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Newport, Rhode Island, October 24, 2008. Newport Bancorp, Inc. (the "Company") (Nasdaq: NFSB), the holding company for Newport Federal Savings Bank (the "Bank" or "NewportFed"), today announced third quarter results for 2008. For the quarter ended September 30, 2008, the Company reported a net loss of $475,000, or $.12 per share (basic and diluted), compared to net income of $261,000, or $.06 per share (basic and diluted) for the quarter ended September 30, 2007. The loss for the quarter ended September 30, 2008, was a result of the other-than-temporary impairment charge of $480,000 for the Bank's holding in the AMF Ultra Short Mortgage Fund. For the nine months ended September 30, 2008, the Company reported a net loss of $239,000, or a loss of $.06 per share (basic and diluted), compared to net income of $804,000, or $.18 per share (basic and diluted) for the nine months ended September 30, 2007. Excluding the impact of the aforementioned investment loss, Newport Bancorp generated net income of $241,000 for the nine months ended September 30, 2008, or $.06 per share (basic and diluted).
During the first nine months of 2008, the Company's assets increased by $44.0 million, or 12.2%, to $405.2 million. The asset growth was concentrated in net loans, which increased by $30.6 million, or 10.4%, and short-term investments, which increased by $4.2 million. The loan portfolio growth was primarily concentrated in residential mortgages (an increase of $20.3 million or 12.0%) and commercial real estate mortgages (an increase of $11.7 million or 15.2%). The asset growth was funded by a $33.5 million, or 17.3%, increase in deposit balances and a $14.0 million, or 13.3%, increase in Federal Home Loan Bank borrowings.
Deposit growth was focused in NOW/Demand accounts (an increase of $30.2 million or 51.0%) and money market accounts (an increase of $8.8 million or 30.6%), partially offset by a decrease in time deposit accounts (a decrease of $5.5 million or 6.9%). The Bank's rewards checking account is responsible for the majority of the increase in the NOW/Demand deposit category.
Total stockholders' equity at September 30, 2008 was $56.5 million compared to $59.0 million at December 31, 2007. The decrease was primarily attributable to share repurchases under the Company's stock repurchase plan, an increase in the unrealized loss on securities available for sale, and the net loss, offset in part by stock-based compensation credits. Despite the net loss for the nine months ended September 30, 2008, the Bank continues to be "well capitalized" at September 30, 2008. The Company had a capital ratio of in excess of 13% at September 30, 2008.
Net interest income increased to $3.0 million for the quarter ended September 30, 2008 from $2.6 million for the quarter ended September 30, 2007, an increase of 14.3%. The increase in net interest income was primarily due to an increase in interest earned on loans and securities, partially offset by increased expense from borrowings used to fund the asset growth. Net interest income for the nine months ended September 30, 2008 was $8.9 million, compared to $7.6 million for the nine months ended September 30, 2007, an increase of 16.8%. The yield on interest-earning assets for the three and nine months ended September 30, 2008 was 5.83% and 5.98%, respectively, compared to 6.26% and 6.19% for the three and nine months ended September 30, 2007, respectively.
As a result of the low interest rate environment in 2008, the cost of interest-bearing liabilities decreased to 3.13% for the quarter ended September 30, 2008 from 3.56% for the quarter ended September 30, 2007. The cost of interest-bearing liabilities decreased to 3.23% for the nine months ended September 30, 2008 from 3.48% when compared to the same period in September 2007. The Company's third quarter net interest margin decreased to 3.23% in 2008 from 3.60% in 2007, down 37 basis points. For the nine months ended September 30, 2008, the net interest margin was 3.33%, a decrease of 27 basis points from the nine months ended September 30, 2007.
Non-performing assets as a percentage of total assets was 0.08% at September 30, 2008 and 0.25% at December 31, 2007. The loan loss provision for the three and nine months ended September 30, 2008 was $119,000 and $345,000, respectively, compared to $126,000 and $286,000 for the three and nine months ended September 30, 2007, respectively. Management reviews the level of the allowance for loan losses on a quarterly basis and establishes the provision for loan losses based upon the volume and types of lending, delinquency levels, loss experience, the amount of impaired and classified loans, economic conditions and other factors related to the collectability of the loan portfolio. Asset quality continues to remain strong.
Non-interest income for the third quarter of 2008 totaled $119,000, a decrease of $465,000, or 79.6%, compared to the third quarter of 2007. For the nine months ended September 30, 2008, non-interest income totaled $1.3 million, a decrease of $463,000, or 26.7%, compared to the nine months ended September 30, 2007. The decrease between the two periods in non-interest income is due to the $480,000 impairment charge for the Bank's holding in the AMF Ultra Short Mortgage Fund, offset slightly by the increase in income earned on bank-owned life insurance. The AMF Ultra Short Mortgage Fund has invested in US Government/Agency securities and private label mortgage backed securities. Although management believes it is possible that all principal and interest payments will be received, general market concerns over these and similar types of securities has caused the fair value to decline severely enough to warrant an OTTI (other-than-temporary impairment) charge. Given the significant uncertainty and illiquidity in the markets for such securities, the Bank cannot be certain that future impairment charges will not be required against this investment, which had a remaining book value of $2.2 million at September 30, 2008 (net of impairment charges).
Total non-interest expenses increased to $3.4 million for the quarter ended September 30, 2008 from $2.6 million for the quarter ended September 30, 2007, an increase of 29.3%. For the nine months ended September 30, 2008, non-interest expenses totaled $9.8 million, an increase of 26.0%, compared to the nine months ended September 30, 2007. The higher non-interest expense between periods is attributable to an increase in salaries and benefits, coupled with an overall increase in all other non-interest expenses. The increase in salaries and benefits is due to the stock-based compensation expense associated with option grants and restricted stock awards recorded in the first nine months of 2008. Since the equity incentive plan was effective on October 1, 2007, there was no stock-based compensation expense incurred during the first nine months of 2007.
This news release may contain forward-looking statements, which can be identified by the use of words such as "believes," "expects," "anticipates," "estimates" or similar expressions. Such forward-looking statements and all other statements that are not historic facts are subject to risks and uncertainties which could cause actual results to differ materially from those currently anticipated due to a number of factors. These factors include, but are not limited to, general economic conditions, changes in the interest rate environment, legislative or regulatory changes that may adversely affect our business, changes in accounting policies and practices, changes in competition and demand for financial services, adverse changes in the securities markets, changes in deposit flows and changes in the quality or composition of the Company's loan or investment portfolios. Additionally, other risks and uncertainties may be described in the Company's annual report on Form 10-K, its quarterly reports on Form 10-Q or its other reports as filed with the Securities and Exchange Commission which are available through the SEC's website at www.sec.gov. Should one or more of these risks materialize, actual results may vary from those anticipated, estimated or projected. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. Except as may be required by applicable law or regulation, the Company assumes no obligation to update any forward-looking statements.
Contact:
Bruce Walsh
Senior Vice-President and Chief Financial Officer
(401) 847-5500
