Towne Bancorp (CE) (USOTC:TWNE)
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Towne Bancorp (OTCBB: TWNE), the holding company for Towne Bank of
Arizona, today reported a net loss of $76 thousand or $(.05) per diluted
share for the quarter ended June 30, 2008, compared to earnings of $453
thousand or $.26 per diluted share for the same quarter a year ago. The
principal causes of the loss were the reversals of $65.6 thousand of
interest on loans placed on non-accrual and approximately $50 thousand
in one time costs associated with the Holding Company.
Highlights for the 2nd Quarter 2008
Past due loans (30+ days) declined $3.7 million or 26.8% from 1st
quarter 2008.
Non-accrual loans declined $.2 million or 1.6% from 1st
quarter 2008.
Loan Loss Reserves as a % of loans increased to 2.89% from 2.60% in
the 1st quarter of 2008.
Shareholder equity remains strong at $36.3 million and 23.4% of
risk-based capital or $22.72 per share.
Bette Floray agrees to join Towne Bank as CFO.
Timothy Ewing, Managing Partner of Ewing & Partners, becomes a
director of Towne Bancorp.
Two new loan officers were hired during the quarter.
At June 30, 2008, total assets decreased to $171.3 million or 5.2%,
compared to $180.4 million at March 31, 2008. The majority of this is
due to the Bank working diligently to reduce problem assets. As
discussed in our March 31, 2008 earnings release, the Bank has
emphasized efforts and devoted resources to resolve deficiencies in
loans while simultaneously attempting to raise core deposits to reduce
our reliance on brokered deposits. This has resulted in a significant
reduction in loan production while having a very positive impact on the
quality of our loan portfolio as demonstrated in the decline of both
past due and non-accrual loans.
Net interest margin for June 30, 2008 increased 8 basis points from
March 31, 2008, 3.50% compared to 3.42% respectively. The $65.6 thousand
reversal of interest income on non-accrual loans in 2nd
quarter negatively affected net interest margin by 15 basis point during
the quarter. Although net interest margin improved, net interest income
declined due to the reduction in earning assets.
Non-interest expense increased slightly to $1.64 million at June 30,
2008 compared to $1.6 million at March 31, 2008. A portion of the
increase was related to the resolution of nonperforming assets.
Credit Quality
As reported in prior communications, Towne Bank has aggressively
addressed credit quality issues surrounding the current economic
environment. These efforts have included (1) a thorough review of all
loans in the portfolio, (2) analyzing our Allowance for Loan Losses
(ALLL), (3) modifying our lending policy and (4) revising how loans are
classified to appropriately recognize risks.
Attention to the problem loans in the portfolio has resulted in a
decline in past due loans (30-+ days) to $10 million at quarter’s
end, down $3.7 million or 26.8% from March 31, 2008. Total loans either
past due or on non-accrual have seen a similar reduction from $35.2
million at December 31, 2007 to $21.4 million at June 30, 2008, a
decline of 39%. At the same time, the Bank has increased OREO from $1.3
million at March 31, 2008 to $1.8 million at June 30, 2008. The OREO
consists of 3 single family residences for which the Bank feels it has
adequately reserved, plus 3 residential lots in an attractive resort
area of the state. Each of the properties is listed for sale with no
material additional losses anticipated.
There are a total of 16 loans past due totaling $10.0 million, the
largest of which is in excess of $3 million, which the borrower
anticipates paying the bank in full. All others are under $1 million
each, of which six are, as of today’s date,
either current, in the process of being brought current or paid in full.
There are 12 loans on non-accrual totaling $11.4 million, all secured by
real estate. The largest of these is nearly $5 million and currently is
in bankruptcy. The Bank expects to either begin receiving payments on
this loan during the current quarter or to take ownership and
immediately offer for sale. All other non-accrual loans have balances
less than $1 million, except for one loan with an outstanding balance
slightly in excess of $2 million which is secured by a parcel of land.
The Bank may take possession of this property during the 3rd
quarter and immediately offer it for sale.
With the review of credit quality over the past six months, the Bank
believes it has established a sufficient reserve level to address issues
related to the loans mentioned above plus the balance of the portfolio.
To date the Bank has written off or experienced losses on loans of $243
thousand or .17% of total loans year to date including OREO. We believe
a great deal of this preservation of Bank capital is due to our
aggressive stance to remedy all known credit issues. The following is a
recap of the credit quality trends of the Bank since December 31, 2007:
Provisionfor LoanLoss
Net Charge-offs/TotalLoans
Allowancefor LoanLoss/Loans
30+ days pastdue $'s
Non accrualLoans $'s
Qtr 4 2007
$
1,008
0.01
%
2.42
%
$
26,358,622
$
8,853,375
Qtr 1 2008
0
0.06
%
2.60
%
$
13,660,538
$
11,553,864
Qtr 2 2008
0
0.10
%
2.89
%
$
9,999,685
$
11,366,437
Capital Levels
Despite operating in a difficult environment, the Bank continues to
benefit from a strong capital position of $36.3 million or a book value
of $22.72 per share; this represents Tier 1 Capital of 23.4%, more than
double the 10% considered necessary to be a “well-capitalized”
bank for regulatory purposes. In addition, as of March 31, 2008, Towne
Bank had the second largest capital position among commercial bank’s
with $500 million in assets or less located in Arizona.
Goals
Given the level of concerns in the banking industry in general, and the
particular challenges our Bank has faced, the most important action that
we can take relates to the enhancement of our management team, providing
the necessary leadership to work through the current economic
environment and build our future. Toward that end, Ms. Bette Floray, a
30+ year veteran in the banking industry, has agreed to join Towne Bank
as CFO. Her experience includes working in senior leadership positions
of banks with issues related to operating performance, capital
structure, regulatory Orders and troubled economic conditions. She joins
our CEO, Mr. Patrick, who himself has over 40 years experience in
leadership positions of banks with issues similar to our Bank’s.
The Bank is very pleased to add Ms. Floray’s
considerable abilities to our management team.
In addition, Timothy G. Ewing, Managing Partner of Ewing & Partners,
became a director of the Bancorp in June 2008. Mr. Ewing is a general
partner in Endurance Partnerships that own a total of 144,516 shares
which represents approximately 9% of the Company. Mr. Ewing has a great
deal of experience as a director on other financial entities.
With the addition of these seasoned veterans we believe Towne Bank is
positioned to become a growing and important part of our community. The
steps to improve asset quality, grow core deposits and build a
first-class team of employees are the first in a series of improvements
necessary to achieve our goals. An organization can either look at the
problems surrounding it and wait for improvement, or recognize
opportunities in the current marketplace. Towne Bank has chosen to look
for the opportunities to take advantage of our strong capital base and
seek growth in our marketplace consistent with a quality community bank.
Forward-Looking Statements
This document contains statements that are forward looking in nature
and, as such, these statements are subject to risks and uncertainties
that may cause actual results to vary materially from those discussed in
the document. Specific risks and uncertainties, among others, associated
with forward-looking statements in the document include credit risks in
the bank’s loan portfolio and the ability of
the bank to recover on non-performing loans; liquidity risks relating to
deposit growth, funding costs and the bank’s
need for brokered deposits that could adversely affect future net
income; risks relating to expected formal regulatory actions and the
resolution of such concerns; and economic and market risks relating to
disruptions in the financial markets and the impact of the current
decline in the real estate market in the bank’s
market area. Forward-looking statements include those identified by the
use of the words “expect,”
“anticipate,” “plan,”
and similar words of prospective meaning. The reader should not place
undue reliance on such forward-looking statements, and the company
undertakes no obligation to update such statements.
(All dollars in thousands except per share data)
QUARTER
YEAR-TO-DATE
Selected Income Statement Data (unaudited)
2nd Qtr2008
2nd Qtr2007
2008 Change
1st Qtr2008
Jun 2008
Jun 2007
Dec 2007
Net interest income
$
1,511
$
2,664
-43.28
%
$
1,637
$
3,148
$
5,056
$
9,456
Provision for loan losses
$
0
$
308
-100.00
%
$
0
$
0
$
552
$
2,130
Total non-interest income
$
11
$
17
-36.15
%
($27
)
($16
)
$
29
$
2
Total non-interest expense
$
1,645
$
1,621
1.53
%
$
1,598
$
3,243
$
2,872
$
6,840
Federal and state taxes
($48
)
$
300
-115.92
%
$
5
($43
)
$
655
$
227
Net income
($76
)
$
453
-116.72
%
$
7
($69
)
$
1,006
$
262
Selected Balance Sheet Data (unaudited)
Jun 2008
Mar 2008
2nd Quarter2008 Change
Dec 2007
YTD 2008Change
Jun 2007
Year OverYear Change
Total assets
$
171,252
$
180,370
($9,119
)
$
201,417
($30,165
)
$
192,232
($20,980
)
Net loans
$
141,831
$
156,837
($15,007
)
$
172,693
($30,863
)
$
174,594
($32,763
)
Total deposits
$
128,165
$
132,076
($3,911
)
$
152,843
($24,678
)
$
154,674
($26,509
)
Total borrowings
$
6,000
$
11,000
($5,000
)
$
11,020
($5,020
)
$
105
$
5,895
Total equity cap
$
36,340
$
36,480
($140
)
$
36,347
($7
)
$
36,750
($411
)
Book value per share
$
22.72
$
22.80
($0.09
)
$
22.72
$
0.00
$
23.05
($0.33
)
QUARTER
YEAR-TO-DATE
Selected ratios (unaudited)
2nd Qtr2008
2nd Qtr2007
1st Qtr2008
Jun 2008
Jun 2007
Dec 2007
Net interest margin
3.50
%
5.86
%
3.37
%
3.43
%
5.97
%
5.18
%
Return on avg assets
-0.17
%
0.99
%
0.01
%
-0.07
%
1.18
%
0.14
%
Return on avg equity
-0.83
%
4.98
%
0.08
%
-0.38
%
5.55
%
0.71
%
Efficiency ratio
108.11
%
60.45
%
99.26
%
103.56
%
56.49
%
72.32
%
Net charge-offs to total loans
0.10
%
0.00
%
0.06
%
0.17
%
0.00
%
0.01
%
ALLL to gross loans %
2.89
%
1.53
%
2.60
%
2.89
%
1.53
%
2.42
%
NPA to total assets
8.17
%
0.28
%
11.46
%
8.17
%
0.28
%
11.46
%
Per share data (unaudited)
Net income per share
($0.05
)
$
0.28
$
0.00
($0.04
)
$
0.63
$
0.16
Net income per share (diluted)
($0.05
)
$
0.26
$
0.00
($0.04
)
$
0.57
$
0.15
Average shares outstanding
1,599,639
1,594,626
1,599,639
1,599,639
1,594,626
1,599,639