TowneBank Reports Record First Quarter Earnings

SUFFOLK, Va., April 25, 2013 (GLOBE NEWSWIRE) -- Hampton Roads based TowneBank (the "Bank") (Nasdaq:TOWN) reported record earnings of $10.47 million for the quarter ended March 31, 2013, a 10.97% increase, or $1.04 million, over the $9.44 million reported for the comparative period in 2012.

Net income available to common shareholders increased 21.26% to $9.12 million after preferred dividend payments of $1.35 million. Fully diluted earnings per share increased 16.0% to $0.29 per share compared to $0.25 per share for the comparative period of 2012.

The Bank's common dividend was $0.09 per share for the quarter with the common dividend totaling $2.89 million. The current dividend represents an increase of 12.5% over the dividend paid during the same quarter of 2012.

Earnings Highlights

Net interest income increased to $35.21 million, a $425,000, or 1.22%, improvement over the first quarter of 2012. The improvement in net interest income was driven by a combination of the growth in the Bank's earning assets and the continued reduction in funding costs. The Bank's loan portfolio ended the period at $3.16 billion representing an increase of 9.82%, or $282.41 million, from the prior year, while earning assets increased to $4.02 billion, a 6.42%, or $242.19 million, increase over the same period.  The Bank's net interest margin on a fully tax equivalent basis decreased to 3.72%, down from 3.93% in the same period in 2012, and 3.82% in the fourth quarter of 2012. The decrease reflects lower yields on earning assets, which was partially offset by the reduction in rate on interest-bearing liabilities.

Noninterest income, excluding gains on investment securities, increased by $3.98 million, or 20.15%, to $23.76 million for the first quarter of 2013, compared to the first quarter of 2012. The majority of the increase is attributable to residential mortgage banking income, which increased $2.10 million or 36.73% from the comparative period in 2012 and insurance commissions, which increased $1.60 million, or 24.97%, from the comparative period in 2012. The increase in residential mortgage banking income was due to the continued expansion of our mortgage operations, while the increase in insurance commissions is due to across-the-board improvements in our property and casualty, benefits, and trip insurance lines of business and the acquisition of an insurance agency in December 2012.

Noninterest expense increased by $3.06 million, or 8.16%, compared to the comparative quarter of 2012, and increased $250,000, or 0.62%, compared to the fourth quarter of 2012. A significant portion of the increase from the comparative period in 2012 is related to expansions of our insurance and mortgage operations.

Balance Sheet

At March 31, 2013, total Bank assets reached $4.38 billion, an increase of $230.95 million, or 5.57%, over 2012. The Bank's loan portfolio ended the period at $3.16 billion representing an increase of 9.82%, or $282.41 million, from the prior year, while earning assets increased to $4.02 billion, a 6.42%, or $242.19 million, increase over March 31, 2012.

Total deposits increased $91.09 million, or 2.80%, to $3.34 billion, with continued growth in noninterest bearing demand deposits, which ended the quarter at $1.01 billion, a 14.92% increase from March 31, 2012.  Noninterest deposits represented 30.29% of total deposits at March 31, 2013. Retail deposits, excluding noncore CDARS and brokered deposits, increased by $227.88 million, or 7.57%, while noncore CDARS and brokered deposits decreased by $136.80 million, or 56.90%, as the Bank reduced its reliance on wholesale funding sources.

Capital Strength

The Bank's total equity at March 31, 2013 rose to $566.90 million, an increase of $27.16 million, or 5.03%, from March 31, 2012.  Common equity increased 6.69%, or $26.70 million, and will be positively affected by the Bank's intention to enact a mandatory conversion of the Bank's 8% Series A Preferred Stock to common stock on September 1, 2013. The balance of the 8% Series A Preferred Stock was $57.40 million at March 31, 2013.  Total risk-based capital remained strong as total risk-based capital, Tier 1 capital, and Tier 1 leverage ratios were 14.00%, 12.84% and 10.62%, respectively. All ratios exceed the current regulatory standards for well capitalized status.

Credit Quality

The Bank's asset quality continued to improve as nonperforming assets totaled $64.01 million, or 1.46%, of Bank assets at March 31, 2013, as compared to $88.46 million, or 2.13%, at March 31, 2012, and $70.99 million, or 1.61%, at December 31, 2012. During the current quarter, the Bank transferred $24.64 million of nonperforming loans to foreclosed property and had sales of $9.12 million of foreclosed property. Two construction and land development borrower relationships comprised a large majority of the foreclosed property transfers.

The provision for loan losses decreased 12.84%, or $526,000, compared to the first quarter of 2012, while net charge-offs were $3.35 million compared to $3.80 million in the comparative period of 2012.

Asset Quality Indicators          
(in thousands) 3/31/2013 12/31/2012 9/30/2012 6/30/2012 3/31/2012
Nonperforming loans $17,389 $40,691 $51,519 $51,117 $56,253
Foreclosed property 46,622 30,297 30,910 29,775 32,211
Total nonperforming assets $64,011 $70,988 $82,429 $80,892 $88,464
Quarterly net loans charged off $3,349 $1,868 $6,010 $3,787 $3,803
Year-to-date net loans charged off $3,349 $15,468 $13,600 $7,590 $3,803

"We are pleased to report another quarter of record earnings as our strong earnings growth has continued with year-over-year earnings per share growing 16% to $0.29 per share," said G. Robert Aston, Jr., Chairman and Chief Executive Officer. "We believe the profitability of our company is directly related to the hard work and commitment of our staff members and directors as we continue to strive to build a lasting community asset for our community, our members, and our shareholders."

TowneBank Named to the KBW 2012 Bank Honor Roll

On April 15, 2013, KBW, a full-service, boutique investment bank and broker-dealer that specializes in the financial services sector, announced that TowneBank had been named to annual Bank Honor Roll acknowledging those banking institutions that achieved positive earnings per share growth trends over the last decade, regardless of the economic environment.   Honor Roll winners are publicly traded banking institutions with more than $500 million in total assets that meet the following three conditions:
  • No annual loss reported in net income per share before extraordinary items over the past 10 years;
  • 2012 annual reported net income per share before extraordinary items equal to or greater than peak net income per share over the past 10 years; and
  • Consecutive increases in net income per share before extraordinary items since 2009.

TowneBank was one of only 47 U.S. banking institutions to be named to KBW's "Bank Honor Roll" of superior performers.

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 $4.38 billion as of March 31, 2013, 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
March 31, 2013
(dollars in thousands)
         
       Increase/   % Increase/ 
Three Months Ended March 31, 2013 2012  (Decrease)   (Decrease) 
         
Results of Operations:        
Net interest income  $ 35,210  $ 34,785  $ 425 1.22%
Noninterest income (1)  23,755  19,771  3,984 20.15%
Gain on investment securities  604  778  (174) (22.37%)
Noninterest expenses  40,596  37,532  3,064 8.16%
Provision for loan losses  3,571  4,097  (526) (12.84%)
Income before income tax and noncontrolling interest  15,402  13,705  1,697 12.38%
Provision for income tax expense   4,366  4,054  312 7.70%
Net income  11,036  9,651  1,385 14.35%
Net income attributable to noncontrolling interest   (564)  (214)  (350) 163.55%
Net income attributable to TowneBank  10,472  9,437  1,035 10.97%
Preferred stock dividends  1,352  1,916  (564) (29.44%)
Net income available to common shareholders  9,120  7,521  1,599 21.26%
Net income per common share - basic (2)  0.29  0.25  0.04 16.00%
Net income per common share - diluted (2)  0.29  0.25  0.04 16.00%
Period End Data:        
Total assets  $ 4,375,164  $ 4,144,218  $ 230,946 5.57%
Total assets - tangible  4,256,685  4,029,907  226,778 5.63%
Earning assets (3)  4,016,597  3,774,404  242,193 6.42%
Loans (net of unearned income)  3,158,125  2,875,711  282,414 9.82%
Allowance for loan losses  40,649  40,034  615 1.54%
Goodwill and other intangibles  118,478  114,311  4,167 3.65%
Nonperforming assets  64,011  88,464  (24,453) (27.64%)
Noninterest bearing deposits  1,012,715  881,252  131,463 14.92%
Interest bearing deposits  2,330,218  2,370,593  (40,375) (1.70%)
 Total deposits  3,342,933  3,251,845  91,088 2.80%
Total equity  566,901  539,737  27,164 5.03%
Total equity - tangible  448,422  425,426  22,996 5.41%
Common equity  425,644  398,945  26,699 6.69%
Common equity - tangible  307,166  284,634  22,532 7.92%
Book value per common share (2)  13.47  12.79  0.68 5.32%
Book value per common share - tangible (2)  9.72  9.13  0.59 6.46%
Daily Average Balances:        
Total assets  $ 4,344,104  $ 4,073,157  $ 270,947 6.65%
Total assets - tangible  4,225,287  3,958,456  266,831 6.74%
Earning assets (3)  3,963,000  3,682,952  280,048 7.60%
Loans (net of unearned income), excluding  nonaccrual loans  3,102,257  2,780,762  321,495 11.56%
Allowance for loan losses  40,807  39,861  946 2.37%
Goodwill and other intangibles  118,817  114,701  4,116 3.59%
Noninterest bearing deposits  951,858  830,625  121,233 14.60%
Interest bearing deposits  2,362,829  2,352,315  10,514 0.45%
 Total deposits  3,314,687  3,182,941  131,746 4.14%
Total equity  565,871  526,681  39,190 7.44%
Total equity - tangible  447,054  411,980  35,074 8.51%
Common equity  424,892  385,914  38,978 10.10%
Common equity - tangible  306,075  271,213  34,862 12.85%
Key Ratios:        
Return on average assets 0.98% 0.93% 0.05% 5.38%
Return on average assets - tangible 1.01% 0.96% 0.05% 5.21%
Return on average equity 7.51% 7.21% 0.30% 4.16%
Return on average equity - tangible 9.50% 9.21% 0.29% 3.15%
Return on average common equity 8.71% 7.84% 0.87% 11.10%
Return on average common equity - tangible 12.08% 11.15% 0.93% 8.34%
Net interest margin-fully tax equivalent (3)(4) 3.72% 3.93% (0.21%) (5.34%)
Net interest margin (3) 3.65% 3.85% (0.20%) (5.19%)
Average earning assets/total average assets 91.23% 90.42% 0.81% 0.90%
Average loans/average deposits 93.59% 87.36% 6.23% 7.13%
Average noninterest deposits/total average deposits 28.72% 26.10% 2.62% 10.04%
Allowance for loan losses/period end loans 1.29% 1.39% (0.10%) (7.19%)
Nonperforming assets to period end assets 1.46% 2.13% (0.67%) (31.46%)
Period end equity/period end total assets 12.96% 13.02% (0.06%) (0.46%)
Efficiency ratio (1) 68.85% 68.80% 0.05% 0.07%
         
(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
March 31, 2013
(dollars in thousands)
         
  March 31,  December 31,   Increase/   % Increase/ 
Three Months Ended 2013 2012  (Decrease)   (Decrease) 
         
Results of Operations:        
Net interest income  $ 35,210  $ 36,611  $ (1,401) (3.83%)
Noninterest income (1)  23,755  18,995  4,760 25.06%
Gain on investment securities  604  (33)  637 N/M
Noninterest expenses  40,596  40,346  250 0.62%
Provision for loan losses  3,571  2,959  612 20.68%
Income before income tax and noncontrolling interest  15,402  12,268  3,134 25.55%
Provision for income tax expense  4,366  2,446  1,920 78.50%
Net income  11,036  9,822  1,214 12.36%
Net income attributable to noncontrolling interest   (564)  (206)  (358) 173.79%
Net income attributable to TowneBank  10,472  9,616  856 8.90%
Preferred stock dividends  1,352  1,354  (2) (0.15%)
Net income available to common shareholders  9,120  8,262  858 10.38%
Net income per common share - basic  0.29  0.27  0.02 7.41%
Net income per common share - diluted  0.29  0.27  0.02 7.41%
Period End Data:        
Total assets  $ 4,375,164  $ 4,405,923  $ (30,759) (0.70%)
Total assets - tangible  4,256,685  4,286,921  (30,236) (0.71%)
Earning assets (2)  4,016,597  4,033,813  (17,216) (0.43%)
Loans (net of unearned income)  3,158,125  3,133,507  24,618 0.79%
Allowance for loan losses  40,649  40,427  222 0.55%
Goodwill and other intangibles  118,478  119,002  (524) (0.44%)
Nonperforming assets  64,011  70,988  (6,977) (9.83%)
Noninterest bearing deposits  1,012,715  978,818  33,897 3.46%
Interest bearing deposits  2,330,218  2,401,234  (71,016) (2.96%)
 Total deposits  3,342,933  3,380,052  (37,119) (1.10%)
Total equity  566,901  559,879  7,022 1.25%
Total equity - tangible  448,422  440,877  7,545 1.71%
Common equity  425,644  418,606  7,038 1.68%
Common equity - tangible  307,166  299,604  7,562 2.52%
Book value per common share  13.47  13.30  0.17 1.28%
Book value per common share - tangible  9.72  9.52  0.20 2.10%
Daily Average Balances:        
Total assets  $ 4,344,104  $ 4,362,506  $ (18,402) (0.42%)
Total assets - tangible  4,225,287  4,249,403  (24,116) (0.57%)
Earning assets (2)  3,963,000  3,976,463  (13,463) (0.34%)
Loans (net of unearned income), excluding  nonaccrual loans  3,102,257  3,020,532  81,725 2.71%
Allowance for loan losses  40,807  39,649  1,158 2.92%
Goodwill and other intangibles  118,817  113,103  5,714 5.05%
Noninterest bearing deposits  951,858  966,934  (15,076) (1.56%)
Interest bearing deposits  2,362,829  2,378,328  (15,499) (0.65%)
 Total deposits  3,314,687  3,345,262  (30,575) (0.91%)
Total equity  565,871  558,265  7,606 1.36%
Total equity - tangible  447,054  445,162  1,892 0.43%
Common equity  424,892  417,051  7,841 1.88%
Common equity - tangible  306,075  303,948  2,127 0.70%
Key Ratios:        
Return on average assets 0.98% 0.88% 0.10% 11.36%
Return on average assets - tangible 1.01% 0.90% 0.11% 12.22%
Return on average equity 7.51% 6.85% 0.66% 9.64%
Return on average equity - tangible 9.50% 8.59% 0.91% 10.59%
Return on average common equity 8.71% 7.88% 0.83% 10.53%
Return on average common equity - tangible 12.08% 10.81% 1.27% 11.75%
Net interest margin-fully tax equivalent (2)(3) 3.72% 3.82% (0.10%) (2.62%)
Net interest margin (2) 3.65% 3.73% (0.08%) (2.14%)
Average earning assets/total average assets 91.23% 91.15% 0.08% 0.09%
Average loans/average deposits 93.59% 90.29% 3.30% 3.65%
Average noninterest deposits/total average deposits 28.72% 28.90% (0.18%) (0.62%)
Allowance for loan losses/period end loans 1.29% 1.29% (0.00%) (0.00%)
Nonperforming assets to period end assets 1.46% 1.61% (0.15%) (9.32%)
Period end equity/period end total assets 12.96% 12.71% 0.25% 1.97%
Efficiency ratio (1) 68.85% 72.56% (3.71%) (5.11%)
         
(1) Excludes gain on investment securities
(2) Includes bank-owned life insurance
(3) 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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