TowneBank Reports First Quarter Earnings

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| Source: TowneBank

SUFFOLK, Va., April 24, 2014 (GLOBE NEWSWIRE) -- Hampton Roads based TowneBank (the "Bank") (Nasdaq:TOWN) reported earnings of $11.13 million for the quarter ended March 31, 2014, a 6.29% increase, or $659,000, over the $10.47 million reported for the comparative period in 2013. Net income available to common shareholders increased 19.96% to a record $10.94 million after preferred dividend payments of $191,000. Fully diluted earnings per share increased 6.90% to $0.31 per share compared to $0.29 per share for the comparative period of 2013.

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 11.1% over the dividend paid during the same quarter of 2013.

Earnings Highlights

Net interest income was virtually unchanged at $35.19 million, an $18,000, or 0.05%, decrease from the first quarter of 2013. Growth in average earning assets of $338.82 million was offset by a 28 basis point narrowing of the tax-equivalent net interest margin to 3.44% in the current quarter from 3.72% in the first quarter of 2013.

Noninterest income, excluding gains or losses on investment securities, decreased by $1.03 million, or 4.33%, to $22.73 million for the first quarter of 2014, compared to the first quarter of 2013. The majority of the decline is attributable to residential mortgage banking income, which decreased $2.76 million, or 35.25%, from the comparative period in 2013 due to lower loan production volumes. The decrease was partially offset by increases in insurance commissions, which increased $1.08 million, or 13.51%, from the comparative period in 2013.

Noninterest expense increased by $485,000, or 1.19%, compared to the comparative quarter of 2013. A significant portion of the increase from the comparative period in 2013 is related to the acquisition of two insurance agencies in July 2013. Excluding the effect of the acquisitions, noninterest expense was essentially flat as the Bank launched a cost-control initiative in the first quarter of 2014 to improve operating efficiency.

Balance Sheet

At March 31, 2014, total Bank assets reached $4.78 billion, an increase of $400.07 million, or 9.14%, over March 31, 2013. The Bank's loan portfolio ended the period at $3.27 billion representing an increase of 3.52%, or $111.24 million, from the prior year.

The Bank continued to experience deposit growth with total deposits increasing to $3.68 billion, up $338.78 million, or 10.13%, from March 31, 2013. The Bank saw continued growth in noninterest bearing demand deposits, which ended the quarter at $1.09 billion, a 7.66% increase from March 31, 2013. Noninterest deposits represented 29.61% of total deposits at March 31, 2014.

Capital Strength

The Bank's total equity at March 31, 2014 rose to $593.41 million, an increase of $26.51 million, or 4.68%, from March 31, 2013. Common equity increased 19.34%, or $82.32 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 13.97%, 12.95%, 10.42%, 10.62%, respectively. All ratios exceed the current regulatory standards for well capitalized status.

Credit Quality

Continued improvements in credit quality contributed to the Bank's financial results as nonperforming loans decreased to $10.98 million from $17.39 million, at March 31, 2013 and $12.75 million at December 31, 2013. Net charge-offs were $1.17 million in the first quarter of 2014 compared to $3.35 million in the first quarter of 2013 and the provision for loan losses decreased by $3.24 million as compared to the same quarter of 2013. Total nonperforming assets were $52.49 million, or 1.10%, of Bank assets at March 31, 2014, as compared to $64.01 million, or 1.46%, at March 31, 2013, and $52.29 million, or 1.12%, at December 31, 2013.

Asset Quality Indicators
           
(in thousands) 3/31/2014 12/31/2013 9/30/2013 6/30/2013 3/31/2013
           
Nonperforming loans  $ 10,977  $ 12,753  $ 13,683  $ 11,746  $ 17,389
           
Foreclosed property 41,510 39,534 41,914 47,596 46,622
           
Total nonperforming assets  $ 52,487  $ 52,287  $ 55,597  $ 59,342  $ 64,011
           
Quarterly net loans charged off  $ 1,167  $ 732  $ 804  $ 1,410  $ 3,349
           
Year-to-date net loans charged off  $ 1,167  $ 6,295  $ 5,563  $ 4,759  $ 3,349

"We are pleased to report excellent first quarter results despite the headwinds presented by the extended period of historically low interest rates and the current slowdown in the mortgage banking industry. Our growth in earnings has been driven by a vigorous emphasis on cost savings combined with continued improvements in credit quality. As we celebrate the 15th anniversary of the day TowneBank opened its doors to serve the community and to contribute to the quality of life here in our hometown, we continue our focus on financial performance as we strive to provide outstanding returns to our shareholders," 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 $4.78 billion as of March 31, 2014, 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, 2014
(dollars in thousands)
         
Three Months Ended March 31,
2014

2013
 Increase/
(Decrease)
 % Increase/
(Decrease)
         
Results of Operations:        
Net interest income $ 35,192 $ 35,210 $ (18)  (0.05)%
Noninterest income (1) 22,727 23,755 (1,028)  (4.33)%
Gain (loss) on investment securities 2 604 (602)  (99.67)%
Noninterest expenses 41,081 40,596 485  1.19%
Provision for loan losses 330 3,571 (3,241)  (90.76)%
Income before income tax and noncontrolling interest 16,510 15,402 1,108  7.19%
Provision for income tax expense 4,905 4,366 539  12.35%
Net income 11,605 11,036 569  5.16%
Net income attributable to noncontrolling interest (474) (564) 90  (15.96)%
Net income attributable to TowneBank 11,131 10,472 659  6.29%
Preferred stock dividends 191 1,352 (1,161)  (85.87)%
Net income available to common shareholders 10,940 9,120 1,820  19.96%
Net income per common share - basic 0.31 0.29 0.02  6.90%
Net income per common share - diluted 0.31 0.29 0.02  6.90%
Period End Data:
Total assets $ 4,775,234 $ 4,375,164 $ 400,070  9.14%
Total assets - tangible 4,655,641 4,256,685 398,956  9.37%
Earning assets (2) 4,415,853 4,016,597 399,256  9.94%
Loans (net of unearned income) 3,269,362 3,158,125 111,237  3.52%
Allowance for loan losses 37,543 40,649 (3,106)  (7.64)%
Goodwill and other intangibles 119,593 118,478 1,115  0.94%
Nonperforming assets 52,488 64,011 (11,523)  (18.00)%
Noninterest bearing deposits 1,090,273 1,012,715 77,558  7.66%
Interest bearing deposits 2,591,437 2,330,218 261,219  11.21%
Total deposits 3,681,709 3,342,933 338,776  10.13%
Total equity 593,406 566,901 26,505  4.68%
Total equity - tangible 473,813 448,422 25,391  5.66%
Common equity 507,963 425,644 82,319  19.34%
Common equity - tangible 388,370 307,166 81,204  26.44%
Book value per common share 14.38 13.26 1.12  8.45%
Book value per common share - tangible 11.00 9.57 1.43  14.94%
Daily Average Balances:
Total assets $ 4,684,881 $ 4,344,104 $ 340,777  7.84%
Total assets - tangible 4,565,004 4,225,287 339,717  8.04%
Earning assets (2) 4,301,821 3,963,000 338,821  8.55%
Loans (net of unearned income), excluding nonaccrual loans 3,225,089 3,102,257 122,832  3.96%
Allowance for loan losses 38,596 40,807 (2,211)  (5.42)%
Goodwill and other intangibles 119,877 118,817 1,060  0.89%
Noninterest bearing deposits 1,037,907 951,858 86,049  9.04%
Interest bearing deposits 2,545,505 2,362,829 182,676  7.73%
Total deposits 3,583,412 3,314,687 268,725  8.11%
Total equity 591,688 565,871 25,817  4.56%
Total equity - tangible 471,811 447,054 24,757  5.54%
Common equity 506,435 424,892 81,543  19.19%
Common equity - tangible 386,558 306,075 80,483  26.30%
Key Ratios:
Return on average assets  0.96%  0.98%  (0.02)%  (2.04)%
Return on average assets - tangible  0.99%  1.01%  (0.02)%  (1.98)%
Return on average equity  7.63%  7.51%  0.12%  1.60%
Return on average equity - tangible  9.57%  9.50%  0.07%  0.74%
Return on average common equity  8.76%  8.71%  0.05%  0.57%
Return on average common equity - tangible  11.48%  12.08%  (0.60)%  (4.97)%
Net interest margin-fully tax equivalent (2)(3)  3.44%  3.72%  (0.28)%  (7.53)%
Net interest margin (2)  3.36%  3.65%  (0.29)%  (7.95)%
Average earning assets/total average assets  91.82%  91.23%  0.59%  0.65%
Average loans/average deposits  90.00%  93.59%  (3.59)%  (3.84)%
Average noninterest deposits/total average deposits  28.96%  28.72%  0.24%  0.84%
Allowance for loan losses/period end loans  1.15%  1.29%  (0.14)%  (10.85)%
Nonperforming assets to period end assets  1.10%  1.46%  (0.36)%  (24.66)%
Period end equity/period end total assets  12.43%  12.96%  (0.53)%  (4.09)%
Efficiency ratio (1)  70.93%  68.85%  2.08%  3.02%
 
(1) Excludes gain on investment securities
(2) Includes bank-owned life insurance
(3) Presented on a tax-equivalent basis
 
 
Selected Financial Highlights (unaudited)
TOWNEBANK
March 31, 2014
(dollars in thousands)
         
Three Months Ended March 31,
2014
December 31.
2013
 Increase/
(Decrease)
 % Increase/
(Decrease)
         
Results of Operations:        
Net interest income $ 35,192 $ 36,456 $ (1,264)  (3.47)%
Noninterest income (1) 22,727 18,711 4,016  21.46%
Gain (loss) on investment securities 2 66 (64)  (96.97)%
Noninterest expenses 41,081 41,000 81  0.20%
Provision for loan losses 330 551 (221)  (40.11)%
Income before income tax and noncontrolling interest 16,510 13,682 2,828  20.67%
Provision for income tax expense 4,905 3,655 1,250  34.20%
Net income 11,605 10,027 1,578  15.74%
Net income attributable to noncontrolling interest (474) (353) (121)  34.28%
Net income attributable to TowneBank 11,131 9,674 1,457  15.06%
Preferred stock dividends 191 191  —
Net income available to common shareholders 10,940 9,483 1,457  15.36%
Net income per common share - basic 0.31 0.27 0.04  14.81%
Net income per common share - diluted 0.31 0.27 0.04  14.81%
Period End Data:
Total assets $ 4,775,234 $ 4,672,997 $ 102,237  2.19%
Total assets - tangible 4,655,641 4,552,935 102,706  2.26%
Earning assets (2) 4,415,853 4,296,486 119,367  2.78%
Loans (net of unearned income) 3,269,362 3,235,989 33,373  1.03%
Allowance for loan losses 37,543 38,380 (837)  (2.18)%
Goodwill and other intangibles 119,593 120,061 (468)  (0.39)%
Nonperforming assets 52,488 52,287 201  0.38%
Noninterest bearing deposits 1,090,273 1,037,028 53,245  5.13%
Interest bearing deposits 2,591,437 2,530,076 61,361  2.43%
Total deposits 3,681,709 3,567,104 114,605  3.21%
Total equity 593,406 585,318 8,088  1.38%
Total equity - tangible 473,813 465,257 8,556  1.84%
Common equity 507,963 499,850 8,113  1.62%
Common equity - tangible 388,370 379,789 8,581  2.26%
Book value per common share 14.38 14.16 0.22  1.55%
Book value per common share - tangible 11.00 10.76 0.24  2.23%
Daily Average Balances:
Total assets $ 4,684,881 $ 4,660,930 $ 23,951  0.51%
Total assets - tangible 4,565,004 4,540,448 24,556  0.54%
Earning assets (2) 4,301,821 4,277,000 24,821  0.58%
Loans (net of unearned income), excluding nonaccrual loans 3,225,089 3,211,658 13,431  0.42%
Allowance for loan losses 38,596 38,772 (176)  (0.45)%
Goodwill and other intangibles 119,877 120,482 (605)  (0.50)%
Noninterest bearing deposits 1,037,907 1,058,660 (20,753)  (1.96)%
Interest bearing deposits 2,545,505 2,502,260 43,245  1.73%
Total deposits 3,583,412 3,560,920 22,492  0.63%
Total equity 591,688 583,932 7,756  1.33%
Total equity - tangible 471,811 463,450 8,361  1.80%
Common equity 506,435 499,106 7,329  1.47%
Common equity - tangible 386,558 378,624 7,934  2.10%
Key Ratios:
Return on average assets  0.96%  0.82%  0.14%  17.07%
Return on average assets - tangible  0.99%  0.85%  0.14%  16.47%
Return on average equity  7.63%  6.57%  1.06%  16.13%
Return on average equity - tangible  9.57%  8.28%  1.29%  15.58%
Return on average common equity  8.76%  7.54%  1.22%  16.18%
Return on average common equity - tangible  11.48%  9.94%  1.54%  15.49%
Net interest margin-fully tax equivalent (2)(3)  3.44%  3.53%  (0.09)%  (2.55)%
Net interest margin (2)  3.36%  3.45%  (0.09)%  (2.61)%
Average earning assets/total average assets  91.82%  91.76%  0.06%  0.07%
Average loans/average deposits  90.00%  90.19%  (0.19)%  (0.21)%
Average noninterest deposits/total average deposits  28.96%  29.73%  (0.77)%  (2.59)%
Allowance for loan losses/period end loans  1.15%  1.19%  (0.04)%  (3.36)%
Nonperforming assets to period end assets  1.10%  1.12%  (0.02)%  (1.79)%
Period end equity/period end total assets  12.43%  12.53%  (0.10)%  (0.80)%
Efficiency ratio (1)  70.93%  74.32%  (3.39)%  (4.56)%
 
(1) Excludes gain on investment securities
(2) Includes bank-owned life insurance
(3) Presented on a tax-equivalent basis
G. Robert Aston, Jr.,
Chairman and CEO,
(757) 638-6780
Clyde E. McFarland, Jr.,
Senior Executive Vice President and CFO,
757-638-6801