VIRGINIA BEACH, Va., July 24, 2006 (PRIMEZONE) -- Gateway Financial Holdings, Inc. (Nasdaq: GBTS), the holding company for Gateway Bank & Trust Co., reported net income for the second quarter of 2006 of $1.51 million compared with $902,000 for the second quarter of 2005, an increase of $611,000, or 67.7%. Compared with the first quarter of 2006, net income increased $154,000, or 11.3%; excluding a $430,000 after-tax gain on the sale of securities taken in the first quarter, core earnings improved $584,000, or 62.9%. Earnings performance was driven by exceptional revenue growth from a 60% increase in loans outstanding year-over-year originated through the Company's expanding network of financial centers. Diluted earnings per share were $0.14 for the second quarter of 2006 compared with $0.11 for the prior-year period, an increase of 27.3%. Per share results were affected by an increase in weighted average diluted shares of 31.5%, from 8,467,906 shares for the second quarter of 2005 to 11,131,691 for the current quarter. The increase in diluted shares was primarily the result of the December 2005 stock offering of 2,300,000 shares.
For the first six months of 2006, the Company reported net income of $2.9 million, compared with $1.7 million for the same period in 2005, an increase of $1.17 million or 68.5%. Diluted earnings per share were $.26 for the 2006 year-to-date period compared with $.20 for the same period last year, an increase of 30%. Per share results were impacted by the December 2005 stock offering, which increased average diluted shares outstanding for the first half of 2006 by 32.2%, from 8,414,476 shares for the first half of 2005 to 11,124,709 for the 2006 six-month period.
Commenting on these results, D. Ben Berry, Chairman, President and CEO of Gateway Financial Holdings, stated, "We are pleased to report another record quarter, our ninth consecutive quarter of net income growth. This quarter has a special significance for us - our assets surpassed the $1 billion mark during the quarter, and the majority of this growth has been organically generated through our expanding network of financial centers which we built in markets we identified for their superior growth potential."
"During the second quarter" Mr. Berry continued, "we opened our second full-service financial center in Kitty Hawk and launched our new mortgage company - Gateway Financial Mortgage, Inc. The financial centers we opened during the first quarter are already producing outstanding results, and are contributing nicely to our strong balance sheet growth."
Mr. Berry noted that Gateway's strategy continues to focus on profit growth as well as franchise growth. "We continue to expand our franchise at an impressive rate, while maintaining exceptional asset quality and improving profitability. So far this year, we added five new full-service financial centers as well as our new operations center and a private banking center in Raleigh, while continuing to increase profitability quarter over quarter.
"Asset quality remains a top priority at Gateway. We are fortunate that we operate in markets with robust economies that continue to provide Gateway with exceptional opportunities for high-quality loan growth, but much of the credit for our sound asset quality belongs to the outstanding bankers and lenders at Gateway. They are identified and hired as part of our planning process, where we seek out prime locations and also prime lenders, experienced in each market. Because these lenders are astute and highly skilled business people, their client base has proved to be exceptionally loyal. This quarter, net charge-offs were only $76,000, and non-performing assets only 0.02% of total assets; however, we continued to build our loan loss reserves relative to our loan growth, and have increased our reserve levels by 2 basis points to 0.96% of loans since year-end 2005."
For the second quarter of 2006, total revenue, defined as net interest income and non-interest income, was $11.7 million, an increase of 56.1% above the $7.5 million reported for the prior-year second quarter. Net interest income was $9.2 million, a $3.7 million or 69.2% increase over the $5.4 million reported for the prior-year period. The increase reflects a 63.9% increase in average earning assets, driven by the $327.8 million increase in average loans, combined with a 12-basis point improvement in the net interest margin to 3.88%.
Despite a modest compression of 7 basis points in net interest margin in the second quarter compared with the first quarter, net interest income quarter-over-quarter increased 11.1%, as 14.9% in growth of average assets more than offset the lower margin. Although Gateway is inherently short-term asset sensitive, the compression resulted from the impact of higher interest rates on Gateway's cost of funds, exacerbated by a flattening-to-inverted yield curve environment and the interest rate swap entered into in December of 2005. Mr. Berry added, "We decided it was prudent to posture ourselves more conservatively, so we entered into a 3-year, $150 million notional amount, fixed- rate interest rate swap in December 2005 to protect ourselves in a falling interest rate environment. The swap decreased our interest income by $146,000 in the quarter, or 6 basis points; but in the longer term, we believe it will provide the protection we need to cushion Gateway as rates fall. And we can get all the earnings growth we need from our fast-growing earning asset base."
Non-interest income for the quarter was $2.5 million, an increase of $442,000 or 21.5% above the prior-year second quarter, and a 14.5% increase on a linked-quarter basis (excluding securities gains in the first quarter). Service charge income increased $295,000 or 53.3%, directly related to the increase in transactional deposit accounts. Other income grew $142,000, or 9.4%, primarily from growth in Gateway's insurance and brokerage operations, and the launch of its new mortgage subsidiary. Mortgage related revenues were $130,300 higher than expected during the quarter, and $69,000 higher than the prior-period second quarter.
Non-interest expense for the second quarter of 2006 was $8.5 million, up $2.9 million, or 52.3%, from the $5.6 million reported in the second quarter of 2005. These increased expenses reflect Gateway's significant infrastructure expansion. Over the last twelve months, Gateway opened six de novo branches, built a new state-of-the-art operations center, opened a private banking center, launched a new mortgage subsidiary, and added 80 new employees, bringing the total FTEs to almost 300. Salaries and benefits increased 57.7%, and occupancy and equipment rose 49.5%, almost all of which was related to expansion activities. The $614,000 increase in other expense included $250,600 related to the Haberfeld High Performance checking account program, one-time costs of approximately $120,000 associated with opening a new banking office and the start-up of the mortgage subsidiary, and increased consulting and professional costs. Gateway's efficiency ratio was 72.80% this quarter, a 145 basis point improvement from the first quarter of 2006, and a 107 basis point improvement from the year-ago quarter.
Mr. Berry again noted, "The $1.06 billion in assets was achieved by exceptional loan and deposit growth year-over-year, up 60.1% and 59.3%, respectively; this momentum has continued into the first half of 2006, with loans and deposits up 27.9% and 29.4%, respectively, since December 31, 2005." At June 30, 2006, total assets were $1.06 billion, an increase of $383.7 million, or 56.5%, above the $678.6 million reported twelve months ago. Loans increased $320.2 million, or 60.2%, to $852.4 million; 100% of this growth was organic, with 42% of the increase derived from the financial centers opened over the past twelve months. Year-to date, loans increased $185.7 million, or 27.9%; approximately half of this growth was derived from commercial real estate loans, up $88.1 million, or 39.8%. At June 30, 2006, commercial loans (CRE, construction and C&I) totaled $586 million, or 68.7% of the loan portfolio.
Deposits rose $311.4 million, or 59.3%, over the past twelve months, to $836.5 million. Year-to-date, deposits grew $190.3 million or 29.4%, with core deposits (including retail CDs) up $113.8 million (21.6%) to $598.4 million, and jumbo CDs up $10.5 million (7%) to $162.2 million at quarter-end. Brokered deposits, primarily used to fund loan growth in the Wilmington loan production office and the Raleigh private banking center, grew $66 million to $75.9 million. Core deposits comprised 71.5% of total deposits at June 30, 2006, while jumbo CDs were 20.2%. Borrowings, including junior subordinated debentures, totaled $117.4 million at June 30, 2006, up $31.6 million or 36.8% from twelve months ago. The Company issued an additional $15 million of junior subordinated debentures during the second quarter related to proceeds received from the sale of trust preferred securities by its Statutory Trust subsidiary.
"Our asset quality remains outstanding," commented Berry. "Over the past twelve months, we charged off only 0.02% of average loans; our non-accrual and past due loans are only $132,416 and $1.2 million, respectively, or 0.16% of total loans at June 30, 2006." Net charge-offs were $76,000 this quarter, or 0.01% of loans annualized compared with $9,000 for the second quarter of 2005. At June 30, 2006, the allowance for loan losses was $8.15 million, or 0.96% of total loans.
Mr. Berry continued, "Our commitment to shareholders remains strong, as evidenced by our second quarter eleven-for-ten stock split and the continuation of our quarterly cash dividend. We maintain a strong capital base which allows us to provide an attractive cash return to shareholders and continue our investment in franchise growth. We believe these strategies will maximize shareholder value over time and provide the most attractive return to Gateway investors." Stockholders' equity at June 30, 2006 totaled $102.2 million, an increase of $36.1 million, or 54.6%, from twelve months ago. The 2.3 million new shares issued this past December, including the over-allotment, added approximately $34.5 million to Gateway's capital base. At June 30, 2006, Gateway had 10,817,519 shares outstanding; stockholders' equity equaled 9.63% of total assets, and the total risk-based capital ratio was 14.63%, well in excess of the "well-capitalized" regulatory threshold.
Mr. Berry concluded, "We are pleased with our performance this quarter and the earnings we generated. We are well-positioned, well-capitalized, and replete with opportunities. We continue to expand our franchise and incur expenses associated with this expansion; however, we continue to improve profitability on a quarter-to-quarter basis. We are very pleased with Gateway Financial Mortgage. Their results for the quarter were ahead of schedule, and we anticipate a crossover to profitability in the third quarter, slightly ahead of schedule.
"Our network of financial centers is nearing completion. We plan to open two additional offices at the oceanfront in Virginia Beach and the Greenbrier section of Chesapeake during the third quarter. We also plan to convert our loan production office in Wilmington, North Carolina, into a full-service financial center in early 2007. Lastly, we plan to expand further in Raleigh during the latter part of 2007 and 2008. Our expansion initiatives are slowing as we approach our franchise goals. Our expenses are stabilizing, and our maturing financial centers are becoming increasingly profitable. 2006 is shaping up to be an excellent year for Gateway."
Web Cast and Conference Call Information
Gateway's executive management team will host a conference call and simultaneous web cast on Monday, July 24 at 10:00 AM Eastern Time to discuss second quarter results. The web cast can be accessed live on the Company's website, www.gwfh.com, on the Investor Relations page. A replay will be available approximately two hours after the live conference call ends, and will be archived on the Company's website for one month.
About the Company
Gateway Financial Holdings, Inc. is the parent company of Gateway Bank & Trust Co., a full-service regional community bank with a total of twenty-two financial centers - eleven in Virginia: Virginia Beach (6), Chesapeake (2), Suffolk, Norfolk and Emporia; and eleven in North Carolina: Elizabeth City (3), Edenton, Kitty Hawk (2), Moyock, Nags Head, Plymouth, Roper and Raleigh, in addition to a private banking center in Raleigh. The Bank also provides insurance through its Gateway Insurance Services, Inc. subsidiary and brokerage services through its Gateway Investment Services, Inc. subsidiary. The common stock of the Corporation is traded on the Nasdaq Global Market under the symbol GBTS. For further information, visit the Corporation's web site at www.gwfh.com .
Forward-Looking Statements
Statements contained in this news release, which are not historical facts, are forward-looking statements, as that term is defined in the Private Securities Litigation Reform Act of 1995. Amounts herein could vary as a result of market and other factors. Such forward-looking statements are subject to risks and uncertainties which could cause actual results to differ materially from those currently anticipated due to a number of factors, which include, but are not limited to, factors discussed in documents filed by the Company with the Securities and Exchange Commission from time to time. Such forward-looking statements may be identified by the use of such words as "believe," "expect," anticipate," "should," "planned," "estimated," and "potential." Examples of forward-looking statements include, but are not limited to, estimates with respect to the financial condition, expected or anticipated revenue, results of operations and business of the Company that are subject to various factors which could cause actual results to differ materially from these estimates. These factors include, but are not limited to, general economic conditions, changes in interest rates, deposit flows, loan demand, real estate values, and competition; changes in accounting principles, policies, or guidelines; changes in legislation or regulation; and other economic, competitive, governmental, regulatory, and technological factors affecting the Company's operations, pricing, products and services. The Company undertakes no obligation to update or clarify forward-looking statements, whether as a result of new information, future events or otherwise.
GATEWAY FINANCIAL HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL HIGHLIGHTS
Quarterly
-------------------------------------------------------
2nd Qtr 1st Qtr 4th Qtr 3rd Qtr 2nd Qtr
2006 2006 2005 2005 2005
---------- ---------- --------- --------- ---------
(Dollars in thousands except per share data)
EARNINGS
Net interest
income $ 9,166 8,252 7,080 6,134 5,418
Provision for
loan losses $ 800 1,200 750 550 500
Non Interest
income $ 2,494 2,832 2,337 2,007 2,052
Non Interest
expense $ 8,559 7,840 6,817 6,031 5,617
Pre-tax
income $ 2,301 2,044 1,850 1,560 1,353
Net income $ 1,513 1,359 1,220 1,015 902
Basic earn-
ings per
share(a) $ 0.14 0.13 0.14 0.12 0.11
Diluted
earnings per
share(a) $ 0.14 0.12 0.14 0.12 0.11
Weighted
avg basic
shares out-
standing(a) 10,789,189 10,762,140 8,486,740 8,147,547 8,118,117
Weighted
average
diluted
shares(a) 11,131,691 11,113,498 8,841,860 8,552,862 8,467,906
PERFORMANCE
RATIOS
Return on
average
assets 0.59% 0.60% 0.60% 0.56% 0.56%
Return on
average
common equity 5.90% 5.38% 6.22% 6.08% 5.49%
Net interest
margin (fully
tax-
equivalent) 3.88% 3.95% 3.96% 3.78% 3.76%
Efficiency
ratio 72.80% 74.25% 72.92% 73.49% 73.87%
Full-time
equivalent
employees 299 280 247 225 217
CAPITAL
Period-end
equity to
assets 9.62% 10.39% 11.19% 9.08% 9.75%
Tier 1
leverage
capital
ratio 12.48% 12.01% 13.73% 11.50% 11.79%
Tier 1 risk-
based
capital
ratio 13.75% 13.02% 14.31% 11.89% 12.49%
Total risk-
based
capital
ratio 14.63% 13.89% 15.17% 12.80% 13.38%
Book value per
share (a) $ 9.45 9.48 9.45 8.19 8.13
Cash dividend
per share (a) $ 0.03 0.03 0.03 0.02 0.02
ASSET QUALITY
Gross loan
charge-offs $ 86 66 32 38 10
Net loan
charge-offs $ 76 60 29 36 9
Net loan
charge-offs
to average
loans 0.01% 0.01% 0.01% 0.01% 0.00%
Allowance for
loan losses $ 8,147 7,423 6,283 5,562 5,048
Allowance for
loan losses
to total
loans 0.96% 0.95% 0.94% 0.94% 0.95%
Past due and
nonaccrual
loans $ 1,328 3,116 359 390 618
Past due and
nonaccrual
loans to
total loans 0.16% 0.40% 0.05% 0.07% 0.12%
Other real
estate and
repossessed
assets $ 0 0 0 0 0
END OF PERIOD
BALANCES
Loans (before
allowance) $ 852,381 783,614 666,652 590,439 532,227
Total earning
assets
(before
allowance) $ 984,515 908,052 802,398 669,534 609,254
Total
assets $1,062,241 986,311 883,373 740,279 678,560
Deposits $ 836,528 760,078 646,262 588,058 525,115
Stockholders'
equity $ 102,240 102,456 98,744 67,193 66,148
AVERAGE
BALANCES
Loans (before
allowance) $ 822,938 718,642 641,354 559,498 495,090
Total earning
assets
(before
allowance) $ 947,402 846,652 736,239 643,044 577,865
Total assets $1,022,762 924,764 809,546 718,237 638,491
Deposits
(Excludes
non-int.
DDA) $ 703,226 614,034 523,402 572,354 463,356
Stockholder's
equity $ 102,820 102,347 77,895 66,302 65,163
Year to Date
6 Mos. 6 Mos.
2006 2005
---------- ----------
EARNINGS
Net interest income $ 17,418 10,088
Provision for loan losses $ 2,000 900
Non Interest income $ 5,326 3,724
Non Interest expense $ 16,399 10,418
Pre-tax income $ 4,345 2,494
Net income $ 2,872 1,704
Basic earnings per share(a) $ 0.27 0.21
Diluted earnings per share(a) $ 0.26 0.20
Weighted avg. basic shares outstanding(a) 10,775,739 8,109,655
Weighted average diluted shares(a) 11,124,709 8,414,476
PERFORMANCE RATIOS
Return on average assets 0.59% 0.56%
Return on average common equity 5.66% 5.29%
Net interest margin (fully tax-equivalent) 3.91% 3.76%
Efficiency ratio 73.57% 75.06%
Full-time equivalent employees 299 217
CAPITAL
Period-end equity to assets 9.62% 9.70%
Tier 1 leverage capital ratio 12.48% 11.79%
Tier 1 risk-based capital ratio 13.75% 12.49%
Total risk-based capital ratio 14.63% 13.38%
Book value per share(a) $ 9.45 8.13
Cash dividend per share(a) $ 0.06 0.04
ASSET QUALITY
Gross loan charge-offs $ 152 18
Net loan charge-offs $ 136 15
Net loan charge-offs to average loans 0.02% 0.01%
Allowance for loan losses $ 8,147 5,048
Allowance for loan losses to total loans 0.96% 0.95%
Past due and nonaccrual loans $ 1,328 618
Past due and nonaccrual loans to total loans 0.16% 0.01%
Other real estate and repossessed assets $ 0 0
END OF PERIOD BALANCES
Loans (before allowance) $ 852,381 532,227
Total earning assets (before allowance) $ 984,515 609,253
Total assets $1,062,241 678,560
Deposits $ 836,528 525,115
Stockholders' equity $ 102,240 66,148
AVERAGE BALANCES
Loans (before allowance) $ 771,077 454,766
Total earning assets (before allowance) $ 897,304 541,542
Total assets $ 979,102 612,958
Deposits (Excludes non-int. DDA) $ 658,871 382,734
Stockholder's equity $ 102,260 64,932
(a) All references to share and per share amounts have been
adjusted to reflect the effect of an 11-for-10 stock split
effective in the form of a stock dividend distributed on April
28, 2006 and June 20, 2005.
GATEWAY FINANCIAL HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED SIX MONTHS ENDED
June 30, June 30,
---------------------- -----------------------
2006 2005 2006 2005
---------- ---------- ---------- -----------
Unaudited Unaudited Unaudited Unaudited
(Amounts in (000), except per share data)
INTEREST INCOME
Loans, including
fees $ 16,457 $ 8,293 $ 30,217 $ 14,798
Investment securities
- taxable 1,200 645 2,426 1,414
- tax-exempt 60 66 122 114
Interest-earning bank
deposits 35 22 73 31
Other interest and
dividends 133 69 281 117
---------- ---------- ---------- -----------
Total interest
income 17,885 9,095 33,119 16,474
INTEREST EXPENSE
Money market, NOW
and savings 1,943 781 3,340 1,444
Time deposits 5,020 1,848 9,077 3,208
Short term Debt 1,300 471 1,903 849
Long-term debt 456 577 1,381 885
---------- ---------- ---------- -----------
Total interest
expense 8,719 3,677 15,701 6,386
---------- ---------- ---------- -----------
Net interest income 9,166 5,418 17,418 10,088
Provision for
loan losses 800 500 2,000 900
---------- ---------- ---------- -----------
Net interest income
after provision for
loan losses 8,366 4,918 15,418 9,188
NON INTEREST INCOME
Service charges on
accounts 848 553 1,563 1,014
Net gain on sales of
securities 0 (5) 653 19
Other income 1,646 1,504 3,110 2,691
---------- ---------- ---------- -----------
Total non interest
income 2,494 2,052 5,326 3,724
NON INTEREST EXPENSE
Salaries and benefits 4,232 2,683 7,940 5,152
Occupancy and
equipment 1,715 1,147 3,257 2,187
Data processing fees 426 215 854 443
Other expense 2,186 1,572 4,348 2,636
---------- ---------- ---------- -----------
Total non interest
expense 8,559 5,617 16,399 10,418
---------- ---------- ---------- -----------
Income before
income taxes 2,301 1,353 4,345 2,494
Income taxes 788 451 1,473 790
---------- ---------- ---------- -----------
Net income $ 1,513 $ 902 $ 2,872 $ 1,704
---------- ---------- ---------- -----------
Basic earnings
per share(a) $ 0.14 $ 0.11 $ 0.27 $ 0.21
Diluted earnings
per share(a) $ 0.14 $ 0.11 $ 0.26 $ 0.20
Weighted avg
basic shares
outstanding(a) 10,789,189 8,118,117 10,775,739 8,109,655
Weighted average
diluted shares(a) 11,131,691 8,467,906 11,124,709 8,414,476
(a) All references to share and per share amounts have been
adjusted to reflect the effect of an 11-for-10 stock split
effective in the form of a stock dividend distributed on April
28, 2006 and June 20, 2005.
GATEWAY FINANCIAL HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
June 30, December 31, June 30,
2006 2005 2005
---------- --------- ---------
Unaudited Audited Unaudited
(Dollar amounts in thousands)
ASSETS
Cash and due from banks $ 19,822 $ 18,475 $ 16,672
Interest-earnings deposits
in other banks 2,751 3,668 569
---------- --------- ---------
Total cash and cash
equivalents 22,573 22,143 17,241
Securities available for sale 109,561 123,773 71,498
Federal Home Loan Bank stock 4,967 6,208 4,237
Federal Reserve Bank stock 2,919 2,097 722
Loans 852,381 666,652 532,227
Allowance for loan losses (8,147) (6,283) (5,048)
---------- --------- ---------
Total loans, net 844,234 660,369 527,179
Premises and equipment, net 35,948 29,551 22,111
Bank owned life insurance
policies 17,515 17,187 16,818
Accrued interest receivable 7,262 5,883 4,211
Other assets 17,262 16,162 14,543
---------- --------- ---------
Total assets $1,062,241 $ 883,373 $ 678,560
---------- --------- ---------
LIABILITIES AND STOCKHOLDERS'
EQUITY
Deposits:
Noninterest-bearing $ 104,695 $ 89,162 $ 74,060
Interest-bearing 731,833 557,100 451,055
---------- --------- ---------
Total deposits 836,528 646,262 525,115
Short term debt 55,000 62,000 18,401
Long-term debt 62,429 72,665 67,465
Accrued expenses and other
liabilities 6,044 3,702 1,431
---------- --------- ---------
Total liabilities 960,001 784,629 612,412
STOCKHOLDERS' EQUITY
Common stock 99,062 94,109 63,287
Retained earnings 7,398 5,113 3,249
Deferred Compensation
- restricted stock -- (43) --
Accumulated other
comprehensive loss (4,220) (435) (388)
---------- --------- ---------
Total stockholders' equity 102,240 98,744 66,148
Total liabilities and
stockholders' equity $1,062,241 $ 883,373 $ 678,560
---------- --------- ---------