TWNE Towne Bancorp Inc (CE)

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