News Column

TowneBank Reports Record Earnings for 2013

February 4, 2014

SUFFOLK, Va. , Feb. 4, 2014 (GLOBE NEWSWIRE) -- Hampton Roads based TowneBank (the "Bank") (Nasdaq:TOWN) reported record earnings of $41.76 million for the year ended December 31, 2013 , a 10.10%, or $3.83 million , increase over the $37.93 million reported for 2012. Net income available to common shareholders for 2013 increased 18.39% after preferred dividend payments of $4.23 million . Fully diluted earnings per share reached the highest level in the Bank's 15-year history ending the year at $1.16 per share, an increase of 12.62% over 2012. The Bank's common dividend totaled $0.38 per share for 2013, an increase of 15.15% over the dividend declared per share during 2012. The quarterly dividend was increased to $0.10 per share beginning in the third quarter of 2013, which represents an annualized dividend rate of $0.40 per share. 2013 Financial Highlights Reflecting an industry-wide trend, net interest income for 2013 was essentially flat with 2012 due primarily to the extended period of historically low interest rates driven by the Federal Reserve's monetary policy. In spite of the Bank's loan portfolio increasing 3.27% to end the period at $3.24 billion , net interest income declined 0.27% to $143.90 million . "In simple terms, the monies received by the Bank from the repayment of existing loans is being reinvested in new loans carrying a lower rate of return than the loans being repaid," said G. Robert Aston , Jr., Chairman and Chief Executive Officer. Noninterest income, excluding gains on investment securities, increased a robust $8.73 million , an increase of 10.76%, to $89.92 million . These results are largely due to the strategic decision made over a decade ago to diversify the Company's earnings by investing in the real estate, mortgage, investment, and insurance businesses the Bank owns today. During 2013, we continued to make additional investments in insurance agencies, vacation travel insurance operations, and the expansion of our mortgage production activities in numerous new markets. Good credit quality also contributed to the financial results for 2013 as the Bank's nonperforming loans decreased 68.66% from $40 .69 million at the 2012 year-end to $12 .75 million at December 31, 2013. Loan losses also declined from $15 .47 million last year to $6 .30 million in 2013. Accordingly, the Bank's loan loss provision declined $11.91 million in 2013. Total nonperforming assets, including foreclosed property, declined to 1.12% of total assets at December 31, 2013 as compared to 1.61% in 2012. (in thousands) 12/31/2013 9/30/2013 6/30/2013 3/31/2013 12/31/2012 Nonperforming loans $ 12,753 $ 13,683 $ 11,746 $ 17,389 $ 40,691 Foreclosed property 39,534 41,914 47,596 46,622 30,297 Total nonperforming assets $ 52,287 $ 55,597 $ 59,342 $ 64,011 $ 70,988 Quarterly net loans charged off $ 732 $ 804 $ 1,410 $ 3,349 $ 1,868 Year-to-date net loans charged off $ 6,295 $ 5,563 $ 4,759 $ 3,349 $ 15,468 Noninterest expense increased 6.33% to $168 .79 million for the 2013 calendar year. A significant portion of the increase was related to insurance acquisitions, the mortgage company expansion, and the Bank's additional investment in enhanced data processing capabilities, including a new backup data center located in Sandston, Virginia . Balance Sheet At December 31, 2013 , total Bank assets reached $4.67 billion , an increase of $267.07 million , or 6.06%, over 2012. The Bank's loan portfolio ended the period at $3.24 billion representing an increase of 3.27%, or $102 .48 million, from the prior year, while earning assets increased to $4 .30 billion, a 6.51%, or $262.67 million , increase over the same period. The Bank continued to experience deposit growth with total deposits increasing 5.53% to $3 .57 billion. Noninterest bearing demand deposits slightly outpaced overall deposit growth, ending the year at $1.04 billion , a 5.95% increase. Noninterest deposits represented 29.07% of total deposits at year-end 2013. Capital Strength The Bank's total equity at December 31, 2013 climbed to $585.32 million . Common equity increased 19.41%, or $81.24 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 14.00%, 12.93%, 10.29%, 10.57%, respectively. All ratios exceed the current regulatory standards for well capitalized status. Fourth Quarter Results Fourth quarter earnings were $9.67 million , an increase of 0.60% over the fourth quarter of 2012. Net income available to common shareholders increased 14.78%, from $8 .26 million in 2012 to $9 .48 million in 2013. Fully diluted earnings per share remained unchanged at $0.27 per share due largely to the issuance of 3.19 million additional shares issued in conjunction with the conversion of preferred stock into common during the third quarter of 2013. Similar to the full year results, net interest income remained essentially flat with the comparative period of 2012, decreasing slightly by 0.42%, or $155,000 , ending the quarter at $36 .46 million. Noninterest income, excluding gains on investment securities, declined 1.50%, or $284,000 , reflecting a reduction in mortgage loan production from $342 .84 million in the fourth quarter of 2012 to $273 .68 million in 2013. Noninterest expense for the fourth quarter increased 1.62%, or $654,000 , including a reversal of $1 .20 million in previously accrued employee incentive compensation unearned for the full 2013 year. Loan growth during the quarter, including industrial revenue bond financing, increased 2.2%, or$69.02 million, on a linked quarter basis as the pace of loan activity quickened compared to the prior periods of 2013. "We are pleased to report another year of record earnings for 2013," stated Aston. "Our local economy shows some positive signs as the business community appears to be regaining confidence about the future. TowneBank is well positioned to assist and participate in the region's continued economic recovery." 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 .67 billion as of December 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 December 31, 2013 (dollars in thousands) Increase/ % Increase/ Three Months Ended December 31 , 2013 2012 (Decrease) (Decrease) Results of Operations: Net interest income $ 36,456 $ 36,611 $ (155) (0.42)% Noninterest income (1) 18,711 18,995 (284) (1.50)% Gain (loss) on investment securities 66 (33) 99 (300.00)% Noninterest expenses 41,000 40,346 654 1.62% Provision for loan losses 551 2,959 (2,408) (81.38)% Income before income tax and noncontrolling interest 13,682 12,268 1,414 11.53% Provision for income tax expense 3,655 2,446 1,209 49.43% Net income 10,027 9,822 205 2.09% Net income attributable to noncontrolling interest (353) (206) (147) 71.36% Net income attributable to TowneBank 9,674 9,616 58 0.60% Preferred stock dividends and accretion 191 1,354 (1,163) (85.89)% Net income available to common shareholders 9,483 8,262 1,221 14.78% Net income per common share - basic 0.28 0.27 0.01 3.70% Net income per common share - diluted 0.27 0.27 % Period End Data: Total assets $ 4,672,997 $ 4,405,923 $ 267,074 6.06% Total assets - tangible 4,552,935 4,286,921 266,014 6.21% Earning assets (2) 4,296,486 4,033,813 262,673 6.51% Loans (net of unearned income) 3,235,989 3,133,507 102,482 3.27% Allowance for loan losses 38,380 40,427 (2,047) (5.06)% Goodwill and other intangibles 120,061 119,002 1,059 0.89% Nonperforming assets 52,287 70,988 (18,701) (26.34)% Noninterest bearing deposits 1,037,028 978,818 58,210 5.95% Interest bearing deposits 2,530,076 2,401,235 128,841 5.37% Total deposits 3,567,104 3,380,052 187,052 5.53% Total equity 585,318 559,880 25,438 4.54% Total equity - tangible 465,257 440,877 24,380 5.53% Common equity 499,850 418,606 81,244 19.41% Common equity - tangible 379,789 299,604 80,185 26.76% Book value per common share 14.39 13.30 1.09 8.20% Book value per common share - tangible 10.93 9.52 1.41 14.81% Daily Average Balances: Total assets $ 4,660,930 $ 4,362,506 $ 298,424 6.84% Total assets - tangible 4,540,448 4,249,404 291,044 6.85% Earning assets (2) 4,277,000 3,976,463 300,537 7.56% Loans (net of unearned income), excluding nonaccrual loans 3,211,658 3,020,532 191,126 6.33% Allowance for loan losses 38,772 39,649 (877) (2.21)% Goodwill and other intangibles 120,482 113,103 7,379 6.52% Noninterest bearing deposits 1,058,660 966,934 91,726 9.49% Interest bearing deposits 2,502,260 2,378,328 123,932 5.21% Total deposits 3,560,920 3,345,262 215,658 6.45% Total equity 583,932 558,265 25,667 4.60% Total equity - tangible 463,450 445,163 18,287 4.11% Common equity 499,106 417,051 82,055 19.68% Common equity - tangible 378,624 303,949 74,675 24.57% Key Ratios: Return on average assets 0.82% 0.88% (0.06)% (6.82)% Return on average assets - tangible 0.85% 0.90% (0.05)% (5.56)% Return on average equity 6.57% 6.85% (0.28)% (4.09)% Return on average equity - tangible 8.28% 8.59% (0.31)% (3.61)% Return on average common equity 7.54% 7.88% (0.34)% (4.31)% Return on average common equity - tangible 9.94% 10.81% (0.87)% (8.05)% Net interest margin-fully tax equivalent (2)(3) 3.53% 3.82% (0.29)% (7.59)% Net interest margin (2) 3.45% 3.66% (0.21)% (5.74)% Average earning assets/total average assets 91.76% 91.15% 0.61% 0.67% Average loans/average deposits 90.19% 90.29% (0.10)% (0.11)% Average noninterest deposits/total average deposits 29.73% 28.90% 0.83% 2.87% Allowance for loan losses/period end loans 1.19% 1.29% (0.10)% (7.75)% Nonperforming assets to period end assets 1.12% 1.61% (0.49)% (30.43)% Period end equity/period end total assets 12.53% 12.71% (0.18)% (1.42)% Efficiency ratio (1) 74.32% 72.56% 1.76% 2.43% (1) Excludes gain on available for sale securities (2) Includes bank-owned life insurance (3) Presented on a tax-equivalent basis Selected Financial Highlights (unaudited) TOWNEBANK December 31, 2013 (dollars in thousands) Increase/ % Increase/ Twelve Months Ended December 31 , 2013 2012 (Decrease) (Decrease) Results of Operations: Net interest income $ 143,895 $ 144,284 $ (389) (0.27)% Noninterest income (1) 89,916 81,184 8,732 10.76% Gain on investment securities 611 3,005 (2,394) (79.67)% Noninterest expenses 168,792 158,749 10,043 6.33% Provision for loan losses 4,248 16,155 (11,907) (73.70)% Income before income tax and noncontrolling interest 61,383 53,569 7,814 14.59% Provision for income tax expense 17,135 13,964 3,171 22.71% Net income 44,248 39,605 4,643 11.72% Net income attributable to noncontrolling interest (2,486) (1,674) (812) 48.51% Net income attributable to TowneBank 41,762 37,931 3,831 10.10% Preferred stock dividends and accretion 4,227 6,226 (1,999) (32.11)% Net income available to common shareholders 37,535 31,705 5,830 18.39% Net income per common share - basic 1.16 1.03 0.13 12.62% Net income per common share - diluted 1.16 1.03 0.13 12.62% Period End Data: Total assets $ 4,672,997 $ 4,405,923 $ 267,074 6.06% Total assets - tangible 4,552,935 4,286,921 266,014 6.21% Earning assets (2) 4,296,486 4,033,813 262,673 6.51% Loans (net of unearned income) 3,235,989 3,133,507 102,482 3.27% Allowance for loan losses 38,380 40,427 (2,047) (5.06)% Goodwill and other intangibles 120,061 119,002 1,059 0.89% Nonperforming assets 52,287 70,988 (18,701) (26.34)% Noninterest bearing deposits 1,037,028 978,818 58,210 5.95% Interest bearing deposits 2,530,076 2,401,235 128,841 5.37% Total deposits 3,567,104 3,380,052 187,052 5.53% Total equity 585,318 559,880 25,438 4.54% Total equity - tangible 465,257 440,877 24,380 5.53% Common equity 499,850 418,606 81,244 19.41% Common equity - tangible 379,789 299,604 80,185 26.76% Book value per common share 14.39 13.30 1.09 8.20% Book value per common share - tangible 10.93 9.52 1.41 14.81% Daily Average Balances: Total assets $ 4,507,233 $ 4,201,452 $ 305,781 7.28% Total assets - tangible 4,387,578 4,087,603 299,975 7.34% Earning assets (2) 4,123,527 3,811,846 311,681 8.18% Loans (net of unearned income), excluding nonaccrual loans 3,158,448 2,910,406 248,042 8.52% Allowance for loan losses 39,698 40,100 (402) (1.00)% Goodwill and other intangibles 119,655 113,850 5,805 5.10% Noninterest bearing deposits 1,022,168 904,512 117,656 13.01% Interest bearing deposits 2,415,178 2,370,003 45,175 1.91% Total deposits 3,437,346 3,274,516 162,830 4.97% Total equity 574,558 545,566 28,992 5.31% Total equity - tangible 454,903 431,717 23,186 5.37% Common equity 451,912 404,565 47,347 11.70% Common equity - tangible 332,257 290,716 41,541 14.29% Key Ratios: Return on average assets 0.93% 0.90% 0.03% 3.33% Return on average assets - tangible 0.95% 0.93% 0.02% 2.15% Return on average equity 7.27% 6.95% 0.32% 4.60% Return on average equity - tangible 9.18% 8.79% 0.39% 4.44% Return on average common equity 8.31% 7.84% 0.47% 5.99% Return on average common equity - tangible 11.30% 10.91% 0.39% 3.57% Net interest margin-fully tax equivalent (2)(3) 3.61% 3.92% (0.31)% (7.91)% Net interest margin (2) 3.54% 3.84% (0.30)% (7.81)% Average earning assets/total average assets 91.49% 90.73% 0.76% 0.84% Average loans/average deposits 91.89% 88.88% 3.01% 3.39% Average noninterest deposits/total average deposits 29.74% 27.62% 2.12% 7.68% Allowance for loan losses/period end loans 1.19% 1.29% (0.10)% (7.75)% Nonperforming assets to period end assets 1.12% 1.61% (0.49)% (30.43)% Period end equity/period end total assets 12.53% 12.71% (0.18)% (1.42)% Efficiency ratio (1) 72.19% 70.41% 1.78% 2.53% (1) Excludes gain on available for sale securities (2) Includes bank-owned life insurance (3) Presented on a tax-equivalent basis CONTACT: For more information contact: G. Robert Aston , Jr., Chairman and CEO, (757) 638-6780 Clyde E. McFarland , Jr., Senior Executive Vice President and CFO, 757-638-6801 Source: TowneBank


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