TowneBank Reports Third Quarter Earnings

SUFFOLK, Va., Oct. 25, 2013 (GLOBE NEWSWIRE) -- Hampton Roads based TowneBank (the "Bank") (Nasdaq:TOWN) reported earnings of $10.42 million for the quarter ended September 30, 2013, an 11.42% increase, or $1.07 million, over the $9.35 million reported for the comparative period in 2012. Earnings for the year-to-date period increased 13.33% to $32.09 million as compared to the $28.31 million earned in the same period last year.

Net income available to common shareholders increased 13.55% to $9.08 million after preferred dividend payments of $1.34 million. Fully diluted earnings per share increased 7.69% to $0.28 per share compared to $0.26 per share for the comparative period of 2012. For the nine-month period ended September 30, 2013, fully diluted earnings per share increased 17.11% to $0.89 from $0.76 in the comparative prior year period.

The Bank's common dividend was $0.10 per share for the quarter with the common dividend totaling $3.53 million. The current dividend represents an increase of 25.0% over the dividend paid during the same quarter of 2012.

Earnings Highlights

Net interest income was $36.15 million, an $832,000, or 2.25%, decrease from the third quarter of 2012. The reduction in net interest income was primarily driven by lower yields on the Bank's earning assets and was partially offset by continued reductions in funding costs. The Bank's loan portfolio ended the period at $3.21 billion representing an increase of 5.88%, or $178.06 million. The Bank's net interest margin on a fully tax equivalent basis decreased to 3.53%, down from 3.95% in the same period in 2012, and 3.67% in the second quarter of 2013. The declines in net interest margin are primarily due to yield declines on earning assets and are consistent with the continued low interest rate environment.

Noninterest income, excluding gains or losses on investment securities, increased by $1.31 million, or 6.06%, to $22.99 million for the third quarter of 2013, compared to the third quarter of 2012. The majority of the increase is attributable to insurance commissions, which increased $1.50 million or 25.07%, while residential mortgage brokerage income declined due to a combination of lower production volumes related to rising rates and lower margins.

Noninterest expense increased by $3.15 million, or 7.82%, compared to the comparative quarter of 2012. A significant portion of the increase from the comparative period in 2012 is related to expansions of our mortgage operations into Pennsylvania and acquisition of two insurance agencies in July 2013 and one agency in December 2012.

Balance Sheet

At September 30, 2013, total Bank assets reached $4.57 billion, an increase of $252.60 million, or 5.85%, over September 30, 2012. The Bank's loan portfolio ended the period at $3.21 billion representing an increase of 5.88%, or $178.06 million, from the prior year. The loan portfolio has grown moderately during the current year as loans increased $74.70 million, or 2.38%, since December 31, 2012. 

Total deposits increased to $3.48 billion, up $176.33 million, or 5.34%, from September 30, 2012. Total deposits increased $101.41 million, or 3.0%, from December 31, 2012. The Bank saw continued growth in noninterest bearing demand deposits, which ended the quarter at $1.06 billion, a 10.74% increase from September 30, 2012. Noninterest deposits represented 30.40% of total deposits at September 30, 2013.

Capital Strength

The Bank's total equity at September 30, 2013 rose to $577.41 million, an increase of $23.80 million, or 4.30%, from September 30, 2012. Common equity increased 19.58%, or $80.70 million, as the Bank's 8% Series A Preferred Stock mandatorily converted on September 1, 2013 into 3.19 million shares of TowneBank common stock reflecting a conversion price of $18.02 per share of common stock. Total risk-based capital remained strong as total risk-based capital, Tier 1 capital, Tier 1 leverage ratios, and Tier 1 common capital ratios were 14.11%, 13.02%, 10.28%, 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 $55.60 million, or 1.22%, of Bank assets at September 30, 2013, as compared to $82.43 million, or 1.91%, at September 30, 2012, and $59.34 million, or 1.29%, at June 30, 2013. At September 30, 2013, nonperforming loans were $13.68 million, or 0.43% of total period-end loans, from $51.52 million, or 1.70%, at September 30, 2012 30, 2012, and $11.75 million, or 0.37%, at June 30, 2013.

The provision for loan losses decreased $4.65 million compared to the third quarter of 2012. The reduction in provision expense in the current year is a result of consistent improvements in credit quality, combined with a reduction in historical loss ratios and healthier economic conditions. Net charge-offs were $804,000 in the third quarter of 2013 compared to $6.01 million in the comparative period of 2012 and $1.41 million in the linked quarter.

           
Asset Quality Indicators          
           
(in thousands) 9/30/2013 6/30/2013 3/31/2013 12/31/2012 9/30/2012
           
Nonperforming loans  $ 13,683 11,746  $ 17,389  $ 40,691  $ 51,519
           
Foreclosed property 41,914 47,596 46,622 30,297 30,910
           
Total nonperforming assets  $ 55,597  $ 59,342  $ 64,011  $ 70,988  $ 82,429
           
Quarterly net loans charged off  $ 804  $ 1,410  $ 3,349  $ 1,868  $ 6,010
           
Year-to-date net loans charged off  $ 5,563  $ 4,759  $ 3,349  $ 15,468  $ 13,600

"We are pleased to report another quarter of solid earnings performance despite the current sluggish level of economic activity throughout the region, state, and country. We continue to see improved credit quality metrics, which has driven our growth in earnings and allowed us to increase our common stock dividend by 25% year-over-year," said G. Robert Aston, Jr., Chairman and Chief Executive Officer.

As one of the top community banks in Virginia and North Carolina, TowneBank operates 27 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. 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 $4.57 billion as of September 30, 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
September 30, 2013
(dollars in thousands)
         
      Increase/ % Increase/
Three Months Ended September 30, 2013 2012 (Decrease) (Decrease)
         
Results of Operations:        
Net interest income  $ 36,152  $ 36,984 $(832) (2.25)%
Noninterest income (1) 22,987 21,674 1,313 6.06%
Gain (loss) on investment securities 150 508 (358) (70.47)%
Noninterest expenses 43,379 40,231 3,148 7.82%
Provision for loan losses 328 4,977 (4,649) (93.41)%
Income before income tax and noncontrolling interest 15,583 13,958 1,625 11.64%
Provision for income tax expense 4,407 4,063 344 8.47%
Net income 11,176 9,895 1,281 12.95%
Net income attributable to noncontrolling interest (758) (545) (213) 39.08%
Net income attributable to TowneBank 10,418 9,350 1,068 11.42%
Preferred stock dividends 1,340 1,355 (15) (1.11)%
Net income available to common shareholders 9,078 7,995 1,083 13.55%
Net income per common share - basic 0.28 0.26 0.02 7.69%
Net income per common share - diluted 0.28 0.26 0.02 7.69%
Period End Data:        
Total assets  $ 4,570,905  $ 4,318,309  $ 252,596 5.85%
Total assets - tangible 4,450,221 4,205,112 245,109 5.83%
Earning assets (2) 4,204,942 3,947,414 257,528 6.52%
Loans (net of unearned income) 3,208,204 3,030,141 178,063 5.88%
Allowance for loan losses 38,560 39,336 (776) (1.97)%
Goodwill and other intangibles 120,684 113,197 7,487 6.61%
Nonperforming assets 55,597 82,429 (26,832) (32.55)%
Noninterest bearing deposits 1,058,338 955,656 102,682 10.74%
Interest bearing deposits 2,423,121 2,349,469 73,652 3.13%
Total deposits 3,481,459 3,305,125 176,334 5.34%
Total equity 577,409 553,606 23,803 4.30%
Total equity - tangible 456,725 440,409 16,316 3.70%
Common equity 492,894 412,197 80,697 19.58%
Common equity - tangible 372,210 299,000 73,210 24.48%
Book value per common share 14.17 13.14 1.03 7.84%
Book value per common share – tangible 10.70 9.53 1.17 12.28%
Daily Average Balances:        
Total assets  $ 4,580,200  $ 4,239,838  $ 340,362 8.03%
Total assets - tangible 4,459,213 4,126,309 332,904 8.07%
Earning assets (2) 4,185,420 3,850,305 335,115 8.70%
Loans (net of unearned income), excluding nonaccrual loans 3,168,042 2,958,789 209,253 7.07%
Allowance for loan losses 39,113 40,463 (1,350) (3.34)%
Goodwill and other intangibles 120,987 113,529 7,458 6.57%
Noninterest bearing deposits 1,053,588 941,286 112,302 11.93%
Interest bearing deposits 2,439,789 2,391,559 48,230 2.02%
Total deposits 3,493,377 3,332,845 160,532 4.82%
Total equity 576,257 552,541 23,716 4.29%
Total equity - tangible 455,270 439,012 16,258 3.70%
Common equity 452,180 411,374 40,806 9.92%
Common equity - tangible 331,193 297,845 33,348 11.20%
Key Ratios:        
Return on average assets 0.90% 0.88% 0.02% 2.27%
Return on average assets - tangible 0.93% 0.90% 0.03% 3.33%
Return on average equity 7.17% 6.73% 0.44% 6.54%
Return on average equity - tangible 9.08% 8.47% 0.61% 7.20%
Return on average common equity 7.97% 7.73% 0.24% 3.10%
Return on average common equity - tangible 10.88% 10.68% 0.20% 1.87%
Net interest margin-fully tax equivalent (2)(3) 3.53% 3.95% (0.42)% (10.63)%
Net interest margin (2) 3.47% 3.87% (0.40)% (10.34)%
Average earning assets/total average assets 91.38% 90.81% 0.57% 0.63%
Average loans/average deposits 90.69% 88.78% 1.91% 2.15%
Average noninterest deposits/total average deposits 30.16% 28.24% 1.92% 6.80%
Allowance for loan losses/period end loans 1.20% 1.30% (0.10)% (7.69)%
Nonperforming assets to period end assets 1.22% 1.91% (0.69)% (36.13)%
Period end equity/period end total assets 12.63% 12.82% (0.19)% (1.48)%
Efficiency ratio (1) 73.35% 68.59% 4.76% 6.94%
         
(1) Excludes gain on investment securities
(2) Includes bank-owned life insurance
(3) Presented on a tax-equivalent basis
 
Selected Financial Highlights (unaudited)
TOWNEBANK
September 30, 2013
(dollars in thousands)
         
      Increase/ % Increase/
Nine Months Ended September 30, 2013 2012 (Decrease) (Decrease)
         
Results of Operations:        
Net interest income  $ 107,439  $ 107,673 $(234) (0.22)%
Noninterest income (1) 71,205 62,189 9,016 14.50%
Gain on investment securities 546 3,038 (2,492) (82.03)%
Noninterest expenses 127,792 118,403 9,389 7.93%
Provision for loan losses 3,696 13,196 (9,500) (71.99)%
Income before income tax and noncontrolling interest 47,702 41,301 6,401 15.50%
Provision for income tax expense 13,480 11,518 1,962 17.03%
Net income 34,222 29,783 4,439 14.90%
Net income attributable to noncontrolling interest (2,133) (1,468) (665) 45.31%
Net income attributable to TowneBank 32,089 28,315 3,774 13.33%
Preferred stock dividends 4,036 4,872 (836) (17.16)%
Net income available to common shareholders 28,053 23,443 4,610 19.66%
Net income per common share - basic 0.89 0.76 0.13 17.11%
Net income per common share - diluted 0.89 0.76 0.13 17.11%
Period End Data:        
Total assets  $ 4,570,905  $ 4,318,309  $ 252,596 5.85%
Total assets - tangible 4,450,221 4,205,112 245,109 5.83%
Earning assets (2) 4,204,942 3,947,414 257,528 6.52%
Loans (net of unearned income) 3,208,204 3,030,141 178,063 5.88%
Allowance for loan losses 38,560 39,336 (776) (1.97)%
Goodwill and other intangibles 120,684 113,197 7,487 6.61%
Nonperforming assets 55,597 82,429 (26,832) (32.55)%
Noninterest bearing deposits 1,058,338 955,656 102,682 10.74%
Interest bearing deposits 2,423,121 2,349,469 73,652 3.13%
Total deposits 3,481,459 3,305,125 176,334 5.34%
Total equity 577,409 553,606 23,803 4.30%
Total equity - tangible 456,725 440,409 16,316 3.70%
Common equity 492,894 412,197 80,697 19.58%
Common equity - tangible 372,210 299,000 73,210 24.48%
Book value per common share 14.17 13.14 1.03 7.84%
Book value per common share - tangible 10.70 9.53 1.17 12.28%
Daily Average Balances:        
Total assets  $ 4,455,437  $ 4,147,376  $ 308,061 7.43%
Total assets - tangible 4,336,061 4,033,275 302,786 7.51%
Earning assets (2) 4,071,807 3,756,573 315,234 8.39%
Loans (net of unearned income), excluding nonaccrual loans 3,140,516 2,873,429 267,087 9.30%
Allowance for loan losses 40,009 40,251 (242) (0.60)%
Goodwill and other intangibles 119,376 114,101 5,275 4.62%
Noninterest bearing deposits 1,009,870 883,553 126,317 14.30%
Interest bearing deposits 2,385,832 2,367,208 18,624 0.79%
Total deposits 3,395,702 3,250,761 144,941 4.46%
Total equity 571,399 541,302 30,097 5.56%
Total equity - tangible 452,023 427,201 24,822 5.81%
Common equity 436,008 400,373 35,635 8.90%
Common equity - tangible 316,631 286,272 30,359 10.60%
Key Ratios:        
Return on average assets 0.96% 0.91% 0.05% 5.49%
Return on average assets - tangible 0.99% 0.94% 0.05% 5.32%
Return on average equity 7.51% 6.99% 0.52% 7.44%
Return on average equity - tangible 9.49% 8.85% 0.64% 7.23%
Return on average common equity 8.60% 7.82% 0.78% 9.97%
Return on average common equity - tangible 11.85% 10.94% 0.91% 8.32%
Net interest margin-fully tax equivalent (2)(3) 3.64% 3.96% (0.32)% (8.08)%
Net interest margin (2) 3.57% 3.88% (0.31)% (7.99)%
Average earning assets/total average assets 91.39% 90.58% 0.81% 0.89%
Average loans/average deposits 92.49% 88.39% 4.10% 4.64%
Average noninterest deposits/total average deposits 29.74% 27.18% 2.56% 9.42%
Allowance for loan losses/period end loans 1.20% 1.30% (0.10)% (7.69)%
Nonperforming assets to period end assets 1.22% 1.91% (0.69)% (36.13)%
Period end equity/period end total assets 12.63% 12.82% (0.19)% (1.48)%
Efficiency ratio (1) 71.53% 69.71% 1.82% 2.61%
         
(1) Excludes gain on investment securities
(2) Includes bank-owned life insurance
(3) Presented on a tax-equivalent basis
 
Selected Financial Highlights (unaudited)
TOWNEBANK
September 30, 2013
(dollars in thousands)
         
  September 30, June 30, Increase/ % Increase/
Three Months Ended 2013 2013 (Decrease) (Decrease)
         
Results of Operations:        
Net interest income  $ 36,152  $ 36,077  $ 75 0.21%
Noninterest income (1) 22,987 24,463 (1,476) (6.03)%
Gain (loss) on investment securities 150 (208) 358 N/M
Noninterest expenses 43,379 43,817 (438) (1.00)%
Provision for loan losses 328 (202) 530 N/M
Income before income tax and noncontrolling interest 15,583 16,717 (1,134) (6.78)%
Provision for income tax expense 4,407 4,707 (300) (6.37)%
Net income 11,176 12,010 (834) (6.94)%
Net income attributable to noncontrolling interest (758) (811) 53 (6.54)%
Net income attributable to TowneBank 10,418 11,199 (781) (6.97)%
Preferred stock dividends 1,340 1,344 (4) (0.30)%
Net income available to common shareholders 9,078 9,855 (777) (7.88)%
Net income per common share - basic 0.28 0.32 (0.04) (12.50)%
Net income per common share - diluted 0.28 0.31 (0.03) (9.68)%
Period End Data:        
Total assets  $ 4,570,905  $ 4,595,087 $(24,182) (0.53)%
Total assets - tangible 4,450,221 4,477,114 (26,893) (0.60)%
Earning assets (3) 4,204,942 4,230,005 (25,063) (0.59)%
Loans (net of unearned income) 3,208,204 3,180,110 28,094 0.88%
Allowance for loan losses 38,560 39,037 (477) (1.22)%
Goodwill and other intangibles 120,684 117,973 2,711 2.30%
Nonperforming assets 55,597 59,342 (3,745) (6.31)%
Noninterest bearing deposits 1,058,338 1,076,898 (18,560) (1.72)%
Interest bearing deposits 2,423,121 2,433,169 (10,048) (0.41)%
Total deposits 3,481,459 3,510,067 (28,608) (0.82)%
Total equity 577,409 571,388 6,021 1.05%
Total equity - tangible 456,725 453,415 3,310 0.73%
Common equity 492,894 429,636 63,258 14.72%
Common equity - tangible 372,210 311,663 60,547 19.43%
Book value per common share 14.17 13.61 0.56 4.11%
Book value per common share - tangible 10.70 9.87 0.83 8.41%
Daily Average Balances:        
Total assets  $ 4,580,200  $ 4,439,414  $ 140,786 3.17%
Total assets - tangible 4,459,213 4,321,112 138,101 3.20%
Earning assets (2) 4,185,420 4,064,556 120,864 2.97%
Loans (net of unearned income), excluding nonaccrual loans 3,168,042 3,150,527 17,515 0.56%
Allowance for loan losses 39,113 40,127 (1,014) (2.53)%
Goodwill and other intangibles 120,987 118,302 2,685 2.27%
Noninterest bearing deposits 1,053,588 1,023,045 30,543 2.99%
Interest bearing deposits 2,439,789 2,354,032 85,757 3.64%
Total deposits 3,493,377 3,377,077 116,300 3.44%
Total equity 576,257 571,955 4,302 0.75%
Total equity - tangible 455,270 453,653 1,617 0.36%
Common equity 452,180 430,652 21,528 5.00%
Common equity - tangible 331,193 312,350 18,843 6.03%
Key Ratios:        
Return on average assets 0.90% 1.01% (0.11)% (10.89)%
Return on average assets - tangible 0.93% 1.04% (0.11)% (10.58)%
Return on average equity 7.17% 7.85% (0.68)% (8.66)%
Return on average equity - tangible 9.08% 9.90% (0.82)% (8.28)%
Return on average common equity 7.97% 9.18% (1.21)% (13.18)%
Return on average common equity - tangible 10.88% 12.66% (1.78)% (14.06)%
Net interest margin-fully tax equivalent (2)(3) 3.53% 3.67% (0.14)% (3.81)%
Net interest margin (2) 3.47% 3.60% (0.13)% (3.61)%
Average earning assets/total average assets 91.38% 91.56% (0.18)% (0.20)%
Average loans/average deposits 90.69% 93.29% (2.60)% (2.79)%
Average noninterest deposits/total average deposits 30.16% 30.29% (0.13)% (0.43)%
Allowance for loan losses/period end loans 1.20% 1.23% (0.03)% (2.44)%
Nonperforming assets to period end assets 1.22% 1.29% (0.07)% (5.43)%
Period end equity/period end total assets 12.63% 12.43% 0.20% 1.61%
Efficiency ratio (1) 73.35% 72.38% 0.97% 1.34%
         
(1) Excludes gain on investment securities
(2) Includes bank-owned life insurance
(3) Presented on a tax-equivalent basis
CONTACT: G. Robert Aston, Jr., Chairman and CEO, (757) 638-6780         Clyde E. McFarland, Jr., Senior Executive Vice President         and CFO, 757-638-6801

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