decline from $18.7 million in the third quarter of 2013. Core non-interest expense, which excludes merger and conversion-related costs, declined by $681 thousand during this period as the Company continued to improve its operating efficiency following the ECB merger earlier in 2013. The Company's operating efficiency ratio, which excludes merger and conversion costs, improved from 74.5 percent in the third quarter of 2013 to 71.9 percent in the fourth quarter of 2013. The Company's income tax expense was $2.2 million in the fourth quarter of 2013 compared to $3.0 million in the third quarter of 2013. Income tax expense in the third quarter of 2013 was significantly impacted by a $1.2 million charge as a result of recently enacted decreases in North Carolina corporate income tax rates which are effective in future tax years. Taxable income is calculated using pre-tax net income adjusted for non-deductible merger costs as well as non-taxable municipal investment income and bank-owned life insurance income. 4Q 2013 compared to 4Q 2012 Net income was $3.3 million in the fourth quarter of 2013 compared to $2.1 million in the fourth quarter of 2012. After preferred stock dividends and accretion, net income available to common stockholders was $2.6 million , or $0.06 per common share, in the fourth quarter of 2013 compared to net income of $1.7 million , or $0.05 per common share, in the fourth quarter of 2012. Net operating earnings, which exclude securities gains, merger and conversion costs, and the reversal of a deferred tax valuation allowance, improved to $3.8 million in fourth quarter of 2013 from $235 thousand in the fourth quarter of 2012 as the Company improved its financial performance following the ECB merger by increasing net interest income, lowering provision for loan losses, increasing non-interest income, and by improving its operating efficiency. Similarly, pre-tax, pre-provision operating earnings increased to $6.8 million in the fourth quarter of 2013 from $1.5 million in the fourth quarter of 2012. Net interest income was $19.8 million in the fourth quarter of 2013 compared to $10.2 million in the fourth quarter of 2012. The increase in net interest income was the result of a significant increase in earning assets from organic business activity and the ECB merger. Average earning assets increased from $1.07 billion in the fourth quarter of 2012 to $2.06 billion in the fourth quarter of 2013. Over this period, average loan balances increased by $631.0 million , of which $466.5 million was from acquired ECB loans, and average investment securities balances increased by $264.4 million . In addition, average deposits increased by $778.1 million , including $736.1 million from the ECB merger. The Company's net interest margin declined from 4.37 percent in the fourth quarter of 2012 to 4.31 percent in the fourth quarter of 2013. The margin reduction was primarily due to declining yields on interest-earning assets partially offset by lower costs on interest-bearing liabilities. The yield on earning assets declined from 5.05 percent in the fourth quarter of 2012 to 4.91 percent in the fourth quarter of 2013, which reflected lower loan yields and lower yields on investment securities. The decrease in loan yields was a product of lower prevailing market loan rates on new loan originations partially offset by a favorable impact from acquisition accounting fair value adjustments. Securities yields declined as the Company reinvested principal paydowns and proceeds from sales at lower current market rates. The cost of interest-bearing liabilities declined from 0.80 percent in the fourth quarter of 2012 to 0.69 percent in the fourth quarter of 2013, which primarily reflected a lower cost of deposits as the Company adjusted interest rates it pays on certain checking and money market accounts in the second quarter of 2013 and incorporated the ECB deposit base. The Company also increased its level of short-term borrowings in the form of FHLB advances which lowered overall funding costs. These reductions were partially offset by an increase in the cost of long-term debt from the issuance of $38.1 million of subordinated debt in August 2013 . These subordinated notes were issued to further strengthen and diversify the Company's regulatory capital position. Provision for loan losses was $757 thousand in the fourth quarter of 2013 compared to $1.2 million in the fourth quarter of 2012. The reduction in provision for loan losses was primarily due improvements in expected cash flows on certain PCI loan pools in the fourth quarter of 2013 compared to PCI loan provision expense of $371 thousand in the prior year fourth quarter. Annualized net loan charge-offs were 0.22 percent of average loans in the fourth quarter of 2013 compared to 0.17 percent in the fourth quarter of 2012. The following table summarizes the changes in the ALLL in the fourth quarters of 2013 and 2012. (Dollars in thousands) Non-PCI Loans PCI Loans Total Q4 2013: Balance at October 1, 2013 $ 4,591 $ 2,443 $ 7,034 Net charge-offs (748) (748) Provision for loan losses 839 (82) 757 Balance at December 31, 2013 $ 4,682 $ 2,361 $ 7,043 Q4 2012: Balance at October 1, 2012 $ 2,239 $ 907 $ 3,146 Net charge-offs (315) (315) Provision for loan losses 796 371 1,167 Balance at December 31, 2012 $ 2,720 $ 1,278 $ 3,998 Non-interest income totaled $4.6 million in the fourth quarter of 2013, which was an increase from $4.1 million in the fourth quarter of 2012. The increase was primarily the result of higher income from service charges and fees, government-guaranteed lending, and bank-owned life insurance. These increases were partially offset by a reduction in mortgage banking income and gains on sales of securities. Service charges and fees increased by $899 thousand primarily due to the addition of deposit accounts acquired in the ECB merger. Government-guaranteed, small business lending income increased by $166 thousand . Bank-owned life insurance income increased by $189 thousand primarily due to the addition of life insurance policies acquired in the ECB merger. Mortgage banking income decreased by $303 thousand due to several factors, including an increase in long-term interest rates which significantly reduced refinancing activities as well as declining profit margins on loans sold to investors. The Company has taken certain steps to improve its mortgage banking performance in the future which included hiring a veteran mortgage production manager in the third quarter of 2013, hiring FHA and VA mortgage underwriters, which generally produce higher margin loans, and reducing headcount and cutting costs in the mortgage business. Non-interest expense totaled $18.1 million in the fourth quarter of 2013, which was a significant increase from $14.4 million in the fourth quarter of 2012. The increase in expenses was primarily due to increases in salaries and employee benefits, occupancy and equipment, data processing, and other non-interest expense categories due to the ECB merger which added employees, branch and other facilities, and equipment to the Company's expense base. The Company's operating efficiency ratio, which excludes non-recurring merger and conversion costs, improved from 85.5 percent in the fourth quarter of 2012 to 71.9 percent in the fourth quarter of 2013. Much of the improvement in the operating efficiency ratio was due to increased scale and operating leverage provided by the ECB merger combined with cost cutting measures which will continue to benefit the Company going forward. For example, full time equivalent employees for the combined Company decreased from 520 at the ECB merger date to 455 as of December 31, 2013. The Company's income tax expense was $2.2 million in the fourth quarter of 2013 compared to an income tax benefit of $3.3 million in the fourth quarter of 2012. Income tax expense in the fourth quarter of 2012 was significantly impacted by a $3.3 million reversal of a deferred tax valuation allowance. Proposed Merger with Yadkin Financial Corporation On January 27, 2014 , the Company entered into an Agreement and Plan of Merger with Yadkin Financial Corporation (the "Yadkin Merger Agreement"). Pursuant to the Yadkin Merger Agreement, the Company will merge with and into Yadkin Financial (the "Merger"), which will be the surviving bank holding corporation. Immediately following the Merger, the Company's wholly-owned banking subsidiary, VantageSouth Bank , will be merged with and into Yadkin Bank . At the time of the Merger, all of the Company's outstanding shares of common stock will be converted into the right to receive 0.3125 shares of Yadkin Financial Corporation ("Yadkin") common stock. The Merger is subject to customary closing conditions, including regulatory and stockholder approvals. The Company expects the Merger to close late in the second quarter of 2014. Yadkin is the holding company for Yadkin Bank , a full-service community bank with thirty-three branches throughout its two regions in central and western North Carolina and upstate South Carolina . Yadkin Bank provides mortgage-lending services through its mortgage division, Yadkin Mortgage, headquartered in Greensboro, NC . Securities brokerage services are provided by Yadkin Wealth, Inc. , a Yadkin Bank subsidiary. Yadkin's website is www.YadkinBank.com . Yadkin shares are traded on NASDAQ under the symbol YDKN. Private Placement of Common Stock On January 27, 2014 , the Company entered into a securities purchase agreement (the "Purchase Agreement") with accredited investors and certain directors of the Company and their affiliates to purchase an aggregate of 9.2 million shares of the Company's common stock for an aggregate purchase price of approximately $46.9 million (the "Private Placement"). The Private Placement is expected to close on or about January 31, 2014 , subject to customary closing conditions. The net proceeds of the private placement will be used to redeem the Company's outstanding $42.8 million of preferred stock previously issued to the U.S. Department of Treasury ("Treasury") pursuant to the TARP Capital Purchase Program, to repurchase the warrants to purchase 1,348,398 shares of common stock from Treasury, and for general corporate purposes. ECB Merger On April 1, 2013 , the Company completed the ECB merger. Immediately following the ECB merger, The East Carolina Bank , a wholly-owned subsidiary of ECB, was merged into VantageSouth Bank . Upon the closing of the ECB merger, each outstanding share of ECB common stock was converted into the right to receive 3.55 shares of VSB common stock. The aggregate merger consideration consisted of 10.3 million shares of VSB common stock. Based upon the closing price of VSB common stock at the time of merger, the aggregate purchase price totaled $40.6 million . In connection with the ECB merger, the Company applied the acquisition method of accounting to ECB's balance sheet. Therefore, all acquired assets and liabilities were adjusted to fair value, and the historical allowance for loan losses was eliminated. The Company recorded a one-time acquisition gain of $7.8 million in the second quarter of 2013, which reflects the amount by which the fair value of acquired net assets exceeded the combined purchase price and fair value of other equity interests. The Company has a one-year measurement period from the acquisition date to finalize the recorded fair values of net assets acquired. The acquisition gain may change if initial fair value estimates are revised within the measurement period and any changes are reported retrospectively as of the date of acquisition. VantageSouth Bank is a state-chartered bank operating forty-five banking offices in central and eastern North Carolina . The common stock of VantageSouth Bancshares, Inc. is listed on the NYSE MKT, LLC under the symbol VSB. Investors can access additional corporate information, product descriptions, and online services through VantageSouth Bank's website at www.VantageSouth.com . Non-GAAP Financial Measures Statements included in this press release include non-GAAP financial measures and should be read along with the accompanying tables which provide a reconciliation of non-GAAP financial measures to GAAP financial measures. The Company's management uses these non-GAAP financial measures, including: (i) net operating earnings (loss); (ii) pre-tax, pre-provision operating earnings; (iii) operating non-interest income; (iv) operating non-interest expense; (v) operating efficiency ratio; (vi) adjusted allowance for loan losses to loans; and (vii) tangible common equity, in their analysis of the Company's performance. Net operating earnings (loss) excludes the following from net income (loss): securities gains, a one-time acquisition gain, merger and conversion costs, income tax expense from the change in future state tax rates, and the income tax effect of adjustments. Pre-tax, pre-provision operating earnings excludes the following from net income (loss): provision for loan losses, income tax expense (benefit), securities gains, a one-time acquisition gain, and merger and conversion costs. Operating non-interest income excludes a one-time acquisition gain from non-interest income. Operating non-interest expense excludes merger and conversion costs from non-interest expense. The operating efficiency ratio excludes a one-time acquisition gain and merger and conversion costs from the efficiency ratio. Adjusted allowance for loan losses adds net acquisition accounting fair value discounts to the allowance for loan losses. Tangible common equity excludes preferred stock as well as goodwill and other intangible assets, net, from total stockholders' equity. Management believes that non-GAAP financial measures provide additional useful information that allows readers to evaluate the ongoing performance of the Company. Non-GAAP financial measures should not be considered as an alternative to any measure of performance or financial condition as promulgated under GAAP, and investors should consider the Company's performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of the Company. Non-GAAP financial measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the Company's results or financial condition as reported under GAAP. Forward-looking Statements Information in this press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that could cause actual results to differ materially, including without limitation, risks associated with the ownership by Piedmont of a majority of the Company's voting power, including the possibility of the interests of Piedmont differing from other Company stockholders or any change in management, strategic direction, business plan, or operations, the ability of our management to successfully integrate the Company's business and execute its business plan across several geographic areas, local economic conditions affecting retail and commercial real estate, disruptions in the credit markets, changes in interest rates, adverse developments in the real estate market affecting the value and marketability of collateral securing loans made by the Bank, the failure of assumptions underlying loan loss and other reserves, competition, our ability to successfully integrate any businesses that we acquire, and the risk of new and changing regulation. Additional factors that could cause actual results to differ materially are discussed in the Company's filings with the Securities and Exchange Commission , including without limitation its Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q, and its Current Reports on Form 8-K. Information in this press release also contains forward-looking statements with respect to the expected Merger and the Private Placement. These statements involve risks and uncertainties that could cause actual results to differ materially from those anticipated by such forward-looking statements, including without limitation: delays in obtaining or failure to receive required regulatory approvals; the possibility that fewer than the required number of Company or Yadkin stockholders vote to approve the Merger; the occurrence of events that would have a material adverse effect on us or Yadkin (as defined in the Merger Agreement); potential delays in the closing of the Merger, potential deposit attrition, higher than expected costs, customer loss and business disruption associated with business integration, including, without limitation, potential difficulties in maintaining relationships with key personnel, technological integration, and other integration related-matters; other uncertainties arising in connection with the Merger; the ability to meet the closing conditions under the Purchase Agreement and risk factors that are discussed in Yadkin's filings with the Securities and Exchange Commission ("SEC"), including without limitation its Annual Reports on Form 10-K, its Quarterly Reports on Form 10-Q and its Current Reports on Form 8-K. The forward-looking statements in this press release speak only as of the date of the press release, and the Company does not assume any obligation to update such forward-looking statements. ADDITIONAL INFORMATION FOR STOCKHOLDERS In connection with the proposed Merger, Yadkin will file with the Securities and Exchange Commission ("SEC") a Registration Statement on Form S-4 that will include a joint proxy statement of Yadkin and the Company and a prospectus of Yadkin, as well as other relevant documents concerning the proposed transaction. Both the Company and Yadkin will mail the joint proxy statement/prospectus to their respective stockholders. SHAREHOLDERS OF YADKIN AND the Company ARE URGED TO READ THE REGISTRATION STATEMENT AND JOINT PROXY STATEMENT/PROSPECTUS REGARDING THE PROPOSED MERGER WHEN IT BECOMES AVAILABLE AND ANY OTHER RELEVANT DOCUMENTS FILED WITH SEC, AS WELL AS ANY AMENDMENTS OR SUPPLEMENTS TO THOSE DOCUMENTS, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION . Investors and security holders may obtain a free copy of the proxy statement/prospectus (when available) and other filings containing information about Yadkin and the Company at the SEC's website at www.sec.gov . The joint proxy statement/prospectus (when available) and the other filings may also be obtained free of charge at Yadkin's website at www.YadkinBank.com , or at the Company's website at www.VantageSouth.com . Yadkin and certain of their respective Directors and executive officers, under the SEC's rules, may be deemed to be participants in the solicitation of proxies of Yadkin and the Company's stockholders in connection with the proposed Merger. Information about the Directors and executive officers of Yadkin and their ownership of Yadkin common stock is set forth in the proxy statement for Yadkin's 2013 Annual Meeting of Shareholders, as filed with the SEC on Schedule 14A on April 4, 2013 . Information about the Directors and executive officers of the Company and their ownership of the Company common stock is set forth in the proxy statement for the Company's 2013 Annual Meeting of Stockholders, as filed with the SEC on a Schedule 14A on April 23, 2013 . Additional information regarding the interests of those participants and other persons who may be deemed participants in the transaction may be obtained by reading the joint proxy statement/prospectus regarding the proposed Merger when it becomes available. Free copies of this document may be obtained as described in the preceding paragraph. QUARTERLY RESULTS OF OPERATIONS Three Months Ended December 31 , September 30 , June 30 , March 31 , December 31 , (Dollars in thousands, except per share data) 2013 2013 2013 2013 2012 Interest income Loans $ 20,206 $ 20,348 $ 20,376 $ 10,697 $ 10,898 Investment securities 2,360 1,846 2,005 815 855 Federal funds sold and interest-earning deposits 19 33 21 16 20 Total interest income 22,585 22,227 22,402 11,528 11,773 Interest expense Deposits 1,661 1,621 1,619 1,302 1,309 Short-term borrowings 65 46 42 12 10 Long-term debt 1,048 654 313 270 279 Total interest expense 2,774 2,321 1,974 1,584 1,598 Net interest income 19,811 19,906 20,428 9,944 10,175 Provision for loan losses 757 1,280 1,492 1,940 1,167 Net interest income after provision for loan losses 19,054 18,626 18,936 8,004 9,008 Non-interest income Service charges and fees on deposit accounts 1,407 1,512 1,525 515 508 Mortgage banking 468 310 1,096 391 771 Government-guaranteed lending 1,884 1,525 1,058 1,119 1,718 Bank-owned life insurance 397 324 310 195 208 Gain on sales of available for sale securities 123 1,092 603 Gain on acquisition 7,773 Other 397 866 743 150 325 Total non-interest income 4,553 4,537 12,628 3,462 4,133 Non-interest expense Salaries and employee benefits 9,452 10,034 11,009 5,991 6,588 Occupancy and equipment 2,600 2,497 2,408 1,547 1,321 Data processing 1,096 1,105 1,075 644 698 FDIC insurance premiums 436 423 400 227 216 Professional services 780 598 914 497 684 Foreclosed asset expense 10 201 79 183 662 Loan, collection, and repossession expense 802 909 792 461 352 Advertising and business development 300 268 349 268 300 Printing, postage, and supplies 285 329 288 210 172 Merger and conversion costs 599 477 11,961 1,601 2,114 Other 1,763 1,841 1,865 1,038 1,247 Total non-interest expense 18,123 18,682 31,140 12,667 14,354 Income (loss) before income taxes 5,484 4,481 424 (1,201) (1,213) Income tax expense (benefit) 2,220 2,997 (2,808) (395) (3,326) Net income (loss) 3,264 1,484 3,232 (806) 2,113 Dividends and accretion on preferred stock 711 708 705 369 368 Net income available (loss attributable) to common stockholders $ 2,553 $ 776 $ 2,527 $ (1,175) $ 1,745 NET INCOME (LOSS) PER COMMON SHARE Basic $ 0.06 $ 0.02 $ 0.06 $ (0.03) $ 0.05 Diluted $ 0.06 $ 0.02 $ 0.06 $ (0.03) $ 0.05 WEIGHTED AVERAGE COMMON SHARES Weighted average common shares outstanding - basic 46,022,892 46,021,308 45,916,707 35,758,033 35,728,359 Weighted average common shares outstanding - diluted 46,213,391 46,213,216 45,935,330 35,758,033 35,806,191 PERFORMANCE RATIOS Return on average assets 0.63% 0.29% 0.75% (0.30)% 0.79% Return on average equity 5.54% 2.55% 6.27% (1.88)% 4.84% Yield on earning assets, tax equivalent 4.91% 4.90% 5.12% 4.91% 5.05% Cost of interest-bearing liabilities 0.69% 0.59% 0.51% 0.76% 0.80% Net interest margin, tax equivalent 4.31% 4.39% 4.67% 4.24% 4.37% Efficiency ratio 74.38% 76.43% 94.10% 94.49% 100.32% Net loan charge-offs 0.22% 0.20% 0.18% 0.21% 0.17% Reconciliation of GAAP to Non-GAAP NET OPERATING EARNINGS Net income (loss) (GAAP) $ 3,264 $ 1,484 $ 3,232 $ (806) $ 2,113 Securities gains (123) (1,092) (603) Gain on acquisition (7,773) Merger and conversion costs 599 477 11,961 1,601 2,114 Income tax effect of adjustments (24) (172) (4,484) (125) (89) Deferred tax asset valuation allowance reversal (3,300) Deferred tax asset revaluation from reduction in state income tax rates 1,218 Net operating earnings (loss) (Non-GAAP) 3,839 3,007 2,813 (422) 235 Dividends and accretion on preferred stock 711 708 705 369 368 Net operating earnings available (loss attributable) to common stockholders (Non-GAAP) $ 3,128 $ 2,299 $ 2,108 $ (791) $ (133) OPERATING EARNINGS (LOSS) PER COMMON SHARE Basic (Non-GAAP) $ 0.07 $ 0.05 $ 0.05 $ (0.02) $ Diluted (Non-GAAP) $ 0.07 $ 0.05 $ 0.05 $ (0.02) $ PRE-TAX, PRE-PROVISION OPERATING EARNINGS Net income (loss) (GAAP) $ 3,264 $ 1,484 $ 3,232 $ (806) $ 2,113 Provision for loan losses 757 1,280 1,492 1,940 1,167 Income tax expense (benefit) 2,220 2,997 (2,808) (395) (3,326) Pre-tax, pre-provision income (loss) 6,241 5,761 1,916 739 (46) Securities gains (123) (1,092) (603) Gain on acquisition (7,773) Merger and conversion costs 599 477 11,961 1,601 2,114 Pre-tax, pre-provision operating earnings (Non-GAAP) $ 6,840 $ 6,238 $ 5,981 $ 1,248 $ 1,465 OPERATING NON-INTEREST INCOME Non-interest income (GAAP) $ 4,553 $ 4,537 $ 12,628 $ 3,462 $ 4,133 Gain on acquisition (7,773) Operating non-interest income (Non-GAAP) $ 4,553 $ 4,537 $ 4,855 $ 3,462 $ 4,133 OPERATING NON-INTEREST EXPENSE Non-interest expense (GAAP) $ 18,123 $ 18,682 $ 31,140 $ 12,667 $ 14,354 Merger and conversion costs (599) (477) (11,961) (1,601) (2,114) Operating non-interest expense (Non-GAAP) $ 17,524 $ 18,205 $ 19,179 $ 11,066 $ 12,240 OPERATING EFFICIENCY RATIO Efficiency ratio (GAAP) 74.38% 76.43% 94.10% 94.49% 100.32% Effect to adjust for gain on acquisition % % 29.07% % % Effect to adjust for merger and conversion costs (2.45)% (1.95)% (47.31)% (11.94)% (14.77)% Operating efficiency ratio (Non-GAAP) 71.93% 74.48% 75.86% 82.55% 85.55% YEAR-TO-DATE RESULTS OF OPERATIONS Successor Predecessor Company Company (Dollars in thousands, except per share data) Year Ended December 31 , 2013 Period from February 1 to December 31 , 2012 Period from January 1 to January 31 , 2012 Interest income Loans $ 71,627 $ 39,717 $ 3,807 Investment securities 7,026 3,717 395 Federal funds sold and interest-earning deposits 89 85 4 Total interest income 78,742 43,519 4,206 Interest expense Non-maturity deposits 2,008 1,873 205 Time deposits 4,195 3,213 325 Short-term borrowings 165 19 Long-term debt 2,285 1,065 103 Total interest expense 8,653 6,170 633 Net interest income 70,089 37,349 3,573 Provision for loan losses 5,469 5,159 195 Net interest income after provision for loan losses 64,620 32,190 3,378 Non-interest income Service charges and fees on deposit accounts 4,959 1,937 194 Mortgage banking 2,265 3,164 225 Government-guaranteed lending 5,586 3,061 98 Bank-owned life insurance 1,226 760 70 Gain on sales of available for sale securities 1,215 1,251 Gain on acquisition 7,773 Other 2,156 1,154 70 Total non-interest income 25,180 11,327 657 Non-interest expense Salaries and employee benefits 36,486 21,249 1,737 Occupancy and equipment 9,052 4,868 396 Data processing 3,920 2,381 212 FDIC insurance premiums 1,486 927 141 Professional services 2,789 2,609 144 Foreclosed asset expense 473 1,303 11 Loan, collection, and repossession expense 2,964 1,523 162 Advertising and business development 1,185 1,083 73 Printing, postage, and supplies 1,111 786 47 Merger and conversion costs 14,638 3,164 78 Other 6,508 3,317 235 Total non-interest expense 80,612 43,210 3,236 Income before income taxes 9,188 307 799 Income tax expense (benefit) 2,014 (3,486) 270 Net income 7,174 3,793 529 Dividends and accretion on preferred stock 2,493 1,346 122 Net income available to common stockholders $ 4,681 $ 2,447 $ 407 NET INCOME PER COMMON SHARE Basic $ 0.11 $ 0.07 $ 0.01 Diluted $ 0.11 $ 0.07 $ 0.01 WEIGHTED AVERAGE COMMON SHARES Weighted average common shares outstanding - basic 43,578,793 35,724,513 35,511,770 Weighted average common shares outstanding - diluted 43,742,195 35,796,731 35,534,050 PERFORMANCE RATIOS Return on average assets 0.40% 0.39% 0.58% Return on average equity 3.28% 2.41% 3.67% Tax equivalent yield on earning assets 4.98% 5.12% 5.35% Cost of interest-bearing liabilities 0.62% 0.86% 0.95% Tax equivalent net interest margin 4.43% 4.40% 4.55% Efficiency ratio 84.62% 88.77% 76.50% Net loan charge-offs 0.20% 0.37% % Reconciliation of GAAP to Non-GAAP NET OPERATING EARNINGS Net income (GAAP) $ 7,174 $ 3,793 $ 529 Securities gains (1,215) (1,251) Gain on acquisition (7,773) Merger and conversion costs 14,638 3,164 78 Income tax effect of adjustments (5,175) (185) (30) Deferred tax asset valuation allowance reversal (3,300) Deferred tax asset revaluation from reduction in state income tax rates 1,218 Net operating earnings (Non-GAAP) 8,867 2,221 577 Dividends and accretion on preferred stock 2,493 1,346 122 Net operating earnings available to common stockholders (Non-GAAP) $ 6,374 $ 875 $ 455 OPERATING EARNINGS PER COMMON SHARE Basic (Non-GAAP) $ 0.15 $ 0.02 $ 0.01 Diluted (Non-GAAP) $ 0.15 $ 0.02 $ 0.01 PRE-TAX, PRE-PROVISION OPERATING EARNINGS Net income (GAAP) $ 7,174 $ 3,793 $ 529 Provision for loan losses 5,469 5,159 195 Income tax expense (benefit) 2,014 (3,486) 270 Pre-tax, pre-provision income 14,657 5,466 994 Securities gains (1,215) (1,251) Gain on acquisition (7,773) Merger and conversion costs 14,638 3,164 78 Pre-tax, pre-provision operating earnings (Non-GAAP) $ 20,307 $ 7,379 $ 1,072 OPERATING NON-INTEREST INCOME Non-interest income (GAAP) $ 25,180 $ 11,327 $ 657 Gain on acquisition (7,773) Operating non-interest income (Non-GAAP) $ 17,407 $ 11,327 $ 657 OPERATING NON-INTEREST EXPENSE Non-interest expense (GAAP) $ 80,612 $ 43,210 $ 3,236 Merger and conversion costs (14,638) (3,164) (78) Operating non-interest expense (Non-GAAP) $ 65,974 $ 40,046 $ 3,158 OPERATING EFFICIENCY RATIO Efficiency ratio (GAAP) 84.62% 88.77% 76.50% Effect to adjust for gain on acquisition 7.51% % % Effect to adjust for merger and conversion costs (16.73)% (6.50)% (1.84)% Operating efficiency ratio (Non-GAAP) 75.40% 82.27% 74.66% QUARTERLY BALANCE SHEETS Ending Balances (Dollars in thousands, except per share data) December 31 , September 30 , June 30 , March 31 , December 31 , 2013 2013 2013 2013 2012 Assets Cash and due from banks $ 29,080 $ 37,681 $ 29,264 $ 11,020 $ 15,735 Interest-earning deposits with banks 71,699 47,954 57,689 4,092 7,978 Federal funds sold 855 29,125 26,750 Investment securities available for sale 404,388 403,900 376,536 154,634 136,311 Investment securities held to maturity 500 208 200 194 180 Loans held for sale 8,663 7,216 21,009 8,671 16,439 Loans 1,389,666 1,353,550 1,324,171 794,623 763,416 Allowance for loan losses (7,043) (7,034) (6,425) (5,527) (3,998) Net loans 1,382,623 1,346,516 1,317,746 789,096 759,418 Federal Home Loan Bank stock 8,929 8,029 6,904 2,382 2,307 Premises and equipment, net 44,875 42,306 43,052 17,885 17,351 Bank-owned life insurance 33,148 32,896 32,642 20,138 19,976 Foreclosed assets 10,823 11,806 11,632 4,752 5,837 Deferred tax asset, net 54,622 55,715 58,854 37,525 36,659 Goodwill 26,254 26,254 26,254 26,254 26,254 Other intangible assets, net 5,883 6,113 6,343 2,266 2,376 Accrued interest receivable and other assets 38,461 19,557 20,088 8,008 11,654 Total assets $2,119,948 $2,046,151 $2,009,068 $1,116,042 $1,085,225 Liabilities Deposits: Non-interest demand $ 220,659 $ 208,736 $ 197,229 $ 73,756 $ 71,613 Interest-bearing demand 351,921 339,973 344,515 188,463 188,843 Money market and savings 467,814 458,214 482,672 270,994 260,966 Time 634,915 615,616 630,283 370,710 351,800 Total deposits 1,675,309 1,622,539 1,654,699 903,923 873,222 Short-term borrowings 126,500 100,500 68,002 6,000 7,500 Long-term debt 72,921 75,880 45,341 28,902 19,864 Accrued interest payable and other liabilities 12,919 16,259 11,621 4,818 10,698 Total liabilities 1,887,649 1,815,178 1,779,663 943,643 911,284 Stockholders' equity Preferred stock, series A, no par value 24,894 24,833 24,774 24,715 24,657 Preferred stock, series B, no par value 17,891 17,776 17,663 Common stock, $0.001 par value 46 46 46 36 36 Common stock warrant 1,457 1,457 1,457 1,325 1,325 Additional paid-in capital 188,908 188,658 188,408 147,738 147,510 Retained earnings (accumulated deficit) 3,276 724 (52) (2,578) (1,405) Accumulated other comprehensive income (loss) (4,173) (2,521) (2,891) 1,163 1,818 Total stockholders' equity 232,299 230,973 229,405 172,399 173,941 Total liabilities and stockholders' equity $2,119,948 $2,046,151 $2,009,068 $1,116,042 $1,085,225 Supplemental information on components of accumulated other comprehensive income (loss): Investment securities available for sale, net of tax $ (6,553) $ (4,430) $ (5,115) $ 1,374 $ 2,085 Cash flow hedges, net of tax 2,380 1,909 2,224 (211) (267) Total accumulated other comprehensive income (loss) $ (4,173) $ (2,521) $ (2,891) $ 1,163 $ 1,818 Ending Balances December 31 , September 30 , June 30 , March 31 , December 31 , (Dollars in thousands, except per share data) 2013 2013 2013 2013 2012 COMMON SHARE DATA Book value per common share $ 4.12 $ 4.09 $ 4.06 $ 4.13 $ 4.18 Tangible book value per common share $ 3.42 $ 3.39 $ 3.35 $ 3.33 $ 3.37 Ending shares outstanding 46,037,685 46,037,808 46,038,808 35,779,127 35,754,247 CAPITAL RATIOS Tangible equity to tangible assets 9.59% 9.86% 9.96% 13.23% 13.75% Tangible common equity to tangible assets 7.54% 7.75% 7.81% 10.96% 11.42% VantageSouth Bank : Tier 1 leverage ratio 10.16% 9.95% 8.26% 11.08% 11.45% Tier 1 risk-based capital ratio 11.85% 11.78% 10.22% 13.13% 13.66% Total risk-based capital ratio 12.70% 12.66% 11.11% 14.58% 14.96% ASSET QUALITY DATA Non-performing loans $ 20,925 $ 18,911 $ 15,116 $ 11,792 $ 12,770 Foreclosed assets 10,823 11,806 11,632 4,752 5,837 Total non-performing assets $ 31,748 $ 30,717 $ 26,748 $ 16,544 $ 18,607 Allowance for loan losses to loans 0.51% 0.52% 0.49% 0.70% 0.52% Non-performing loans to total loans 1.51% 1.40% 1.14% 1.48% 1.67% Non-performing assets to total assets 1.50% 1.50% 1.33% 1.48% 1.71% Restructured loans not included in categories above $ 534 $ 542 $ 550 $ 558 $ 104 Reconciliation of GAAP to Non-GAAP ADJUSTED ALLOWANCE FOR LOAN LOSSES Allowance for loan losses (GAAP) $ 7,043 $ 7,034 $ 6,425 $ 5,527 $ 3,998 Net acquisition accounting fair value discounts to loans 31,152 34,264 42,783 14,688 16,633 Adjusted allowance for loan losses 38,195 41,298 49,208 20,215 20,631 Loans $1,389,666 $1,353,550 $1,324,171 $ 794,623 $ 763,416 Adjusted allowance for loan losses to loans (Non-GAAP) 2.75% 3.05% 3.72% 2.54% 2.70% TANGIBLE COMMON EQUITY Total stockholders' equity (GAAP) $ 232,299 $ 230,973 $ 229,405 $ 172,399 $ 173,941 Less: Preferred stock 42,785 42,609 42,437 24,715 24,657 Less: Goodwill and other intangible assets, net 32,137 32,367 32,597 28,520 28,630 Tangible common equity (Non-GAAP) $ 157,377 $ 155,997 $ 154,371 $ 119,164 $ 120,654 QUARTERLY NET INTEREST MARGIN ANALYSIS Three months ended Three months ended Three months ended December 31, 2013 September 30, 2013 December 31, 2012 Average Average Average (Dollars in thousands) Balance Interest* Yield/Cost* Balance Interest* Yield/Cost* Balance Interest* Yield/Cost* Assets Loans $1,380,008 $20,206 5.81% $1,361,340 $20,348 5.93% $749,053 $10,898 5.79% Investment securities 411,598 2,363 2.28 381,684 1,849 1.92 147,188 923 2.49% Federal funds and other interest-earning assets 34,317 19 0.22 55,984 33 0.23 36,791 20 0.22 Total interest-earning assets 1,825,923 22,588 4.91% 1,799,008 22,230 4.90% 933,032 11,841 5.05% Non-interest-earning assets 232,167 220,220 132,629 Total assets $2,058,090 $2,019,228 $1,065,661 Liabilities and Equity Interest-bearing demand $340,635 167 0.19% $335,653 156 0.18% $159,071 $120 0.30% Money market and savings 464,586 342 0.29 475,985 332 0.28 250,625 343 0.54 Time deposits 619,849 1,152 0.74 627,874 1,133 0.72 361,557 846 0.93 Total interest-bearing deposits 1,425,070 1,661 0.46 1,439,512 1,621 0.45 771,253 1,309 0.68 Short-term borrowings 102,823 65 0.25 72,068 46 0.25 4,511 10 0.88 Long-term debt 73,840 1,048 5.63 62,347 654 4.16 22,517 279 4.93 Total interest-bearing liabilities 1,601,733 2,774 0.69% 1,573,927 2,321 0.59% 798,281 1,598 0.80% Non-interest-bearing deposits 210,530 203,427 86,266 Other liabilities 12,051 10,714 7,459 Total liabilities 1,824,314 1,788,068 892,006 Stockholders' equity 233,776 231,160 173,655 Total liabilities and stockholders' equity $2,058,090 $2,019,228 $1,065,661 Net interest income, taxable equivalent $19,814 $19,909 $10,243 Interest rate spread 4.22% 4.31% 4.25% Tax equivalent net interest margin 4.31% 4.39% 4.37% Percentage of average interest-earning assets to average interest-bearing liabilities 114.00% 114.30% 116.88% * Taxable equivalent basis YEAR-TO-DATE NET INTEREST MARGIN ANALYSIS Successor Predecessor Company Company Year ended December 31, 2013 Period from February 1, 2012 to December 31, 2012 Period from January 1, 2012 to January 31, 2012 Average Average Average Balance Interest* Yield/Cost* Balance Interest* Yield/Cost* Balance Interest* Yield/Cost* Assets: Loans $1,210,102 $71,627 5.92% $727,339 $39,717 5.97% $730,387 $3,807 6.15% Investment securities 331,459 7,038 2.12% 164,113 3,990 2.66% 180,220 419 2.74% Federal funds and other interest-earning assets 40,911 89 0.22% 42,603 85 0.22% 23,719 4 0.20% Total interest-earning assets 1,582,472 78,754 4.98% 934,055 43,792 5.12% 934,326 4,230 5.35% Non-interest-earning assets 204,522 127,572 134,240 Total assets $1,786,994 $1,061,627 $1,068,566 Liabilities and Equity: Interest-bearing demand $298,292 645 0.22% $149,394 540 0.39% $172,363 109 0.75% Money market and savings 422,543 1,362 0.32% 236,735 1,333 0.62% 184,716 96 0.61% Time deposits 557,853 4,195 0.75% 373,337 3,213 0.94% 404,999 325 0.95% Total interest-bearing deposits 1,278,688 6,202 0.49% 759,466 5,086 0.73% 762,078 530 Short-term borrowings 60,098 165 0.27% 3,351 19 0.62% 968 % Long-term debt 51,239 2,285 4.46% 22,966 1,065 5.07% 24,217 103 5.02% Total interest-bearing liabilities 1,390,025 8,652 0.62% 785,783 6,170 0.86% 787,263 633 0.95% Non-interest-bearing deposits 168,597 97,250 107,156 Other liabilities 9,541 6,858 4,184 Total liabilities 1,568,163 889,891 898,603 Stockholders' equity 218,831 171,736 169,963 Total liabilities and stockholders' equity $1,786,994 $1,061,627 $1,068,566 Net interest income, taxable equivalent $70,102 $37,622 $3,597 Interest rate spread 4.36% 4.26% 4.40% Tax equivalent net interest margin 4.43% 4.40% 4.55% Percentage of average interest-earning assets to average interest-bearing liabilities 113.84% 118.87% 118.68% * Taxable equivalent basis CONTACT: Terry Earley , CFO VantageSouth Bancshares, Inc. Phone: (919) 659-9015 Email: Terry.Earley@vsb.com Source: VantageSouth Bancshares, Inc.


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Source: GlobeNewswire


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