VIRGINIA BEACH, Va., Oct. 24, 2006 (PRIMEZONE) -- Gateway Financial Holdings, Inc. (Nasdaq:GBTS), the holding company for Gateway Bank & Trust Co., reported net income for the third quarter of 2006 of $2.78 million compared with $1.02 million for the 2005 third quarter, an increase of $1.76 million, or 173.7 percent. Diluted earnings per share were $0.25 compared with $0.12 for the year-ago quarter, up 108.3 percent. Per share results reflect the December 2005 stock offering of 2.3 million shares, which increased average diluted shares outstanding from 8,552,862 shares for the third quarter of 2005 to 11,097,299 for the current quarter, an increase of 29.7 percent.
For the first nine months of 2006, the Company reported net income of $3.87 million, up $1.15 million, or 42.2 percent, from the $2.72 million reported for the year-earlier nine-month period. Diluted earnings per share were $0.35 for the 2006 nine-month period compared with $0.32 last year, an increase of 9.4 percent. Per share results also reflect the 2005 stock offering, which increased average diluted shares outstanding for the first nine months of 2006 by 30.8 percent, from 8,489,787 shares for the first nine months of 2005 to 11,104,389 for the current nine-month period.
2006 results include a market value gain and net cash market settlement of $1.60 million before tax for the third quarter and a pre-tax loss of $1.42 million for the year-to-date period resulting from a $150 million interest rate swap agreement entered into on December 31, 2005 to hedge variable rate loans on Gateway's books; this has been reported as a component of non-interest income in accordance with GAAP.
Results also reflect strong loan growth, an expanding margin and outstanding asset quality. Despite the negative impact of the swap agreement for the first nine months of 2006, year-to-date net income still reflects an increase of $1.15 million or 42.2 percent.
D. Ben Berry, chairman and chief executive officer of Gateway Financial Holdings, Inc., commented on the quarter. "We continue to outperform the entire Southeast banking community with our growth. While most banks are retrenching in this uncertain environment, we consider this to be a favorable opportunity for expansion. We hire the best bankers, identify the most favorable branch locations, expand our franchise, and diversify our product offerings. We are thrilled to report another quarter of record earnings, with over fifty percent loan growth year-over-year, and with the same impeccable asset quality that is a hallmark of Gateway's performance. The accounting for the swap transaction has resulted in volatile earnings from quarter to quarter but it has not obscured the enormous progress we have made this year."
For the third quarter of 2006, total revenue, comprised of net interest income and non-interest income, was $13.9 million, an increase of 70.9 percent above the $8.14 million reported for the prior-year third quarter. Excluding the third quarter gain of $1.60 million from the swap transaction, total revenue was $12.3 million, an increase of 51.2 percent compared to the year-ago period. Net interest income was $9.49 million, up 54.8 percent over the prior-year period, reflecting a 52.4 percent increase in average earning assets, combined with a 6-basis point improvement in the net interest margin to 3.84 percent.
Non-interest income for the third quarter was $4.42 million, an increase of 120.0 percent above the prior-year; excluding the impact of the swap, non-interest income increased $808,000, or 40.3 percent, year-over-year. Service charge income increased $252,000 or 40.4 percent, while other income grew $620,000, or 47.0 percent. Growth of other income was primarily driven by an increase of $252,000 in mortgage revenues from Gateway Financial Mortgage which commenced operations in the second quarter of this year, as well as increases in insurance, brokerage, and BOLI related revenues. For the nine-month period, pro forma non-interest income increased 42.1 percent to $8.14 million, excluding the $1.4 million loss from the swap.
Non-interest expense for the third quarter of 2006 was $9.02 million, up $3.0 million, or 49.5 percent, from the $6.03 million reported in the third quarter of 2005, reflecting Gateway's investment in its banking franchise and infrastructure over the past twelve months. Salaries and benefits increased 54.1 percent, driven by an increase in FTEs to 310 from 225 at September, 2005, while occupancy and equipment rose 55.8 percent. Other expense increased $561,000 or 32.9 percent, primarily as a result of the Haberfeld High Performance Checking Program ($232,000), and higher advertising and professional services expenses. Expenses as a percent of average assets have remained remarkably steady over the past five quarters, despite the opening of seven banking offices over the past twelve months; expenses stand at 3.38 percent of average assets for the most recent quarter.
At September 30, 2006, total assets were $1.13 billion, an increase of $384.9 million, or 52.0 percent, above the $740.3 million reported twelve months ago. Loans increased $305.6 million, or 51.8 percent year-over-year. For the nine-month period year-to date, loans increased $229.4 million, or 34.4 percent (45.9 percent annualized), with commercial accounts, namely, C&I, CRE and construction loans, accounting for 69 percent of Gateway's loan portfolio at September 30, 2006.
Deposits rose $246.0 million, or 41.8 percent, over the past twelve months, to $834.1 million. Year-to-date, deposits grew $187.8 million or 29.1 percent (38.9 percent annualized). Growth of core deposits has outpaced wholesale deposits, mainly as a result of Gateway's success at building retail money market and commercial sweep accounts. Since year-end 2005, core deposits grew $150 million, or 42.7 percent (annualized) with savings and money market accounts contributing $104 million of that growth.
Gateway continues to maintain asset quality at consistently outstanding levels while at the same time reporting exceptional growth in its loan portfolio. Mr. Berry noted that the Company continues to build reserves relative to market risks and growth, although there has been no sign of weakness to Gateway's loan portfolio. He added, "The economy is slowing and we believe this is a prudent step to take. However, the expertise of our lenders and our credit administration staff is our first line of defense in protecting Gateway from problem loans." Nonperforming loans were $420,000 this quarter, or 0.05 percent of total loans, compared with $138,000 or 0.02 percent in the previous quarter, and $390,000 or 0.07 percent at September 30, 2005. Net loan charge-offs have also been consistently low; this quarter, they were $53,000 or 0.02 percent (annualized) of average loans; this compares with $76,000, or 0.04 percent of average loans in the previous quarter, and $36,000, or 0.03 percent, for the year-ago quarter. Loan loss reserves were $8.7 million or 0.97 percent of total loans at September 30, 2006. Gateway has been building reserves throughout 2006, which have increased from 0.94 percent at year-end 2005.
Stockholders' equity at June 30, 2006 totaled $106.1 million, up $38.9 million, or 57.8 percent, 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 September 30, 2006, Gateway had 10,824,678 shares outstanding; stockholders' equity equaled 9.43 percent of total assets, and the total risk-based capital ratio was 13.94 percent, well in excess of the "well-capitalized" regulatory threshold. Mr. Berry concluded, "Although our markets are moderating somewhat, we still see good growth opportunities ahead. Our branch configuration is set for the near-term, although we are prepared to move forward with two additional loan production offices before year-end. Our efforts are now focused more than ever on expanding our share of the dynamic markets we have already entered, and our bankers are prepared for growth even as conditions tighten."
Web Cast and Conference Call Information
Gateway's executive management team will host a conference call and simultaneous web cast on Tuesday, October 24 at 10:00 AM Eastern Time to discuss third 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 two hours following the completion of the conference call through Midnight, ET, October 31, 2006 by dialing 877-660-6853, Account number 286 Conference ID number 215608. The webcast will also be available for 30 days on the Investor Relations page of the Company's website, www.gwfh.com
About the Company
Gateway Financial Holdings, Inc. is the parent company of Gateway Bank & Trust Co., a regional community bank with a total of twenty-four full-service financial centers -- thirteen in Virginia: Virginia Beach (7), Chesapeake (3), 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 provides insurance through its Gateway Insurance Services, Inc. subsidiary, brokerage services through its Gateway Investment Services, Inc. subsidiary, and mortgage banking services through its Gateway Financial Mortgage, 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 Third Quarter 2006 GATEWAY FINANCIAL HOLDINGS, INC. AND SUBSIDIARY CONSOLIDATED FINANCIAL HIGHLIGHTS Quarterly 3rd Qtr 2nd Qtr 1st Qtr 4th Qtr 3rd Qtr 2006 2006 2006 2005 2005 ---------- ---------- --------- --------- --------- (Dollars in thousands except per share data) EARNINGS Net interest income $ 9,493 9,312 8,222 7,080 6,134 Provision for loan losses $ 600 800 1,200 750 550 Non Interest income $ 4,416 1,296 1,013 2,337 2,007 Non Interest expense $ 9,018 8,559 7,840 6,817 6,031 Pre-tax income $ 4,291 1,249 195 1,850 1,560 Net income $ 2,778 864 224 1,220 1,015 Basic earnings per share(a) $ 0.26 0.08 0.02 0.14 0.12 Diluted earnings per share(a) $ 0.25 0.08 0.02 0.14 0.12 Weighted avg. basic shares outstand- ing(a) 10,805,652 10,789,189 10,762,140 8,486,740 8,147,547 Weighted average diluted shares(a) 11,097,299 11,131,691 11,113,498 8,841,860 8,552,862 PERFORMANCE RATIOS Return on average assets 1.03% 0.37% 0.11% 0.60% 0.56% Return on average common equity 10.57% 3.41% 0.89% 6.22% 6.08% Net interest margin (fully tax- equivalent) 3.84% 3.94% 3.92% 3.96% 3.78% Non-int. expense to average assets 3.38% 3.35% 3.39% 3.37% 3.36% Efficiency ratio 64.20% 79.99% 88.95% 71.64% 74.67% Full-time equivalent employees 310 299 280 247 225 CAPITAL Period-end equity to assets 9.43% 9.62% 10.39% 11.19% 9.08% Tier 1 leverage capital ratio 12.02% 12.48% 12.01% 13.73% 11.50% Tier 1 risk- based capital ratio 13.05% 13.75% 13.02% 14.31% 11.89% Total risk- based capital ratio 13.94% 14.63% 13.89% 15.17% 12.80% Book value per share(a) $ 9.80 9.45 9.48 9.45 8.19 Cash dividend per share(a) $ 0.05 0.03 0.03 0.03 0.02 ASSET QUALITY Gross loan charge-offs $ 58 86 66 32 38 Net loan charge-offs $ 53 76 60 29 36 Net charge- offs to avg. loans (annualized) 0.02% 0.04% 0.03% 0.02% 0.03% Allowance for loan losses $ 8,694 8,147 7,423 6,283 5,562 Allowance for loan losses to total loans 0.97% 0.96% 0.95% 0.94% 0.94% Nonperforming loans $ 420 138 2,681 204 390 NPL to total loans 0.05% 0.02% 0.34% 0.03% 0.07% Other real estate and repossessed assets $ 0 0 0 0 0 END OF PERIOD BALANCES Loans (before allowance) $ 896,080 852,381 783,614 666,652 590,439 Total earning assets (before allowance) $1,031,613 984,515 908,052 802,398 669,534 Total assets$1,125,144 1,062,241 986,311 883,373 740,279 Deposits $ 834,093 836,528 760,078 646,262 588,058 Stockholders' equity $ 106,058 102,240 102,456 98,744 67,193 AVERAGE BALANCES Loans (before allowance) $ 860,038 822,938 718,642 641,354 559,498 Total earning assets (before allowance) $ 980,105 947,402 846,652 736,239 643,044 Total assets $1,066,917 1,022,762 924,764 809,546 718,237 Deposits (Excludes non-int. DDA) $ 729,485 703,226 614,034 523,402 572,354 Stockholder's equity $ 104,227 102,820 102,347 77,895 66,302 (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. Year to Date 9 Mos. 9 Mos. 2006 2005 ---------- ---------- (Dollars in thousands except per share data) EARNINGS Net interest income $ 27,027 16,222 Provision for loan losses $ 2,600 1,450 Non Interest income $ 6,725 5,731 Non Interest expense $ 25,417 16,449 Pre-tax income $ 5,735 4,054 Net income $ 3,866 2,719 Basic earnings per share(a) $ 0.36 0.33 Diluted earnings per share(a) $ 0.35 0.32 Weighted avg. basic shares outstanding(a) 10,785,821 8,122,424 Weighted average diluted shares(a) 11,104,389 8,489,787 PERFORMANCE RATIOS Return on average assets 0.51% 0.57% Return on average common equity 5.02% 5.56% Net interest margin (fully tax-equivalent) 3.91% 3.77% Non-int. expense to average assets 3.35% 3.42% Efficiency ratio 72.88% 73.63% Full-time equivalent employees 310 225 CAPITAL Period-end equity to assets 9.43% 9.08% Tier 1 leverage capital ratio 12.02% 11.50% Tier 1 risk-based capital ratio 13.05% 11.89% Total risk-based capital ratio 13.94% 12.80% Book value per share(a) $ 9.80 8.19 Cash dividend per share(a) $ 0.11 0.06 ASSET QUALITY Gross loan charge-offs $ 210 55 Net loan charge-offs $ 189 51 Net charge-offs to avg. loans (annualized) 0.03% 0.01% Allowance for loan losses $ 8,694 5,562 Allowance for loan losses to total loans 0.97% 0.94% Nonperforming loans $ 426 76 NPL to total loans 0.05% 0.01% Other real estate and repossessed assets $ 0 0 END OF PERIOD BALANCES Loans (before allowance) $ 896,080 590,439 Total earning assets (before allowance) $ 1,038,661 669,644 Total assets $ 1,125,144 740,279 Deposits $ 834,093 588,058 Stockholders' equity $ 106,058 67,193 AVERAGE BALANCES Loans (before allowance) $ 801,057 490,060 Total earning assets (before allowance) $ 925,208 575,748 Total assets $ 1,011,698 640,684 Deposits (Excludes non-int. DDA) $ 682,668 417,976 Stockholder's equity $ 103,060 65,397 (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 Third Quarter 2006 and FY 2005 Results GATEWAY FINANCIAL HOLDINGS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENT OF OPERATIONS THREE MONTHS ENDED September 30, 2006 2005 ----------- ----------- Unaudited (Amounts in (000), except per share data) INTEREST INCOME Loans, including fees $ 17,834 $ 9,885 Investment securities - taxable 1,161 620 - tax-exempt 58 28 Interest-earning bank deposits 37 83 Other interest and dividends 130 46 ----------- ----------- Total interest income 19,220 10,662 INTEREST EXPENSE Money market, NOW and savings 2,259 992 Time deposits 5,541 2,715 Short term Debt 685 32 Long-term debt 1,242 789 ----------- ----------- Total interest expense 9,727 4,528 ----------- ----------- Net interest income 9,493 6,134 Provision for loan losses 600 550 ----------- ----------- Net interest income after provision for loan losses 8,893 5,584 NON INTEREST INCOME Service charges on accounts 875 623 Net gain on sales of securities 0 64 Loss and net cash settlements on economic hedge 1,601 -- Other income 1,940 1,320 ----------- ----------- Total non interest income 4,416 2,007 NON INTEREST EXPENSE Salaries and benefits 4,534 2,943 Occupancy and equipment 1,812 1,163 Data processing fees 405 219 Other expense 2,267 1,706 ----------- ----------- Total non interest expense 9,018 6,031 ----------- ----------- Income before income taxes 4,291 1,560 Income taxes 1,513 545 ----------- ----------- Net income $ 2,778 $ 1,015 ----------- ----------- Basic earnings per share (a) $ 0.26 $ 0.12 Diluted earnings per share (a) $ 0.25 $ 0.12 Weighted avg. basic shares outstanding (a) 10,805,652 8,147,547 Weighted average diluted shares (a) 11,097,299 8,552,862 NINE MONTHS ENDED September 30, 2006 2005 ----------- ----------- Unaudited (Amounts in (000), except per share data) INTEREST INCOME Loans, including fees $ 48,167 $ 24,683 Investment securities - taxable 3,587 2,034 - tax-exempt 181 142 Interest-earning bank deposits 110 114 Other interest and dividends 410 163 ----------- ----------- Total interest income 52,455 27,136 INTEREST EXPENSE Money market, NOW and savings 5,599 2,436 Time deposits 14,618 5,923 Short term Debt 2,588 881 Long-term debt 2,623 1,674 ----------- ----------- Total interest expense 25,428 10,914 ----------- ----------- Net interest income 27,027 16,222 Provision for loan losses 2,600 1,450 ----------- ----------- Net interest income after provision for loan losses 24,427 14,772 NON INTEREST INCOME Service charges on accounts 2,438 1,637 Net gain on sales of securities 653 83 Loss and net cash settlements on economic hedge (1,416) -- Other income 5,050 4,011 ----------- ----------- Total non interest income 6,725 5,731 NON INTEREST EXPENSE Salaries and benefits 12,474 8,095 Occupancy and equipment 5,069 3,350 Data processing fees 1,259 662 Other expense 6,615 4,342 ----------- ----------- Total non interest expense 25,417 16,449 ----------- ----------- Income before income taxes 5,735 4,054 Income taxes 1,869 1,335 ----------- ----------- Net income $ 3,866 $ 2,719 =========== =========== Basic earnings per share (a) $ 0.36 $ 0.33 Diluted earnings per share (a) $ 0.35 $ 0.32 Weighted avg. basic shares outstanding (a) 10,785,821 8,122,424 Weighted average diluted shares (a) 11,104,389 8,489,787 (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 Third Quarter 2006 & FY 2005 Results GATEWAY FINANCIAL HOLDINGS, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS September 30, December 31, September 30, 2006 2005 2005 ----------- ----------- ----------- Unaudited Audited Unaudited (Dollar amounts in thousands) ASSETS Cash and due from banks $ 16,659 $ 18,475 $ 13,406 Interest-earnings deposits in other banks 20,992 3,668 3,382 ----------- ----------- ----------- Total cash and cash equivalents 37,651 22,143 16,788 Securities available for sale 104,930 123,773 71,224 Federal Home Loan Bank stock 6,002 6,208 3,877 Federal Reserve Bank stock 3,609 2,097 722 Loans 896,080 666,652 590,439 Allowance for loan losses (8,694) (6,283) (5,562) ----------- ----------- ----------- Total loans, net 887,386 660,369 584,877 Premises and equipment, net 37,253 29,551 27,110 Bank owned life insurance policies 24,788 17,187 17,040 Accrued interest receivable 7,525 5,883 4,491 Other assets 16,000 16,162 14,150 ----------- ----------- ----------- Total assets $ 1,125,144 $ 883,373 $ 740,279 ----------- ----------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Noninterest-bearing $ 98,738 $ 89,162 $ 78,818 Interest-bearing 735,355 557,100 509,240 ----------- ----------- ----------- Total deposits 834,093 646,262 588,058 Short term debt 53,001 62,000 6,202 Long-term debt 127,429 72,665 77,465 Accrued expenses and other liabilities 4,563 3,702 1,361 ----------- ----------- ----------- Total liabilities 1,019,086 784,629 673,086 STOCKHOLDERS' EQUITY Common stock 99,219 94,109 63,757 Retained earnings 7,850 5,113 4,117 Deferred Compensation - restricted stock -- (43) (61) Accumulated other comprehensive loss (1,011) (435) (620) ----------- ----------- ----------- Total stockholders' equity 106,058 98,744 67,193 Total liabilities and stockholders' equity $ 1,125,144 $ 883,373 $ 740,279 ----------- ----------- -----------