Market Overview

TowneBank Reports Record Annual Earnings

SUFFOLK, Va., Feb. 1, 2013 (GLOBE NEWSWIRE) -- Hampton Roads based TowneBank (the "Bank") (Nasdaq: TOWN) reported record earnings of $37.93 million for the year ended December 31, 2012, a 13.84% increase, or $4.61 million, over the $33.32 million reported for 2011. Net income available to common shareholders for 2012 increased 38.53% to $31.71 million after preferred dividend payments of $6.23 million. Fully diluted earnings of $1.03 per share grew 35.53%, as compared to $0.76 in 2011.

For the fourth quarter, earnings increased 7.0% to $9.62 million from $8.99 million in the comparative period of 2011. Net income available to common shareholders increased 20.81% to $8.26 million after preferred dividend payments of $1.35 million. Fully diluted earnings per share increased 17.39% to $0.27 per share compared to $0.23 per share for the comparative period of 2011.

The Bank's common dividend rose to $0.33 per share for the year with the common dividend totaling $10.42 million.

Earnings Highlights

The growth in annual earnings was positively affected by a 5.92% increase in net interest income to $144.28 million, an $8.06 million improvement from 2011.  The improvement in net interest income was fueled by growth in the Bank's loan portfolio, which ended the period at $3.13 billion, representing an increase of 12.18%, or $340.31 million, from the prior year. The Bank's net interest margin on a fully tax equivalent basis was 3.92%, compared to 3.94% in 2011. The change reflects a decline in yields on earning assets that was mostly offset by continued reduction in the Bank's funding costs. For the fourth quarter of 2012, net interest income increased $2.33 million, or 6.81%, compared to the fourth quarter of 2011.

Noninterest income, excluding gains on investment securities, increased by $17.13 million, or 26.75%, to $81.18 million in 2012. In the fourth quarter of 2012, noninterest income, excluding gains on investment securities, increased by $3.03 million, or 18.94%, compared to the same quarter of 2011. The improvement in both the annual and quarterly periods was primarily attributable to continued growth in residential mortgage banking income as we have expanded our mortgage operations into new markets in Virginia and North Carolina. The expansion resulted in additional residential mortgage banking income of $10.38 million for the annual period and an increase of $2.32 million in the comparative quarterly period.

The Bank also recognized a gain on investment securities of $3.01 million for the year as compared to the $3.68 million recorded in 2011 as the Bank continues to reposition its securities portfolio while taking advantage of market volatility.

Noninterest expense increased by $13.93 million, or 9.62%, to $158.75 million in 2012. In the fourth quarter of 2012, noninterest expense increased by $3.24 million, or 8.74%, compared to the same quarter of 2011. In comparison to 2011, a substantial portion of the increase is due to the acquisition of an insurance agency in November 2011 and the expansion of our mortgage operations. This growth related activity resulted in an incremental increase in noninterest expenses of $8.27 million in 2012 as compared to the prior year.

Balance Sheet

At December 31, 2012, total Bank assets reached $4.41 billion, an increase of $324.15 million over 2011. The Bank's loan portfolio ended the period at $3.13 billion representing an increase of 12.18%, or $340.31 million, from the prior year, while earning assets increased to $4.03 billion, an 8.66%, or $321.63 million, increase over the same period.

The Bank continued to experience deposit growth with total deposits increasing 5.93% to $3.38 billion. Retail deposits, excluding noncore CDARS and brokered deposits, increased by $292.56 million, or 10.03%, while noncore CDARS and brokered deposits decreased by $103.30 million, or 37.85%, as the Bank reduced its reliance on wholesale funding sources. Additionally, growth in noninterest bearing demand deposits continued to outpace overall deposit growth, ending the year at $978.82 million, a 16.64% increase.  Noninterest deposits represented 28.96% of total deposits at year-end 2012.

Capital Strength

The Bank's total equity at December 31, 2012 climbed to $559.88 million.  Common equity, which increased 10.25%, or $38.92 million, in 2012 will be positively affected by the mandatory conversion of the Company's 8% Series A Preferred Stock to common stock on September 1, 2013. The balance of the 8% Series A Preferred Stock was $57.89 million at December 31, 2012.  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 13.75%, 12.60% and 10.40%, respectively. All ratios exceed the current regulatory standards for well capitalized status.

Credit Quality

In 2012, the Bank's loan portfolio continued to perform well as asset quality continued to improve with nonperforming assets totaling $70.99 million or 1.61% of Bank assets at December 31, 2012, as compared to $85.62 million or 2.10% at December 31, 2011.

The provision for loan losses increased $2.55 million and $1.90 million compared to the full year and the fourth quarter of 2011, respectively. Net charge-offs were $15.47 million in 2012 compared to $12.52 million in 2011.  A number of the charge-offs in 2012 were related to loans that had previously been identified as having a higher risk of default and had associated specific reserves.

Asset Quality Indicators          
(in thousands) 12/31/2012 9/30/2012 6/30/2012 3/31/2012 12/31/2011
Nonperforming loans $40,691 $51,519 $51,117 $56,253 $55,801
Foreclosed property 30,297 30,910 29,775 32,211 29,819
Total nonperforming assets $70,988 $82,429 $80,892 $88,464 $85,620
Quarterly net loans charged off $1,868 $6,010 $3,787 $3,803 $2,263
Year-to-date net loans charged off $15,468 $13,600 $7,590 $3,803 $12,522

"We are pleased to report another year of record annual earnings with strong growth in loans and core deposits.  I believe our commitment to promoting the well-being of our local community while providing exquisite service to our members is positively reflected by our continued growth in earnings and market share. We will continue to strive to increase franchise value for our shareholders while building a great asset for our community and our members," stated G. Robert Aston, Chairman and Chief Executive Officer.

As one of the top community banks in Virginia and North Carolina, TowneBank operates 25 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 $4.41 billion as of December 31, 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
December 31, 2012
(dollars in thousands)
         
       Increase/   % Increase/ 
Twelve Months Ended December 31, 2012 2011  (Decrease)   (Decrease) 
Results of Operations:        
Net interest income  $ 144,284  $ 136,222  $ 8,062 5.92%
Noninterest income (1)  81,184  64,052  17,132 26.75%
Gain on investment securities  3,005  3,681  (676) (18.36%)
Noninterest expenses  158,749  144,820  13,929 9.62%
Provision for loan losses  16,155  13,602  2,553 18.77%
Income before income tax and noncontrolling interest  53,569  45,533  8,036 17.65%
Provision for income tax expense   13,964  12,726  1,238 9.73%
Net income  39,605  32,807  6,798 20.72%
Net (income) loss attributable to noncontrolling interest   (1,674)  514  (2,188) N/M
Net income attributable to TowneBank  37,931  33,321  4,610 13.84%
Preferred stock dividends and accretion  6,226  10,434  (4,208) (40.33%)
Net income available to common shareholders  31,705  22,887  8,818 38.53%
Net income per common share - basic (2)  1.03  0.77  0.26 33.77%
Net income per common share - diluted (2)  1.03  0.76  0.27 35.53%
Period End Data:        
Total assets  $ 4,405,923  $ 4,081,770  $ 324,153 7.94%
Total assets - tangible  4,286,921  3,966,832  320,089 8.07%
Earning assets (3)  4,033,813  3,712,187  321,626 8.66%
Loans (net of unearned income)  3,133,507  2,793,193  340,314 12.18%
Allowance for loan losses  40,427  39,740  687 1.73%
Goodwill and other intangibles  119,002  114,938  4,064 3.54%
Nonperforming assets  70,988  85,620  (14,632) (17.09%)
Noninterest bearing deposits  978,818  839,211  139,607 16.64%
Interest bearing deposits  2,401,234  2,351,576  49,658 2.11%
Total deposits  3,380,052  3,190,787  189,265 5.93%
Total equity  559,879  520,489  39,390 7.57%
Total equity - tangible  440,877  405,551  35,326 8.71%
Common equity  418,606  379,686  38,920 10.25%
Common equity - tangible  299,604  264,749  34,855 13.17%
Book value per share (2)  13.30  12.65  0.65 5.14%
Book value per share - tangible (2)  9.52  8.82  0.70 7.94%
Daily Average Balances:        
Total assets  $ 4,201,452  $ 3,990,783  $ 210,669 5.28%
Total assets - tangible  4,087,602  3,877,103  210,499 5.43%
Earning assets (3)  3,811,846  3,604,641  207,205 5.75%
Loans (net of unearned income), excluding nonaccrual loans  2,910,406  2,678,004  232,402 8.68%
Allowance for loan losses  40,100  40,928  (828) (2.02%)
Goodwill and other intangibles  113,850  113,680  170 0.15%
Noninterest bearing deposits  904,512  781,992  122,520 15.67%
Interest bearing deposits  2,370,003  2,308,099  61,904 2.68%
Total deposits  3,274,515  3,090,091  184,424 5.97%
Total equity  545,566  511,724  33,842 6.61%
Total equity - tangible  431,716  398,045  33,671 8.46%
Common equity  404,565  371,950  32,615 8.77%
Common equity - tangible  290,716  258,271  32,445 12.56%
Key Ratios:        
Return on average assets 0.90% 0.83% 0.07% 8.43%
Return on average assets - tangible 0.93% 0.86% 0.07% 8.14%
Return on average equity 6.95% 6.51% 0.44% 6.76%
Return on average equity - tangible 8.79% 8.37% 0.42% 5.02%
Return on average common equity 7.84% 6.15% 1.69% 27.48%
Return on average common equity - tangible 10.91% 8.86% 2.05% 23.14%
Net interest margin-fully tax equivalent (3)(4) 3.92% 3.94% (0.02%) (0.51%)
Net interest margin (3) 3.84% 3.85% (0.01%) (0.26%)
Average earning assets/total average assets 90.73% 90.32% 0.41% 0.45%
Average loans/average deposits 88.88% 86.66% 2.22% 2.56%
Average noninterest deposits/total average deposits 27.62% 25.31% 2.31% 9.13%
Allowance for loan losses/period end loans 1.29% 1.42% (0.13%) (9.15%)
Nonperforming assets to period end assets 1.61% 2.10% (0.49%) (23.08%)
Period end equity/period end total assets 12.71% 12.75% (0.04%) (0.31%)
Efficiency ratio (1) 70.41% 72.31% (1.90%) (2.63%)
 
(1) Excludes gain on available for sale 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
December 31, 2012
(dollars in thousands)
         
       Increase/   % Increase/ 
Three Months Ended December 31, 2012 2011  (Decrease)   (Decrease) 
Results of Operations:        
Net interest income  $ 36,611  $ 34,277  $ 2,334 6.81%
Noninterest income (1)  18,995  15,970  3,025 18.94%
Gain (loss) on investment securities  (33)  3  (36) N/M
Noninterest expenses  40,346  37,104  3,242 8.74%
Provision for loan losses  2,959  1,062  1,897 178.63%
Income before tax and noncontrolling interest  12,268  12,084  184 1.52%
Provision for income tax expense  2,446  3,105  (659) (21.22%)
Net income  9,822  8,979  843 9.40%
Net (income) loss attributable to noncontrolling interest   (206)  8  (214) N/M
Net income attributable to TowneBank  9,616  8,987  629 7.00%
Preferred stock dividends and accretion  1,354  2,140  (786) (36.73%)
Net income available to common shareholders  8,262  6,839  1,423 20.81%
Net income per common share - basic (2)  0.27  0.23  0.04 17.39%
Net income per common share - diluted (2)  0.27  0.23  0.04 17.39%
Period End Data:        
Total assets  $ 4,405,923  $ 4,081,770  $ 324,153 7.94%
Total assets - tangible  4,286,921  3,966,832  320,089 8.07%
Earning assets (3)  4,033,813  3,712,187  321,626 8.66%
Loans (net of unearned income)  3,133,507  2,793,193  340,314 12.18%
Allowance for loan losses  40,427  39,740  687 1.73%
Goodwill and other intangibles  119,002  114,938  4,064 3.54%
Nonperforming assets  70,988  85,620  (14,632) (17.09%)
Noninterest bearing deposits  978,818  839,211  139,607 16.64%
Interest bearing deposits  2,401,234  2,351,576  49,658 2.11%
Total deposits  3,380,052  3,190,787  189,265 5.93%
Total equity  559,879  520,489  39,390 7.57%
Total equity - tangible  440,877  405,551  35,326 8.71%
Common equity  418,606  379,686  38,920 10.25%
Common equity - tangible  299,604  264,749  34,855 13.17%
Book value per common share (2)  13.30  12.65  0.65 5.14%
Book value per common share - tangible (2)  9.52  8.82  0.70 7.94%
Daily Average Balances:        
Total assets  $ 4,362,506  $ 4,049,883  $ 312,623 7.72%
Total assets - tangible  4,249,403  3,934,515  314,888 8.00%
Earning assets (2)  3,976,463  3,660,185  316,278 8.64%
Loans (net of unearned income), excluding nonaccrual loans  3,020,532  2,692,055  328,477 12.20%
Allowance for loan losses  39,649  40,958  (1,309) (3.20%)
Goodwill and other intangibles  113,103  115,368  (2,265) (1.96%)
Noninterest bearing deposits  966,934  845,665  121,269 14.34%
Interest bearing deposits  2,378,328  2,318,090  60,238 2.60%
Total deposits  3,345,262  3,163,755  181,507 5.74%
Total equity  558,265  519,288  38,977 7.51%
Total equity - tangible  445,162  403,920  41,242 10.21%
Common equity  417,051  378,422  38,629 10.21%
Common equity - tangible  303,948  263,054  40,894 15.55%
Key Ratios:        
Return on average assets 0.88% 0.88% 0.00% 0.00%
Return on average assets - tangible 0.90% 0.91% (0.01%) (1.10%)
Return on average equity 6.85% 6.87% (0.02%) (0.29%)
Return on average equity - tangible 8.59% 8.83% (0.24%) (2.72%)
Return on average common equity 7.88% 7.18% 0.70% 9.75%
Return on average common equity - tangible 10.81% 10.33% 0.48% 4.65%
Net interest margin-fully tax equivalent (3)(4) 3.82% 3.94% (0.12%) (3.05%)
Net interest margin (3) 3.73% 3.83% (0.10%) (2.61%)
Average earning assets/total average assets 91.15% 90.38% 0.77% 0.85%
Average loans/average deposits 90.29% 85.09% 5.20% 6.11%
Average noninterest deposits/total average deposits 28.90% 26.73% 2.17% 8.12%
Allowance for loan losses/period end loans 1.29% 1.42% (0.13%) (9.15%)
Nonperforming assets to period end assets 1.61% 2.10% (0.49%) (23.08%)
Period end equity/period end total assets 12.71% 12.75% (0.04%) (0.31%)
Efficiency ratio (1) 72.56% 73.84% (1.29%) (1.74%)
 
(1) Excludes gain on available for sale 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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