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TowneBank Reports Third Quarter Earnings

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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 757-638-6801
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