TWNE Towne Bancorp Inc (CE)

Towne Bancorp (OTCBB: TWNE), the parent company of Towne Bank of Arizona, today reported that solid loan growth led to second quarter profits of $453,000, or $.26 per diluted share, compared to a gain of $486,000, or $.28 per diluted share in 2006. It should be noted that the 2006 performance numbers do not include the holding company activities and therefore the 2007 Net Income per Share would be $.27 per diluted share without the inclusion of the holding company results. Net interest income before provision for loan losses grew by 35% to $2,664,000 in the second quarter of �07 compared to the second quarter of �06. Total non-interest expense increased to $1,621,000 from $1,085,000 at 6/30/06. The company reported return on average assets (ROAA) of .99% for the second quarter of �07 (1.05% without the holding company activities included) compared to 1.59% for the like quarter of �06. The year to date ROAA for �07 was 1.18% compared to .98% for the same period of �06. Net loans increased 49% to $174.6 million at the end of the second quarter 2007, compared to $117.4 million a year earlier. Net interest margin (NIM) continued to decline to 5.86% for the second quarter of �07 compared to 6.52% in the second quarter a year earlier. �Even with the recent declines in our NIM over the last year, we continue to enjoy strong margins compared to many of our peers,� said S. Rick Meikle, CEO. The company�s efficiency ratio has risen to 60.45% at 6/30/07 from 54.66% reported at 6/30/06. �We have significantly grown our staff in a number of support and infrastructure areas. This will allow us to better manage the bank as it grows and as we continue to provide the type of quality and responsive customer service to our clients that we demand of ourselves. In addition we have opened loan production offices in both Scottsdale and Payson. It is important to note that our efficiency ratio continues to compare very favorably to our peers,� Meikle said. �The second quarter of �07 was a challenging quarter for the bank from several perspectives,� said Mr. Meikle. �Our former Chief Credit Officer resigned from the bank, effective June 1, 2007. Mr. Ken Coplen, who has been with the bank since its inception, has been appointed as the bank�s new CCO. Mr. Coplen has both a long and successful career in banking and the necessary skill set to work on several credit administration issues that need attention and improvement as well as provide the leadership necessary to support our growth and expansion in the future,� remarked Mr. Meikle. �Furthermore, the company has just added a new Credit Administrator and an internal credit review department. We are continuing our search for additional quality, experienced loan underwriters to enhance the bank�s credit function from all perspectives,� added Mr. Meikle. Credit quality remains good with no net charge-offs for the second quarter. �The one non-performing asset reported at 6/30/07 is a residential construction loan for a completed home that is well secured, adequately reserved and in the process of collection. The resulting NPA to Total Assets ratio is 0.26% compared to 0.00% for the second quarter of �06. Our provision for loan loss expense in the quarter was $308,000 compared with $91,000 and $244,000 for the second quarter of �06 and the first quarter of �07 respectively. The higher provision resulted in a healthy allowance for loan losses of 1.53% of gross loans compared to 1.31% at 6/30/06 which is the result of several downgrades of credits that were not receiving the proper level of credit administration, monitoring and management that they deserved,� Meikle said. Total deposits increased 66% to $154.7 million at 6/30/07, compared to $93.1 million at 6/30/06. �We are still too dependent upon wholesale funding sources at the bank compared to the growth that we must achieve in local core deposit relationships,� reported Mr. Meikle. �Furthermore, our core deposit funding strategies of adding dedicated deposit business development officers and enhanced product offerings such as remote capture deposit services need to be more effective during upcoming quarters or we may be limited in some of our loan growth opportunities because of core deposit funding challenges,� Meikle said. Statements concerning future performance, developments or events, expectations for earnings, growth and market forecasts, and any other guidance on future periods, constitute forward-looking statements, which are subject to a number of risks and uncertainties that are beyond Towne Bancorp�s control and might cause actual results to differ materially from the expectations and stated objectives. Factors which could cause actual results to differ materially include, but are not limited to, regional and general economic conditions, management's ability to generate continued improvement in asset quality and profitability, changes in interest rates, deposit flows, real estate values, competition, loan delinquency rates, the successful operation of the newly opened branches and loan offices, changes in accounting principles, practices, policies or guidelines, changes in legislation or regulation, other economic, competitive, governmental, regulatory and technological factors affecting operations, pricing, products and services. Accordingly, these factors should be considered in evaluating the forward-looking statements, and undue reliance should not be placed on such statements. Towne Bancorp undertakes no responsibility to update or revise any forward-looking statements. (All dollars in thousands except per share data) � QUARTER YEAR-TO-DATE Selected Income Statement Data (unaudited) 2nd Qtr 2007 2nd Qtr 2006 Change Jun 2007 Jun 2006 Change � Net interest income $2,664 $1,979 34.60% $5,056 $3,780 33.76% Provision for loan losses $308 $91 239.58% $552 $844 -34.58% Total non-interest income $17 $5 220.64% $29 ($6) 605.80% Total non-interest expense $1,621 $1,085 49.39% $2,872 $2,032 41.33% Federal and state taxes $300 $324 -7.32% $655 $360 82.08% Net income $453 $486 -6.73% $1,006 $539 86.70% � � Selected Balance Sheet Data (unaudited) Jun 2007 Mar 2007 2nd Quarter Change Dec 2006 YTD 2007Change Jun 2006 Year Over Year Change � Total assets $192,232 $177,374 $14,858 $154,945 $37,287 $128,128 $64,104 Net loans $174,594 $167,143 $7,451 $147,924 $26,670 $117,433 $57,162 Total deposits $154,674 $140,181 $14,493 $118,448 $36,226 $93,144 $61,530 Total borrowings $105 $85 $20 $85 $20 $0 $105 Total equity cap $36,750 $36,106 $644 $35,553 $1,197 $34,580 $2,170 Book value per share $23.03 $22.77 $0.26 $22.42 $0.61 $21.82 $1.21 � � QUARTER YEAR-TO-DATE Selected ratios (unaudited) 2nd Qtr 2007 2nd Qtr 2006 Change Jun 2007 Jun 2006 Change � Net interest margin 5.86% 6.52% -10.14% 5.97% 6.96% -14.21% Return on avg assets 0.99% 1.59% -37.65% 1.18% 0.98% 20.31% Return on avg equity 4.98% 5.66% -12.07% 5.55% 3.14% 76.69% Efficiency ratio 60.45% 54.66% 10.59% 56.49% 53.84% 4.91% Net charge-offs to total loans 0.00% 0.01% -100.00% 0.00% 0.01% -100.00% ALLL to gross loans % 1.53% 1.31% 17.31% 1.53% 1.31% 17.31% NPA to total assets 0.26% 0.00% n/a 0.26% 0.00% n/a � Per share data (unaudited) Net income per share $0.28 $0.31 $0.63 $0.34 Net income per share (diluted) $0.26 $0.28 $0.57 $0.31 Average shares outstanding 1,594,626 1,584,623 1,591,403 1,584,389 � Note 1: The data for June 2006 YTD and QTD do not include the holding company. The 2nd quarter Year 2007 performance of Towne Bank of Arizona, without the inclusion of the Holding Company is as follows; ROAA 1.05%, ROAE 5.26%, Efficiency Ratio 59.53%, NIM 5.86%, and Net Income Per Share (diluted) $0.27.