TWNE Towne Bancorp Inc (CE)

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