TWNE Towne Bancorp Inc (CE)

Towne Bancorp (OTCBB:TWNE), the holding company for Towne Bank of Arizona (TBA), today reported a net loss of ($1.779) million (MM) or ($1.10) per diluted share for the quarter ended September 30, 2009, compared to a loss of ($2.181) MM or ($1.35) per diluted share for the quarter ended September 30, 2008. This is an improvement over the same period of 2008 and significantly better than the ($9.332) MM reported for the quarter ended June 30, 2009. The primary reason for the loss in the period ended September 30, 2009 continues to relate to the very high level of non-performing assets held by TBA. Costs associated with these assets include $1MM for charge-offs; $277K for additional provisions to the Allowance for Loan and Lease Losses (ALLL); $229 thousand for increased FDIC deposit insurance premiums together with expenses associated with Other Real Estate Owned (OREO) such as appraisal, legal, taxes, insurance, etc.

Highlights for the 3rd Quarter 2009

• Non-accruing Loans decreased from $27.7MM at 6/30/09 to $14.8MM at 9/30/09
• Loans Past Due 30 to 89 days decreased from $4.7MM at 6/30/09 to $1.3MM at 9/30/09
• Total Non-performing assets (NPA’s) decreased from $50.3MM at 6/30/09 to $41.2MM at 9/30/09
• Resolved $5.1MM of non-performing assets during the quarter
• Entered into contract to sell an additional $6MM of non-performing assets during the 4th quarter
• Total risk-based capital ratio of 10.63%

At 10.63%, total risk-based capital continues to be above current industry norms as of 9/30/09. Unfortunately the industry norms are not adequate for the current severely troubled, although improving, economic environment. In recognition of the severity of current conditions, the Bank is continuing to move aggressively to reduce the volume of problem assets.

At September 30, 2009, total assets decreased to $126.6 million from $132.6 million at quarter end 6/30/09. This reduction in total assets is primarily due to the Bank’s continued efforts to reduce its concentration of Commercial Real Estate (CRE) loans and Brokered Deposits used to fund those loans. The Bank reduced Brokered Deposits by $4.5 million during the quarter ended 9/30/09 or 7.25%.

Net interest income improved to $725 thousand at 9/30/09, compared to $336 thousand at quarter ended 6/30/09. A primary reason for the improvement in net interest income was a reduction in the number and amount of loans entering non-accrual status. The principal source of earnings for most banks is net interest income. To achieve a return to appropriate levels the Bank needs to dispose of non-earning assets or return them to a contributing status, while reducing the cost of deposits and borrowings. The Bank is moving aggressively to address these critical issues.

Plans to Increase Capital

While the Bank currently has total risk-based capital in excess of 10%, the high level of non-performing assets coupled with our high concentration of brokered deposits in a troubled economic environment leaves us unable to take advantage of potential opportunities in our marketplace. For this reason, we have determined we need to increase TBA’s capital. The Board of Directors of the Company authorized a special shareholders meeting to approve an amendment to the Company’s Articles of Incorporation which would increase the number of authorized shares of common stock of the Company. The meeting will be held November 19, 2009 at the main office of Towne Bank of Arizona. Upon approval, the Company would then be in a position to raise additional capital through the sale of new shares.

The new capital will support continued and aggressive management of troubled assets, provide operational flexibility, and enable TBA to be on the offensive coming out of this downward economic cycle.

A Notice of the Special Meeting of Shareholders was mailed October 13, 2009 to shareholders of record on October 8, 2009.

Asset Management

The second quarter of 2009 saw the first reduction in overall NPA’s since the middle of 2008. That trend continued in the third quarter. The total of loans 30-89 days past due or delinquent, loans on non-accrual, and OREO decreased from $50.3 million at 6/30/09 to $41.2 million at 9/30/09. The 9/30/09 total was an improvement from the high at May 31, 2009 of $67.2 million, a reduction of 39%.

Separating these categories, loans 30-89 days past due or delinquent declined from $4.7 million at June 30, 2009 to $1.3 million at September 30, 2009 and loans on non-accrual declined from $27.7 million at 6/30/09 to $14.8 million at 9/30/09. There is a natural progression of non-accrual loans to OREO, and in that category, OREO increased to $25.1 million at September 30, 2009 from $17.9 million at June 30, 2009.

Towne Bank’s Management Team continues to work to resolve balance sheet issues while positioning the Bank to take advantage of what we believe will be very opportune local market conditions in the future. The improvements described over the last few quarters in the decline in non-performing assets and reduction of brokered deposits are a result of management’s efforts to realistically recognize loan losses, dispose of acquired assets at market prices, and improve the liability side of our balance sheet by replacing brokered deposits with core deposits. These effects, combined with an improving local economy and additional capital, should leave the Bank well positioned for the future.

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 2009 3rd Qtr 2008 2009 Change 2nd Qtr 2009   Sep 2009 Sep 2008 Dec 2008   Net interest income $725 $1,383 -47.56 % $336 $1,696 $4,531 $5,028 Provision for loan losses $277 $3,353 -91.74 % $5,400 $7,650 $3,353 $9,776 Total non-interest income ($403 ) ($77 ) -423.72 % ($2,620 ) ($3,514 ) ($93 ) $153 Total non-interest expense $1,824 $1,493 22.15 % $1,649 $4,989 $4,737 $6,627 Federal and state taxes $0 ($1,359 ) 100.00 % $0 $0 ($1,402 ) $24 Net income (loss) ($1,779 ) ($2,182 ) 18.46 % ($9,332 ) ($14,457 ) ($2,250 ) ($11,246 )     Selected Balance Sheet Data (unaudited) Sep 2009 Jun 2009

3rd Quarter2009 Change

  Dec 2008

YTD 2009Change

Sep 2008

Year OverYear Change

  Total assets $126,597 $132,622 ($6,025 ) $150,749 ($24,010 ) $157,193 ($30,596 ) Net loans $82,112 $94,038 ($11,926 ) $113,823 ($31,711 ) $121,527 ($39,414 ) Total deposits $108,921 $113,187 ($4,266 ) $118,431 ($9,510 ) $116,232 ($7,311 ) Total borrowings $6,000 $6,000 $0 $6,000 $0 $6,000 $0 Total equity cap $10,955 $12,756 ($1,801 ) $25,476 ($14,396 ) $34,239 ($23,284 ) Book value per share $6.76 $7.87 ($1.11 ) $15.65 ($8.89 ) $21.14 ($14.38 )     QUARTER YEAR-TO-DATE Selected ratios (unaudited) 3rd Qtr 2009 3rd Qtr 2008 2nd Qtr 2009 Sep 2009 Sep 2008 Dec 2008   Net interest margin 2.67 % 3.42 % 0.98 % 1.73 % 3.43 % 3.00 % Return on avg assets -5.40 % -5.32 % -25.81 % -13.39 % -1.69 % -6.48 % Return on avg equity -57.77 % -23.95 % -168.05 % -84.59 % -8.22 % -31.36 % Efficiency ratio 566.04 % 114.37 % -72.21 % -274.37 % 106.74 % 132.75 % Net charge-offs to total loans 1.19 % 1.52 % 10.69 % 20.01 % 1.71 % 4.31 % ALLL to gross loans % 5.14 % 4.44 % 5.24 % 5.14 % 4.44 % 7.15 % NPA to total assets 31.65 % 15.87 % 33.41 % 31.65 % 15.87 % 26.47 %   Per share data (unaudited)   Net income (loss) per share ($1.10 ) ($1.35 ) ($5.76 ) ($8.92 ) ($1.39 ) ($6.94 ) Net income (loss) per share (diluted) ($1.10 ) ($1.35 ) ($5.76 ) ($8.92 ) ($1.39 ) ($6.94 ) Average shares outstanding 1,621,024 1,619,619 1,621,024 1,621,024 1,619,619 1,621,024