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TowneBank Reports Third Quarter Earnings

SUFFOLK, Va., Oct. 24, 2012 (GLOBE NEWSWIRE) -- Hampton Roads based TowneBank (the "Bank") (Nasdaq:TOWN) reported earnings of $9.35 million for the quarter ended September 30, 2012, a 9.68% increase, or $825,000, over the $8.53 million reported for the comparative period in 2011. Earnings for the nine-month year-to-date period increased 16.36% to $28.32 million as compared to the $24.33 million earned in the same period last year.

Net income available to common shareholders increased 63.23% to $8.0 million after preferred dividend payments of $1.36 million for the quarter. Fully diluted earnings per share increased 62.50% to $0.26 per share compared to $0.16 per share for the comparative period of 2011. Fully diluted earnings per share increased 43.40% from $0.53 per share to $0.76 for the nine-month period ended September 30, 2012.

The Bank's common dividend remained at $0.08 per share for the quarter with the common dividend totaling $2.55 million.

Earnings Highlights

The growth in earnings was driven by an increase in net interest income of $2.90 million, or 8.50%, combined with a $4.85 million, or 28.84%, increase in noninterest income. The improvement in net interest income was powered by the growth in the Bank's loan portfolio, which ended the period at $3.03 billion, representing an increase of 11.12%, or $303.20 million, from the prior year. The Bank's net interest margin on a fully tax-equivalent basis increased to 3.95%, up from 3.87% in the same period in 2011, and down from 3.99% in the second quarter of 2012.

The increase in noninterest income is primarily attributable to continued growth in residential mortgage banking income, which increased $3.93 million, or 115.81%, from the comparative period in 2011. The increase was driven by the expansion in our mortgage operations, as we have moved into new markets in Virginia and North Carolina.

Noninterest expense increased by $3.14 million, or 8.47%, compared to the comparative quarter of 2011, and increased $10.69 million, or 9.92%, compared to the first nine months of 2011. A significant portion of the increase from the comparative periods in 2011 is related to the acquisitions of two insurance agencies and the expansion of our mortgage operations in 2011.

Balance Sheet

At September 30, 2012, total Bank assets reached $4.32 billion, an increase of $290.07 million over 2011.

Total Bank deposits reached $3.31 billion, an increase of 5.01%. Growth in noninterest bearing demand deposits continued to outpace overall deposit growth, ending the quarter at $955.66 million, an 11.56% increase. Noninterest-bearing deposits represented 28.91% of total deposits at September 30, 2012.

Capital Strength

The Bank's total equity at September 30, 2012 climbed to $553.61 million. Common equity increased 10.14% or $37.95 million, from September 30, 2011. During the first quarter of 2012 we converted our 8% subordinated notes into common stock, adding $13.8 million to Tier 1 capital and saving $1.1 million a year in interest expense. Total risk-based capital remained strong in the face of balance sheet growth during the year as total risk-based capital, Tier 1 capital, and Tier 1 leverage ratios were 13.65%, 12.53% and 10.66%, respectively. All ratios exceed the current regulatory standards for well capitalized status.

Credit Quality

The Bank's loan portfolio continued to perform comparatively well during the third quarter of 2012. At September 30, 2012, nonperforming assets totaled $82.43 million, or 1.91%, of Bank assets as compared to $89.13 million, or 2.21%, at September 30, 2011 and $80.89 million, or 1.91%, at June 30, 2012.

The provision for loan losses increased $3.58 million, compared to the third quarter of 2011, while net charge-offs were $6.01 million compared to $2.25 million in the comparative period of 2011 and $3.79 million in the second quarter of 2012. The majority of the charge-offs in the current quarter were related to a small number of loans that had previously been identified as having a higher risk of default and had associated specific reserves.

Asset Quality Indicators
(in thousands) 9/30/2012 6/30/2012 3/31/2012 12/31/2011 9/30/2011
Nonperforming loans $51,519 $51,117 $56,253 $55,801 $62,574
Foreclosed property 30,910 29,775 32,211 29,819 26,553
Total nonperforming assets $82,429 $80,892 $88,464 $85,620 $89,127
Quarterly net loans charged off $6,010 $3,787 $3,803 $2,263 $2,246
Year-to-date net loans charged off $13,600 $7,590 $3,803 $12,522 $10,259

Community Support

For the quarter ended September 30, 2012, TowneBank provided charitable and financial support to the community of $789,000. Year-to-date support for community nonprofit organizations reached $2.84 million, an increase of $547,000 over the same period last year.

"We are pleased to report another successful quarter for TowneBank and our affiliated companies. With our increased earnings and balance sheet growth, we were able to continue to create economic growth in our Towne communities and support those organizations that serve to improve the quality of life in Hampton Roads and Northeastern North Carolina," said G. Robert Aston, Jr., Chairman of the Board and Chief Executive Officer.

As one of the top community banks in Virginia and North Carolina, TowneBank operates 26 banking offices serving Chesapeake, Hampton, Newport News, Norfolk, Portsmouth, Suffolk, Virginia Beach, Williamsburg, James City County and York County in Virginia along with Moyock, Grandy, Camden, Southern Shores, Corolla and Kill Devil Hills in North Carolina. Towne also offers a full range of financial services through its controlled divisions and subsidiaries that include Towne Investment Group, Towne Insurance Agency, TFA Benefits, TowneBank Mortgage, TowneBank Commercial Mortgage, Prudential Towne Realty, Towne 1031 Exchange, LLC, and Corolla Classic Vacations. Through its strategic partnership with William E. Wood and Associates, the Bank also offers mortgage services in all of their offices in Hampton Roads and Northeastern North Carolina. Local decision-making is a hallmark of its hometown banking strategy that is delivered through the leadership of each group's President and Board of Directors. With total assets of $4.32 billion as of September 30, 2012, TowneBank is one of the largest banks headquartered in Virginia.

Forward-Looking Statements:

This release contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. These statements may address issues that involve significant risks, uncertainties, estimates and assumptions made by management. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include competitive pressures in the banking industry that may increase significantly; changes in the interest rate environment may reduce margins and/or the volumes and values of loans made or held as well as the value of other financial assets held; general economic conditions, either nationally or regionally, may be less favorable than expected, resulting in, among other things, a deterioration in credit quality and/or a reduced demand for credit or other services; changes in the legislative or regulatory environment, including changes in accounting standards, may adversely affect our business; costs or difficulties related to the integration of the business and the businesses we have acquired may be greater than expected; expected cost savings associated with pending or recently completed acquisitions may not be fully realized or realized within the expected time frame; our competitors may have greater financial resources and develop products that enable them to compete more successfully; changes in business conditions, changes in the securities market and changes in our local economy with regards to our market area and its heavy concentration of U. S. military bases and related personnel. We assume no obligation to update information contained in this release.

Selected Financial Highlights (unaudited)
TOWNEBANK
September 30, 2012
(dollars in thousands)
Increase/ % Increase/
Three Months Ended September 30, 2012 2011 (Decrease) (Decrease)
Results of Operations:
Net interest income $ 36,984 $ 34,086 $ 2,898 8.50%
Noninterest income (1) 21,674 16,823 4,851 28.84%
Gain (loss) on investment securities 508 (3) 511 N/M
Noninterest expenses 40,231 37,089 3,142 8.47%
Provision for loan losses 4,977 1,400 3,577 255.50%
Income before income tax and noncontrolling interest 13,958 12,417 1,541 12.41%
Provision for income tax expense 4,063 3,610 453 12.55%
Net income 9,895 8,807 1,088 12.35%
Net (income) loss attributable to noncontrolling interest (545) (282) (263) 93.26%
Net income attributable to TowneBank 9,350 8,525 825 9.68%
Preferred stock dividends and accretion 1,355 3,627 (2,272) (62.64%)
Net income available to common shareholders 7,995 4,898 3,097 63.23%
Net income per common share - basic (2) 0.26 0.16 0.10 62.50%
Net income per common share - diluted (2) 0.26 0.16 0.10 62.50%
Period End Data:
Total assets $ 4,318,309 $ 4,028,244 $ 290,065 7.20%
Total assets - tangible 4,205,112 3,915,188 289,924 7.41%
Earning assets (3) 3,947,414 3,664,039 283,375 7.73%
Loans (net of unearned income) 3,030,141 2,726,938 303,203 11.12%
Allowance for loan losses 39,336 40,941 (1,605) (3.92%)
Goodwill and other intangibles 113,197 113,056 141 0.12%
Nonperforming assets 82,429 89,127 (6,698) (7.52%)
Noninterest bearing deposits 955,656 856,634 99,022 11.56%
Interest bearing deposits 2,349,469 2,290,711 58,758 2.57%
Total deposits 3,305,125 3,147,345 157,780 5.01%
Total equity 553,606 515,155 38,451 7.46%
Total equity - tangible 440,409 402,099 38,310 9.53%
Common equity 412,197 374,246 37,951 10.14%
Common equity - tangible 299,000 261,190 37,810 14.48%
Book value per common share (2) 13.14 12.51 0.63 5.04%
Book value per common share - tangible (2) 9.53 8.73 0.80 9.16%
Daily Average Balances:
Total assets $ 4,239,838 $ 4,012,377 $ 227,461 5.67%
Total assets - tangible 4,126,309 3,898,997 227,312 5.83%
Earning assets (3) 3,850,305 3,629,310 220,995 6.09%
Loans (net of unearned income), excluding nonaccrual loans 2,958,789 2,663,562 295,227 11.08%
Allowance for loan losses 40,463 43,319 (2,856) (6.59%)
Goodwill and other intangibles 113,529 113,380 149 0.13%
Noninterest bearing deposits 941,286 804,798 136,488 16.96%
Interest bearing deposits 2,391,559 2,324,613 66,946 2.88%
Total deposits 3,332,845 3,129,411 203,434 6.50%
Total equity 552,541 513,257 39,284 7.65%
Total equity - tangible 439,012 399,877 39,135 9.79%
Common equity 411,374 374,238 37,136 9.92%
Common equity - tangible 297,845 260,858 36,987 14.18%
Key Ratios:
Return on average assets 0.88% 0.84% 0.04% 4.76%
Return on average assets - tangible 0.90% 0.87% 0.03% 3.45%
Return on average equity 6.73% 6.59% 0.14% 2.12%
Return on average equity - tangible 8.47% 8.46% 0.01% 0.12%
Return on average common equity 7.73% 5.19% 2.54% 48.94%
Return on average common equity - tangible 10.68% 7.45% 3.23% 43.36%
Net interest margin-fully tax equivalent (3)(4) 3.95% 3.87% 0.08% 2.07%
Net interest margin (3) 3.87% 3.79% 0.08% 2.11%
Average earning assets/total average assets 90.81% 90.45% 0.36% 0.40%
Average loans/average deposits 88.78% 85.11% 3.67% 4.31%
Average noninterest deposits/total average deposits 28.24% 25.72% 2.52% 9.80%
Allowance for loan losses/period end loans 1.30% 1.50% (0.20%) (13.33%)
Nonperforming assets to period end assets 1.91% 2.21% (0.30%) (13.57%)
Period end equity/period end total assets 12.82% 12.79% 0.03% 0.23%
Efficiency ratio (1) 68.59% 72.85% (4.26%) (5.85%)
(1) Excludes gain on investment securities
(2) Prior period was restated to reflect 3% common stock dividend paid June 12, 2012
(3) Includes bank-owned life insurance
(4) Presented on a tax-equivalent basis
Selected Financial Highlights (unaudited)
TOWNEBANK
September 30, 2012
(dollars in thousands)
Increase/ % Increase/
Nine Months Ended September 30, 2012 2011 (Decrease) (Decrease)
Results of Operations:
Net interest income $ 107,673 $ 101,946 $ 5,727 5.62%
Noninterest income (1) 62,189 48,081 14,108 29.34%
Gain on investment securities 3,038 3,679 (641) (17.42%)
Noninterest expenses 118,403 107,716 10,687 9.92%
Provision for loan losses 13,196 12,540 656 5.23%
Income before income tax and noncontrolling interest 41,301 33,450 7,851 23.47%
Provision for income tax expense 11,518 9,621 1,897 19.72%
Net income 29,783 23,829 5,954 24.99%
Net (income) loss attributable to noncontrolling interest (1,468) 505 (1,973) (390.69%)
Net income attributable to TowneBank 28,315 24,334 3,981 16.36%
Preferred stock dividends and accretion 4,872 8,294 (3,422) (41.26%)
Net income available to common shareholders 23,443 16,040 7,403 46.15%
Net income per common share - basic (2) 0.76 0.54 0.22 40.74%
Net income per common share - diluted (2) 0.76 0.53 0.23 43.40%
Period End Data:
Total assets $ 4,318,309 $ 4,028,244 $ 290,065 7.20%
Total assets - tangible 4,205,112 3,915,188 289,924 7.41%
Earning assets (3) 3,947,414 3,664,039 283,375 7.73%
Loans (net of unearned income) 3,030,141 2,726,938 303,203 11.12%
Allowance for loan losses 39,336 40,941 (1,605) (3.92%)
Goodwill and other intangibles 113,197 113,056 141 0.12%
Nonperforming assets 82,429 89,127 (6,698) (7.52%)
Noninterest bearing deposits 955,656 856,634 99,022 11.56%
Interest bearing deposits 2,349,469 2,290,711 58,758 2.57%
Total deposits 3,305,125 3,147,345 157,780 5.01%
Total equity 553,606 515,155 38,451 7.46%
Total equity - tangible 440,409 402,099 38,310 9.53%
Common equity 412,197 374,246 37,951 10.14%
Common equity - tangible 299,000 261,190 37,810 14.48%
Book value per common share (2) 13.14 12.51 0.63 5.04%
Book value per common share - tangible (2) 9.53 8.73 0.80 9.16%
Daily Average Balances:
Total assets $ 4,147,376 $ 3,970,866 $ 176,510 4.45%
Total assets - tangible 4,033,275 3,857,756 175,519 4.55%
Earning assets (3) 3,756,573 3,585,922 170,651 4.76%
Loans (net of unearned income), excluding nonaccrual loans 2,873,429 2,673,268 200,161 7.49%
Allowance for loan losses 40,251 40,918 (667) (1.63%)
Goodwill and other intangibles 114,101 113,111 990 0.88%
Noninterest bearing deposits 883,553 760,534 123,019 16.18%
Interest bearing deposits 2,367,208 2,304,732 62,476 2.71%
Total deposits 3,250,761 3,065,266 185,495 6.05%
Total equity 541,302 509,175 32,127 6.31%
Total equity - tangible 427,201 396,065 31,136 7.86%
Common equity 400,373 369,769 30,604 8.28%
Common equity - tangible 286,272 256,658 29,614 11.54%
Key Ratios:
Return on average assets 0.91% 0.82% 0.09% 10.98%
Return on average assets - tangible 0.94% 0.84% 0.10% 11.90%
Return on average equity 6.99% 6.39% 0.60% 9.39%
Return on average equity - tangible 8.85% 8.21% 0.64% 7.80%
Return on average common equity 7.82% 5.80% 2.02% 34.83%
Return on average common equity - tangible 10.94% 8.36% 2.58% 30.86%
Net interest margin-fully tax equivalent (3)(4) 3.96% 3.96% -- --
Net interest margin (3) 3.88% 3.87% 0.01% 0.26%
Average earning assets/total average assets 90.58% 90.31% 0.27% 0.30%
Average loans/average deposits 88.39% 87.21% 1.18% 1.35%
Average noninterest deposits/total average deposits 27.18% 24.81% 2.37% 9.55%
Allowance for loan losses/period end loans 1.30% 1.50% (0.20%) (13.33%)
Nonperforming assets to period end assets 1.91% 2.21% (0.30%) (13.57%)
Period end equity/period end total assets 12.82% 12.79% 0.03% 0.23%
Efficiency ratio (1) 69.71% 71.80% (2.09%) (2.91%)
(1) Excludes gain on investment securities
(2) Prior period was restated to reflect 3% common stock dividend paid June 12, 2012
(3) Includes bank-owned life insurance
(4) Presented on a tax-equivalent basis
CONTACT: G. Robert Aston Chairman and CEO 757-638-6780 Clyde E. McFarland, Jr. Senior Executive Vice President and CFO 757-638-6801Source: TowneBank