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 $2.182 million or $(1.35) per
diluted share for the quarter ended September 30, 2008, compared to
earnings of $233 thousand or $0.13 per diluted share for the quarter
ended September 30, 2007. As a result of recent economic events
impacting current market values, the Bank felt it appropriate and
necessary to increase its provision for Loan and Lease Losses (ALLL).
Provision expense for the 3rd quarter of 2008
was $3.353 million due to commercial real estate write-downs of $1.425
million, commercial loan charge-offs of $453 thousand, and $1.475
million in additional provision due to declines in the value of
Commercial Real Estate in the Bank’s
portfolio. In addition, the Bank placed seven loans on non-accrual
totaling $8.761 million and reversed $213 thousand of previously accrued
interest. Despite this difficult economic environment the Bank maintains
a strong net worth and continues to book new Commercial and Industrial
loans that strengthen and diversify its loan portfolio.
Highlights for the 3rd Quarter
2008
Shareholder equity remains strong at $34.2 million and 23.2% of
risk-based capital or $21.14 per share.
Loan Loss Reserves as a percentage of loans increased to 4.44% from
2.89% in 2nd Quarter 2008.
Sold two single-family OREO properties subsequent to quarter end.
Non-interest expenses decreased to $1.493 million for the quarter
ended 9/30/08 from $1.645 million for the quarter ended 6/30/08.
New Loans booked increased by $2.408 million from 2nd
Quarter 2008.
Non-accrual loans increased $2.982 million or 26.2% from 2nd
Quarter 2008.
At September 30, 2008, total assets decreased to $157.2 million or 8.2%,
compared to $171.3 million at June 30, 2008. The majority of this
decline is a reflection of management’s work
to reduce problem assets, while simultaneously rebuilding the capacity
to add quality new loans to the portfolio.
Net interest income decreased $128 thousand or 8 basis points of net
interest margin for the quarter ended September 30, 2008 compared to
June 30, 2008. The primary reason for the decline was the reversal of
$213 thousand of interest income. Absent the effect of the interest
reversals, net interest margin would have been 3.62% compared to 3.46%
in the second quarter.
Non-interest expenses declined to $1.493 million for the quarter ended
September 30, 2008 from $1.645 million for the quarter ended June 30,
2008, principally due to reductions in staffing. Management has spent
time and effort restructuring the Bank to make it appropriately reflect
our operations, along with upgrading positions to support future growth.
Credit Quality
In prior communications we discussed our aggressive efforts to address
credit quality issues in this stressed economic environment. In prior
quarters, the Bank managed to resolve delinquency issues in a manner
that protected both the institution and the borrower. This quarter some
of our borrowers found they had exhausted their resources in trying to
maintain their loans. In these cases the Bank either accepted a
deed-in-lieu or instituted foreclosure proceedings. The Bank has and
will continue to take all reasonable steps to work with responsible
borrowers during this difficult period. We will, however, employ any and
all actions necessary against borrowers who try to take advantage of the
current circumstances to circumvent their responsibilities.
Loans past due 30+ days increased to $23.1 million at September 30, 2008
compared to $10 million at June 30, 2008. This increase was largely
administrative in origin as we work with our borrowers to resolve
outstanding issues prior to renewal. As a result, loans that the Bank
expected to renew by quarter end for a variety of reasons did not. Since
September 30, 2008, $2.7 million in past due loans have been brought
current, agreements are in place to bring $10.2 million either current
or paid in full, we are in negotiations to bring current an additional
$6.8 million and the remaining $3.4 million past due loans are in
various stages of resolution.
Loans on non-accrual also saw an increase to $14.3 million at September
30, 2008 compared to $11.4 million at June 30, 2008. This increase was
primarily due to the addition of three commercial development loans in
the state of Arizona. The total number of properties on non-accrual were
seventeen at quarter end. Although, the borrowers in each case believe
in the viability of their respective projects, the Bank has chosen to
take the position of protecting itself by increasing its ALLL in the
event that this does not prove valid.
OREO
Other Real Estate Owned (OREO) increased to $6.1 million at September
30, 2008 compared to $1.8 million at June 30, 2008. This category is
comprised of three completed single family residences; an additional
single family residence that is approximately 80% complete; three
residential lots; and the retail development site previously noted. The
Bank closed on two of the OREO single-family homes subsequent to
quarter-end.
To better manage and dispose of these assets, the Bank added an OREO
specialist to assist with these efforts. The Bank will regularly review
assets to determine the best means of achieving maximum value. Because
of our strong capital position we have the capacity to hold property for
a period to allow stabilization of market conditions. We will monitor
the market as a whole and dispose of properties in an orderly manner in
an attempt to better align the sale price with the true “intrinsic
value” of the asset.
Capital Levels
Despite this difficult environment, the Bank continues to operate with a
strong capital position nearly double that considered necessary to be a “well-capitalized”
bank for regulatory purposes. Our strong capital position provides us
the flexibility to deal with tactical issues in the short term and also
enhances our strategic options as we look to take advantage of market
opportunities going forward.
Goals
As with many financial institutions, a significant part of the increase
in loans transitioning from performing status to that of problem asset
is due to the extraordinary effects of the current economic environment.
Patrick Patrick, the CEO of Towne Bank of Arizona, has 40 years of
executive management experience during both favorable and stressed
economic conditions. Mr. Patrick stated, “Because
of our management team of seasoned veterans and our strong capital
position, we believe that Towne Bank is uniquely equipped to work
through this difficult period. We believe the Bank is positioned to
become a growing and important part of our community. We see progress in
resolving issues with asset quality, growing our customer base and
developing a first-class team of employees to serve our customers. For
these reasons Towne Bank continues to look for opportunities that will
allow us to take advantage of what we view as a unique opportunity for
growth in our marketplace.”
Forward-Looking Statement
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)
3rd Qtr 2008
3rd Qtr 2007
2008 Change
2nd Qtr 2008
Sep 2008
Sep 2007
Dec 2007
Net interest income
$
1,383
$
2,522
-45.18
%
$
1,511
$
4,531
$
7,578
$
9,456
Provision for loan losses
$
3,353
$
570
488.52
%
$
0
$
3,353
$
1,122
$
2,130
Total non-interest income
($77
)
$
128
-440.41
%
$
11
($93
)
$
51
$
2
Total non-interest expense
$
1,493
$
1,758
-15.05
%
$
1,645
$
4,737
$
4,630
$
6,840
Federal and state taxes
($1,359
)
$
89
-1621.91
%
($48
)
($1,402
)
$
744
$
227
Net income
($2,182
)
$
233
-1805.25
%
($76
)
($2,250
)
$
1,134
$
262
Selected Balance Sheet Data (unaudited)
Sep 2008
Jun 2008
3rd Quarter 2008 Change
Dec 2007
YTD 2008 Change
Sep 2007
Year Over Year Change
Total assets
$
157,193
$
171,252
($14,059
)
$
201,417
($44,224
)
$
201,817
($44,624
)
Net loans
$
121,527
$
141,831
($20,304
)
$
172,693
($51,167
)
$
178,898
($57,371
)
Total deposits
$
116,232
$
128,165
($11,933
)
$
152,843
($36,611
)
$
157,971
($41,739
)
Total borrowings
$
6,000
$
6,000
$
0
$
11,020
($5,020
)
$
6,020
($20
)
Total equity cap
$
34,239
$
36,340
($2,101
)
$
36,347
($2,108
)
$
37,033
($2,794
)
Book value per share
$
21.14
$
22.72
($1.58
)
$
22.72
($1.58
)
$
23.15
($2.01
)
QUARTER
YEAR-TO-DATE
Selected ratios (unaudited)
3rd Qtr 2008
3rd Qtr 2007
2nd Qtr 2008
Sep 2008
Sep 2007
Dec 2007
Net interest margin
3.42
%
5.20
%
3.50
%
3.43
%
5.69
%
5.18
%
Return on avg assets
-5.32
%
0.48
%
-0.17
%
-1.69
%
0.85
%
0.14
%
Return on avg equity
-23.95
%
2.51
%
-0.83
%
-8.22
%
4.14
%
0.71
%
Efficiency ratio
114.37
%
66.34
%
108.11
%
106.74
%
60.69
%
72.32
%
Net charge-offs to total loans
1.52
%
0.00
%
0.10
%
1.71
%
0.00
%
0.01
%
ALLL to gross loans %
4.44
%
1.80
%
2.89
%
4.44
%
1.80
%
2.42
%
NPA to total assets
15.87
%
0.72
%
8.17
%
15.87
%
0.72
%
4.88
%
Per share data (unaudited)
Net income per share
($1.35
)
$
0.15
($0.05
)
($1.39
)
$
0.77
$
0.16
Net income per share (diluted)
($1.35
)
$
0.13
($0.05
)
($1.39
)
$
0.70
$
0.15
Average shares outstanding
1,619,619
1,599,639
1,599,639
1,619,619
1,599,639
1,599,639