Highlights for the Quarter Include:
-- Total Assets at $2.13 Billion, Up 13.9% from December 31, 2007
-- Loans Exceed $1.75 Billion, Up 15.1% from Year-end
-- Deposits Exceed $1.62 Billion, Up 14.9% on a linked quarter basis
-- Asset Quality Remains Strong - Net Charge-offs at 0.11%
year-to-date, NPL's at 0.40% of Loans Outstanding
-- Non-interest Income represents 26.08% of Total Revenue, Net
Interest Margin improved to 2.97%
-- Paid a Quarterly Cash Dividend of $0.08 per share
-- All Regulatory Capital Ratios in Excess of Well-capitalized
VIRGINIA BEACH, Va., July 18, 2008 (PRIME NEWSWIRE) -- Gateway Financial Holdings, Inc. (Nasdaq:GBTS), the holding company for Gateway Bank & Trust Co., reported net income for the second quarter of 2008 of $2.0 million, which was in line with the $2.0 million for the prior year second quarter. Diluted earnings per share were $0.11 for the second quarter of 2008, as compared with $0.17 for the second quarter of the prior year; reflecting in part the issuance of additional shares used as part of the consideration for the acquisition of The Bank of Richmond, completed on June 1 of 2007.
For the first six months of 2008, the Company reported net income of $5.1 million, up $550,000, from the $4.5 million reported for the year-earlier six-month period. Diluted earnings per share were $0.32 for the 2008 six-month period compared with $0.39 last year. Year-to-date per share results also reflect the issuance of common stock as part of the acquisition consideration for The Bank of Richmond. These results included gains from available for sale securities sales during the first half of the year of $800,000 ($492,000 net of income taxes using a 38.5% blended tax rate) and a fair value gain of $1.8 million ($1.1 million net of income taxes using a 38.5% blended rate) related to certain trust preferred securities that the Company had elected fair value treatment effective January 1, 2007.
Commenting on these results, D. Ben Berry, Chairman, President and CEO of Gateway Financial Holdings, stated, "Although, as we had previously indicated, second quarter results primarily reflected the ongoing impact of unprecedented interest rate reductions in the prime rate over the past six months, we enter the third quarter with steadily improving margins, in a solid and stable marketplace, with asset quality that stands among the highest in our peer group in this challenging environment.
"In addition, non interest income continues to become a larger component of our revenue, and our ongoing review and changes to the mix of our loan portfolio will help ensure our asset quality remains one of the best in the industry. We see opportunities for solid but more measured growth as we have slowed our de novo branch initiatives. Some of our larger competitors have had to curtail lending in certain markets, leaving Gateway as the obvious choice for many quality customers. We remain confident in our ability to generate solid operating performance in the midst of the current credit cycle. The second half of 2008 will reflect the fundamental strengths of our enterprise as well as an improving net interest margin and continued superior asset quality."
ROAA was 0.38% for the second quarter of 2008, as compared with 0.55% for the second quarter of the prior year. ROAE was 4.12% for the second quarter of 2008, as compared with 6.97% for the second quarter of the prior year.
ROAA was 0.51% for the first six months of 2008, as compared with 0.68% for the six-month period of the prior year. ROAE was 5.77% for the first six months of 2008, as compared with 7.95% for the same period of 2007.
Revenues, Net Interest Margin, and Non-interest Income
Total revenue, defined as net interest income and non-interest income was $18.6 million for the second quarter of 2008, an increase of 25.2% above the $14.8 million reported for the second quarter of 2007. Net interest income for the second quarter of 2008 was $13.7 million, a $2.0 million or 17.2% increase over the $11.7 million reported for the second quarter of 2007. The increase in net interest income was primarily attributable to $509.6 million or 42.8% increase in average loans to $1.70 billion for the second quarter of 2008, from $1.19 billion for the 2007 second quarter. While net interest income increased due to the aforementioned growth in loans, the net interest margin decreased 53 basis points from 3.50% for the second quarter of 2007 to 2.97% for the second quarter of 2008. The margin compression resulted from the 325 basis points drop in interest rates that occurred since September of last year, including 125 basis points reduction that occurred during an eight-day period in January. The reduction in interest rates had an immediate effect on revenues related to variable loans (which approximated 63% of the loan portfolio at quarter-end); however, our loan yield stabilized during the second quarter. As a result of the repricing of higher rate certificates of deposit to lower rates and obtaining lower cost transaction account balances during the second quarter, we experienced a 59 basis point reduction in our cost of funds from March 2008 to June 2008. This cost of funds reduction resulted in an improvement in our net interest margin of 6 basis points on a linked quarter basis from 2.91% for the first quarter to 2.97% for the second quarter. Additionally, our interest margin has improved 35 basis points from 2.77% for the month of March 2008 to 3.12% for June 2008. Each basis point reduction in our cost of funds reduces our interest expense by approximately $168,000. As a result of the expected continued reduction in our cost of funds, coupled with adding interest rate floors to the majority of new and renewing loans, as well as increased spreads on new loans; we expect to see continued margin improvement during the second half of the year. Our net interest margin for the first six months of 2008 was 2.94% as compared with 3.55% for the prior year six-month period.
Non-interest income for the second quarter of 2008 was $4.8 million, an increase of $1.7 million or 55.3% higher than the second quarter of the prior year. Non-interest income for the first six months of 2008 was $11.7 million, an increase of $4.0 million or 50.9% higher than the prior year six-month period. A comparison of non-interest income for the second quarter and first half of 2008 as compared with the same periods in 2007 is as follows (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
2008 2007 2008 2007
-------- -------- -------- --------
Service charges
on accounts $ 1,146 $ 998 $ 2,052 $ 1,875
Mortgage operations 875 733 1,638 1,665
Insurance operations 1,410 1,518 3,056 2,839
Brokerage operations 104 196 195 462
Gain on sales of securities
and trading gains (54) (21) 797 422
Fair value gain on trust
preferred securities 256 8 1,842 50
Gain and net cash
settlements on economic
hedge -- (948) -- (759)
Other 1,104 633 2,139 1,212
-------- -------- -------- --------
$ 4,841 $ 3,117 $ 11,719 $ 7,766
======== ======== ======== ========
The decrease from Gateway's insurance operations resulted from a softening in the market during the second quarter of 2008 as compared to 2007.
The increase in revenue from the mortgage operation in the second quarter of 2008 as compared with the second quarter of the prior year resulted from the hiring of more loan originators over the last 12 months and an increase in the sale of loans into the secondary markets.
The decrease in brokerage operations in the second quarter and first half of 2008 as compared with the same periods of the prior year was the result of the departure of a broker from our North Carolina operations at the end of the third quarter of last year.
The increase in other income for the second quarter of 2008 as compared with the second quarter of 2007 was the result of gains of $193,500 related to the sale of government sponsored loans (no such sales in the second quarter of 2007), $52,000 higher fee income, and $187,600 higher income from BOLI that resulted from $14 million of additional BOLI purchased during January of 2008.
For the second quarter of 2008, non-interest income comprised 26.1% of total revenues as compared with 21.0% for the second quarter of 2007.
The increase from Gateway's insurance operations for the six months ended June 30, 2008 as compared with the prior year six-month period resulted from higher performance bonuses received during the first quarter of this year as compared with the prior year.
Gateway recognized a gain in the fair value of certain of its trust preferred securities of $1.8 million during the first half of 2008. Gateway elected the fair value option for certain trust preferred securities effective January 1, 2007, and under the accounting standards are required to mark these securities to market through the income statement as a component of non-interest income. As a result of the unusual credit conditions that the financial industry faced over the past several months, the credit spreads on these debt securities widened significantly resulting in a gain related to the fair value of the securities. At the time the fair value option was elected at the beginning of 2007, credit spreads on these types of securities were approximately 135 to 155 basis points over 3-month LIBOR. Currently, the credit spreads are approximately 450 basis points over 3-month LIBOR, and the markets are very illiquid.
Gateway recognized a loss of $759,000 for the six months ended June 30, 2007 related to its economic hedge. It had no such loss in 2008 because the economic hedge was terminated in September 2007.
The increase in other income for the six months ended June 30, 2008 as compared with the same period of 2007 was the result of gains of $347,400 related to the sale of government sponsored loans (no such sales in 2007), $150,000 higher fee income, and $314,300 higher income from BOLI that resulted from $14 million of additional BOLI purchased during January of 2008.
For the six months ended June 30, 2008, non-interest income comprised 30.8% of total revenues as compared with 26.3% for the same period in 2007. The increase was primarily associated with the higher securities and fair value gains recognized during the first half of 2008.
Non-interest Expenses
Non-interest expense was $13.8 million for the second quarter of 2008, up $3.3 million or 32.0% from the $10.4 million reported for the second quarter of last year. Non-interest expense was $27.2 million for the six months ended June 30, 2008, up $7.2 million or 36.3% from the $19.9 million reported for the same period in 2007.
A comparison of non-interest expense for the second quarter and first half of 2008 as compared with the similar periods in 2007 is as follows (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
2008 2007 2008 2007
-------- -------- -------- --------
Salaries and benefits $ 7,412 $ 5,726 $ 14,778 $ 10,985
Occupancy and equipment 2,455 2,007 4,873 3,817
Data processing fees 620 426 1,280 879
Other 3,268 2,258 6,250 4,262
-------- -------- -------- --------
$ 13,755 $ 10,417 $ 27,181 $ 19,943
======== ======== ======== ========
The increase in salaries and benefits for the second quarter of 2008 as compared with the second quarter of 2007 was primarily related to expansion activities and The Bank of Richmond acquisition. The Bank opened three new de novo financial centers and a loan production office during the second half of 2007 and three additional financial centers during the first half of 2008, in addition to the six financial centers and a loan production office it acquired with The Bank of Richmond merger. FTE's have increased from 422 at the end of the second quarter of 2007 to 485 at the end of the second quarter of 2008, including approximately 40 related to The Bank of Richmond. The second quarter of 2008 included a full quarter of salaries and benefits, as compared with the second quarter of 2007 which only included one month of The Bank of Richmond expenses. The increase in occupancy and equipment and data processing costs was primarily as a result of adding the six de novo financial centers since June 2007 and The Bank of Richmond financial centers in June of 2007.
The rate of growth in non-interest expenses slowed in the second quarter of 2008 to 2.5% on a linked quarter basis. Total non-interest expenses for the first quarter of 2008 were $13.4 million, therefore, only increased $329,000 during the second quarter. This increase was primarily related to salaries and benefits and occupancy expense related to the additional financial center added during the second quarter and additional back-room credit administration and operations personnel; as well as higher expenses associated with our annual report, regulatory filings, and our annual meeting which took place during the second quarter. FTE's have increased from 460 at the end of the first quarter to 485 at the end of the second quarter of 2008.
Gateway's efficiency ratio for the second quarter of 2008 was 74.11%, up slightly from 70.26% for the second quarter of 2007. As a percentage of average assets, non-interest expense dropped from 2.86% for the second quarter of 2007 to 2.69% for the second quarter of 2008 as Gateway continues to gain economies of scale from its maturing financial centers.
The increase in salaries and benefits for the first half of 2008 as compared with the same period of 2007 was primarily related to expansion activities and The Bank of Richmond acquisition discussed above. Additionally, the first half of 2008 included a full six months of salaries and benefits, as compared with the first half of 2007 which only included one month of The Bank of Richmond expenses. The increase in occupancy and equipment and data processing costs was primarily as a result of adding the six de novo financial centers since June 2007 and The Bank of Richmond financial centers in June of 2007.
Loan and Asset Growth
For the second quarter, loans grew $116.7 million or 7.1% and have increased $397.8 million (29.4%) since June 30, 2007. Overall assets increased $134.8 million (6.8%) in the second quarter and have increased $378.4 million (21.6%) since June 30, 2007. At June 30, 2008, total assets were $2.13 billion. The growth in loans and assets is reflective of the Company's pre-existing investments in infrastructure (in particular Raleigh and Wilmington North Carolina, and the Hampton Roads area of Virginia), as well as the acquisition of The Bank of Richmond.
Mr. Berry emphasized, "Despite the adverse economic and competitive climate, our loan pipeline in the second quarter was aided by the retreat from lending activity by some large competitors as well as steady demand in most of our markets. As a percentage of the total, construction, acquisition and development loans were reduced from 40.7% at the end of the first quarter to 38.1% at June 30, 2008. We view this reduction as a prudent step, given current economic conditions, and expect this category to decline further in future quarters. Overall our markets remain solid and steady, as their local economies reflect consistent growth."
A break-down of the loan composition on a linked quarter basis and over the past 12 months is as follows (in thousands):
June 30, 2008 March 31, 2008 June 30, 2007
----------------- ----------------- -----------------
Percent Percent Percent
of of of
Amount Total Amount Total Amount Total
---------- ----- ---------- ----- ---------- -----
Construction,
acquisition,
&
Development $667,498 38.1% $ 665,663 40.7% $ 546,151 40.3%
Commercial
Real
Estate 399,817 22.8% 337,942 20.6% 309,520 22.9%
Commercial
and
Industrial 302,122 17.2% 272,480 16.7% 220,214 16.3%
Residential
Mortgage 238,620 13.6% 210,837 12.9% 138,257 10.2%
Home Equity 118,919 6.8% 117,689 7.2% 107,518 7.9%
Consumer 19,019 1.1% 20,598 1.3% 22,215 1.6%
Mortgage
loans
held for
sale 6,012 0.4% 10,109 0.6% 10,285 0.8%
---------- ----------------- ----- ---------- -----
Total loans $1,752,007 100% $1,635,318 100% $1,354,160 100%
========== ================= ===== ========== =====
As indicated in the above table, commercial loans represented the majority of the growth over the past 12 months, spread between construction, acquisition and development, CRE, and C & I. The exposure in the construction, acquisition, and development reduced from 40.7% of total loans at March 31, 2008 to 38.1% of total loans at June 30, 2008. This growth was concentrated mainly in the Raleigh, Wilmington, Richmond, and greater Hampton Roads areas.
Mr. Berry continued, "With the steady growth in our markets, Gateway has a higher concentration of construction and real estate loans. Accordingly, we continually monitor risk within this portfolio by analyzing its concentration characteristics, such as exposures within the different loan types, the amount of speculative loans, and the amount of owner-occupied loans compared to non-owner occupied loans. Our Chief Credit Officer has over 20 years of experience in underwriting loans of this type in the markets we serve, giving us a high comfort level with our real estate loan concentration. Additionally, we have insurance to cover LTV exceptions on lot loans which reduces our risk. With that being said, as part of our overall risk management of the bank, we have decided to reduce our exposure in construction and development loans and expect to slow growth in this area for the remainder of the year."
Asset Quality
Non-performing loans were $7.1 million at June 30, 2008 as compared with $6.6 million at March 31, 2008. Non-performing loans held steady at June 30, 2008 as compared with March 31, 2008 at 0.40% of loans outstanding at June 30, 2008. A break-out of the non-performing loans at June 30, 2008 by geographic region is as follows:
---------------------------------------------------------------------
% of NPLs # of
accounts
---------------------------------------------------------------------
Albemarle $987,000 13.98% 8
---------------------------------------------------------------------
Hampton Roads $1,744,000 24.71% 3
---------------------------------------------------------------------
Outer Banks $2,628,000 37.24% 14
---------------------------------------------------------------------
Wilmington $1,469,000 20.83% 3
---------------------------------------------------------------------
Richmond $3,000 0.04% 1
---------------------------------------------------------------------
Raleigh Triangle $143,000 2.03% 1
---------------------------------------------------------------------
Other $82,000 1.16% 1
------- ----- -
---------------------------------------------------------------------
Total non-performing loans $7,056,000 100.00% 31
---------------------------------------------------------------------
A break-out of the non-performing loans at June 30, 2008 by type is
as follows:
---------------------------------------------------------------------
Non-Accruals by % Loans # of
Type Outstanding Accounts
---------------------------------------------------------------------
HELOC $1,250,000 1.05% 7
---------------------------------------------------------------------
1 - 4 Family $2,560,000 1.07% 8
---------------------------------------------------------------------
Const & Development $2,624,000 0.40% 7
---------------------------------------------------------------------
CRE $99,000 0.02% 1
---------------------------------------------------------------------
C&I $438,000 0.14% 6
---------------------------------------------------------------------
Consumer $85,000 0.45% 2
--------- -
---------------------------------------------------------------------
$7,056,000 0.40% 31
---------------------------------------------------------------------
Other real estate and repossessed assets equaled $3.0 million at June 30, 2008, up from $623,000 in the prior quarter. The majority (87.5%) of the other real estate owned was located in the Outer Banks. For the second quarter, net loan charge-offs were $827,000 or 0.20% annualized of average loans, as compared with net charge-offs in the second quarter of 2007 of $321,000 or 0.11%. For the six months ended June 30, 2008, net charge-offs were 0.11% annualized of average loans as compared with 0.13% for the prior year six-month period.
Total past dues were $2.4 million or 0.14% at June 30, 2008, down from 0.56% of loans outstanding at March 31, 2008. A break-out of the loan delinquencies at June 30, 2008 by type is as follows:
---------------------------------------------------------------------
Amount Percent of Loans
Outstanding
---------------------------------------------------------------------
HELOC $296,000 0.25%
---------------------------------------------------------------------
1-4 Family Residential $573,000 0.24%
---------------------------------------------------------------------
Const & Development $1,278,000 0.19%
---------------------------------------------------------------------
CRE $136,000 0.03%
---------------------------------------------------------------------
C&I $73,000 0.02%
---------------------------------------------------------------------
Consumer $54,000 0.28%
-------
---------------------------------------------------------------------
Total past dues $2,410,000 0.14%
---------------------------------------------------------------------
At June 30, 2008, the allowance for loan losses was $18.2 million, or 1.04% of total loans (excluding loans held for sale), up from $15.3 million or 1.01% of total loans at the beginning of the year.
Mr. Berry added, "Given the ongoing turmoil in the financial marketplace, our credit quality numbers continue to speak to our fundamental strategy of competing on interest rate, but not sacrificing on credit quality. We have consistently been increasing our loan loss provision, adding $2.2 million during the second quarter, which was 2.7 times our net charge-offs for the quarter. The increase in our reserves is in response to our loan growth and is consistent with safe and sound banking practices. We have over 250% reserve coverage for the entire NPL balance, and the majority is well collateralized with personal guarantees. Our past dues declined significantly during the quarter, typically indicating our non-performers will also be on the decline. In this current environment of astronomical charge-offs within our industry, our asset quality remains outstanding, both for a $2 billion bank in assets and relative to our peer group. This continues to be a credit to the outstanding bankers and lenders we hire, and our conservative underwriting standards. Their experience shows them to be the best bankers in each market we serve. A substantial amount of our loan growth comes from these bankers bringing to Gateway seasoned customers from their prior relationships."
Deposit Growth and Borrowings
Deposits increased $63.5 million or 4.1% during the second quarter of 2008, and have increased $207.3 million, or 14.7%, over the past twelve months to $1.62 billion. Core deposits (including retail CDs) were up $118.9 million (13.3%) since June 30, 2007 to $1.02 billion, and jumbo CDs were up $1.9 million (0.7%) over the past 12 months to $280.5 million at June 30, 2008. Brokered deposits, primarily used to fund loan growth in the loan production offices and provide lower cost funding, grew $86.4 million over the past 12 months to $321.7 million at June 30, 2008. However, the mix of our brokered deposits changed significantly to provide a lower cost of funding during this period of significant interest rate decreases. During the first half of 2008, $192.5 million of brokered money market accounts that carry an interest rate of 16 basis points over the fed funds rate have been obtained to replace $116.6 million of higher cost brokered CDs and fund a portion of the loan growth during the first half of the year at a variable rate that has decreased with the declining fed funds rate. These brokered accounts are less expensive than retail deposits, and have acted as a natural hedge against our variable loan portfolio during the falling rate environment we experienced during the first half of the year. Core deposits comprised 62.8% of total deposits at June 30, 2008, jumbo CDs were 17.3%, and brokered deposits were 19.9%. Borrowings, including junior subordinated debentures, totaled $337.3 million at June 30, 2008, up $161.6 million from twelve months ago, and $55.2 million from year-end. This increase includes $20 million of subordinated debt that we incurred in May 2008, which qualifies as Tier II capital for regulatory capital purposes. Additionally, $10 million was borrowed on a line of credit with a correspondent bank and used to fund a portion of the financial center expansion and other premises and equipment purchases.
Stockholders' Equity
Stockholders' equity at June 30, 2008 totaled $163.6 million, an increase of $23.8 million, or 17.0%, from June 30, 2007. The increase was primarily related to a private placement of $23.2 million of non-cumulative, perpetual preferred stock in December 2007, and net income over the last 12 months. The Company has repurchased approximately 400,000 shares of common stock over the past 12 months at a net cost of $5.6 million, and paid approximately $5 million in dividends to common and preferred shareholders. At June 30, 2008, stockholders' equity equaled 7.69% of total assets, and the total risk-based capital ratio was 10.79%. All regulatory capital ratios remain in excess of the "well-capitalized" regulatory threshold.
Mr. Berry concluded, "Despite a difficult operating environment, with quality assets, a vibrant market, a solid competitive position and an improving margin, Gateway is well-positioned to post improving earnings in the second half of 2008 and beyond, while we continue the measured strategic growth of our franchise."
Web Cast and Conference Call Information
Gateway's executive management team will host a conference call and simultaneous web cast on Friday, July 18 at 10:00 AM Eastern Time to discuss the quarterly results. To participate in the conference call, dial (877) 407-8033 (no pass code required) approximately 5 to 10 minutes before the beginning of the call. If you are unable to participate, a digital replay of the call will be available from Friday, July 18, 2008 at 12:00 PM through midnight on July 25, 2008 by dialing (877) 660-6853 and using pass code # 286 and conference ID # 290461.
The web cast can be accessed live on the Company's website, http://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 regional community bank with thirty-six full-service financial centers -- twenty-one in Virginia: Virginia Beach (7), Richmond (6), Chesapeake (3), Suffolk, Norfolk, Charlottesville and Emporia (2); and fifteen in North Carolina: Elizabeth City (3), Edenton, Kitty Hawk (2), Moyock, Nags Head, Plymouth, Roper, Wilmington, Chapel Hill, and Raleigh (3). The Bank provides insurance through its Gateway Insurance Services, Inc. subsidiary, brokerage services through its Gateway Investment Services, Inc. subsidiary, title insurance through its Gateway Title Agency, Inc. subsidiary, and mortgage banking services through its Gateway Bank Mortgage, Inc. subsidiary. The common stock of the Corporation is traded on the Nasdaq Global Select Market under the symbol GBTS. For further information, visit the Corporation's web site at http://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 Statement of Operations
Three Months Ended
June 30, June 30,
2008 2007
---------- ----------
Unaudited Unaudited
(Dollar amounts in thousands,
except share and per share data)
INTEREST INCOME
Loans, including fees $ 26,957 $ 24,114
Trading account securities 136 349
Investment securities - taxable 1,800 1,123
- tax-exempt 116 116
Interest-earning bank deposits 11 138
Other interest and dividends 277 207
---------- ----------
Total interest income 29,297 26,047
---------- ----------
INTEREST EXPENSE
Money market, NOW and savings 3,579 2,610
Time deposits 9,048 8,846
Short-term debt 140 543
Long-term debt 2,810 2,339
---------- ----------
Total interest expense 15,577 14,338
---------- ----------
Net interest income 13,720 11,709
Provision for loan losses 2,200 1,350
---------- ----------
Net interest income after provision
for loan losses 11,520 10,359
---------- ----------
NON INTEREST INCOME
Service charges on accounts 1,146 998
Mortgage operations 875 733
Insurance operations 1,410 1,518
Brokerage operations 104 196
Loss and net cash settlements on
economic hedge -- (948)
Loss on disposition of premises and
equipment (8) --
Loss from trading securities (54) (21)
Fair value gain on trust preferred
securities 256 8
Other income 1,112 633
---------- ----------
Total non interest income 4,841 3,117
---------- ----------
NON INTEREST EXPENSE
Salaries and benefits 7,412 5,726
Occupancy and equipment 2,455 2,007
Data processing fees 620 426
Other expense 3,268 2,258
---------- ----------
Total non interest expense 13,755 10,417
---------- ----------
Income before income taxes 2,606 3,059
Income taxes 646 1,040
---------- ----------
Net income 1,960 2,019
Dividends on preferred stock 506 --
---------- ----------
Net income available to common
shareholders $ 1,454 $ 2,019
========== ==========
Basic earnings per share $0.12 $0.17
Diluted earnings per share $0.11 $0.17
Weighted avg. basic shares
outstanding 12,535,189 11,608,656
Weighted average diluted shares 12,807,631 11,950,358
GATEWAY FINANCIAL HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statement of Operations
Six Months Ended
June 30, June 30,
2008 2007
---------- ----------
Unaudited Unaudited
(Dollar amounts in thousands,
except share and per share data)
INTEREST INCOME
Loans, including fees $ 54,530 $ 44,498
Trading account securities 404 861
Investment securities - taxable 3,400 1,519
- tax-exempt 234 186
Interest-earning bank deposits 51 172
Other interest and dividends 539 391
---------- ----------
Total interest income 59,158 47,627
---------- ----------
INTEREST EXPENSE
Money market, NOW and savings 6,649 4,866
Time deposits 20,028 15,720
Short-term debt 436 818
Long-term debt 5,691 4,475
---------- ----------
Total interest expense 32,804 25,879
---------- ----------
Net interest income 26,354 21,748
Provision for loan losses 3,800 2,550
---------- ----------
Net interest income after provision
for loan losses 22,554 19,198
---------- ----------
NON INTEREST INCOME
Service charges on accounts 2,052 1,875
Mortgage operations 1,638 1,665
Insurance operations 3,056 2,839
Brokerage operations 195 462
Gain on sale of securities available
for sale 800 163
Loss and net cash settlements on
economic hedge -- (759)
Gain (loss) from trading securities (3) 259
Fair value gain on trust preferred
securities 1,842 50
Other income 2,139 1,212
---------- ----------
Total non interest income 11,719 7,766
NON INTEREST EXPENSE
Salaries and benefits 14,778 10,985
Occupancy and equipment 4,873 3,817
Data processing fees 1,280 879
Other expense 6,250 4,262
---------- ----------
Total non interest expense 27,181 19,943
---------- ----------
Income before income taxes 7,092 7,021
Income taxes 2,009 2,488
---------- ----------
Net income $ 5,083 $ 4,533
Dividends on preferred stock 1,012 --
---------- ----------
Net income available to common
shareholders $ 4,071 $ 4,533
========== ==========
Basic earnings per share $0.33 $0.40
Diluted earnings per share $0.32 $0.39
Weighted avg. basic shares
outstanding 12,519,089 11,301,222
Weighted average diluted shares 12,857,273 11,619,485
GATEWAY FINANCIAL HOLDINGS, INC. AND SUBSIDIARY
Consolidated Balance Sheets
June 30, Dec. 31, June 30,
2008 2007 * 2007
---------- ---------- ----------
Unaudited Unaudited
(Dollar amounts in thousands)
ASSETS
Cash and due from banks $ 33,606 $ 19,569 $ 27,632
Interest-earnings deposits
in other banks 636 1,092 35,272
---------- ---------- ----------
Total cash and cash
equivalents 34,242 20,661 62,904
Trading securities 10,051 23,011 78,893
Securities available for sale 139,831 126,750 107,417
Federal Home Loan Bank stock 10,954 10,312 5,700
Federal Reserve Bank stock 6,098 5,348 3,684
Mortgage loans held for sale 6,012 5,624 10,285
Loans 1,745,995 1,516,777 1,343,875
Allowance for loan losses (18,203) (15,339) (13,340)
---------- ---------- ----------
Total loans, net 1,727,792 1,501,438 1,330,535
Premises and equipment, net 73,714 73,614 50,938
Bank owned life insurance
policies 40,947 26,105 25,579
Goodwill and intangible assets 50,767 51,075 51,889
Accrued interest receivable 10,929 12,330 10,894
Real estate owned 2,985 482 350
Other assets 13,403 11,435 10,190
---------- ---------- ----------
Total assets $2,127,725 $1,868,185 $1,749,258
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 147,416 $ 123,885 $ 139,080
Interest-bearing 1,471,125 1,285,034 1,272,151
---------- ---------- ----------
Total deposits 1,618,541 1,408,919 1,411,231
Short-term debt 63,501 33,000 42,117
Long-term debt 273,761 249,102 133,513
Accrued expenses and other
liabilities 8,238 12,757 22,598
---------- ---------- ----------
Total liabilities 1,964,041 1,703,778 1,609,459
STOCKHOLDERS' EQUITY
Non-Cumulative, Perpetual
Preferred Stock 23,182 23,182 --
Common stock 127,913 127,258 131,037
Retained earnings 16,684 14,991 10,609
Accumulated other
comprehensive loss (4,095) (1,024) (1,847)
---------- ---------- ----------
Total stockholders' equity 163,684 164,407 139,799
---------- ---------- ----------
Total liabilities and
stockholders' equity $2,127,725 $1,868,185 $1,749,258
========== ========== ==========
* Derived from audited financial statements.
GATEWAY FINANCIAL HOLDINGS, INC. AND SUBSIDIARY
Consolidated Financial Highlights
2nd Qtr 1st Qtr
2008 2008
------------ ------------
(Dollar amounts in thousands,
except share and pershare data)
EARNINGS
Net interest income $ 13,720 $ 12,634
Provision for loan losses $ 2,200 $ 1,600
Non Interest income $ 4,841 $ 6,878
Gain (loss) and net cash settlements
on economic hedge $ -- $ --
Gain (loss) on disposition of
premises and equipment $ (8) $ 8
Proforma non-interest income (1) $ 4,849 $ 6,870
Non Interest expense $ 13,755 $ 13,426
Pre-tax income $ 2,606 $ 4,486
Net income $ 1,960 $ 3,123
Basic earnings per share $ 0.12 $ 0.21
Diluted earnings per share $ 0.11 $ 0.20
Proforma diluted earnings per
share (2) $ 0.11 $ 0.20
Weighted avg. basic shares
outstanding 12,535,189 12,502,990
Weighted average diluted shares 12,807,631 12,863,436
PERFORMANCE RATIOS
Return on average assets 0.38% 0.65%
Proforma return on average assets (2) 0.38% 0.65%
Return on average common equity 4.12% 7.38%
Proforma return on average common equity
(2) 4.12% 7.38%
Net interest margin (fully tax-
equivalent) 2.97% 2.91%
Non-interest income to total revenue 26.08% 35.25%
Proforma non-interest income to total
revenue (1) 26.11% 35.22%
Non-interest expense to average assets 2.69% 2.79%
Efficiency ratio 74.11% 68.81%
Proforma efficiency ratio (1) 74.08% 68.84%
Full-time equivalent employees 485 460
CAPITAL
Period-end equity to assets 7.69% 8.31%
Tier 1 leverage capital ratio 8.36% 9.00%
Tier 1 risk-based capital ratio 8.83% 9.40%
Total risk-based capital ratio 10.84% 10.33%
Book value per common share (3) $ 11.06 $ 11.25
Cash dividend per share b $ 0.08
ASSET QUALITY
Gross loan charge-offs $ 830 $ 123
Net loan charge-offs $ 826 $ 110
Net loan charge-offs to average
loans (annualized) 0.20% 0.03%
Allowance for loan losses $ 18,203 $ 16,829
Allowance for loan losses to total
loans 1.04% 1.04%
Nonperforming loans $ 7,056 $ 6,574
NPL to total loans 0.40% 0.40%
Other real estate and repossessed
assets $ 2,985 $ 623
END OF PERIOD BALANCES
Loans (before allowance) $ 1,752,007 $ 1,635,318
Total earning assets (before
allowance) $ 1,919,577 $ 1,796,664
Total assets $ 2,127,725 $ 1,992,685
Deposits $ 1,618,541 $ 1,554,997
Stockholders' equity $ 163,684 $ 165,505
AVERAGE BALANCES
Loans (before allowance) $ 1,700,029 $ 1,581,520
Total earning assets (before
allowance) $ 1,859,981 $ 1,745,212
Total assets $ 2,059,814 $ 1,938,216
Interest-Bearing Deposits $ 1,464,419 $ 1,358,445
Stockholder's equity $ 165,351 $ 165,509
4th Qtr 3rd Qtr 2nd Qtr
2007 2007 2007
----------- ----------- -----------
(Dollar amounts in thousands, except
share and pershare data)
EARNINGS
Net interest income $ 13,778 $ 13,559 $ 11,709
Provision for loan losses $ 1,600 $ 750 $ 1,350
Non Interest income $ 3,881 $ 6,118 $ 3,117
Gain (loss) and net cash
settlements on economic
hedge $ -- $ 1,343 $ (948)
Gain (loss) on disposition
of premises and equipment $ -- $ -- $ --
Proforma non-interest
income (1) $ 3,881 $ 4,775 $ 4,065
Non Interest expense $ 12,645 $ 12,353 $ 10,417
Pre-tax income $ 3,414 $ 6,574 $ 3,059
Net income $ 2,270 $ 4,216 $ 2,019
Basic earnings per share $ 0.17 $ 0.33 $ 0.17
Diluted earnings per share $ 0.17 $ 0.32 $ 0.17
Proforma diluted earnings
per share (2) $ 0.17 $ 0.26 $ 0.22
Weighted avg. basic shares
outstanding 12,589,210 12,630,561 11,608,656
Weighted average diluted
shares 13,000,662 13,096,695 11,950,358
PERFORMANCE RATIOS
Return on average assets 0.51% 0.98% 0.55%
Proforma return on average
assets (2) 0.51% 0.78% 0.72%
Return on average common
equity 6.18% 11.96% 6.97%
Proforma return on average
common equity (2) 6.18% 9.58% 9.02%
Net interest margin (fully
tax-equivalent) 3.40% 3.49% 3.50%
Non-interest income to total
revenue 21.98% 31.09% 21.02%
Proforma non-interest income
to total revenue (1) 21.98% 26.05% 25.77%
Non-interest expense to
average assets 2.82% 2.86% 2.86%
Efficiency ratio 71.61% 62.09% 70.26%
Proforma efficiency ratio
(1) 71.61% 66.63% 66.04%
Full-time equivalent
employees 420 413 422
CAPITAL
Period-end equity to assets 8.80% 8.12% 7.98%
Tier 1 leverage capital
ratio 9.76% 8.57% 9.83%
Tier 1 risk-based capital
ratio 10.43% 9.65% 9.39%
Total risk-based capital
ratio 11.40% 11.12% 10.82%
Book value per common
share (3) $ 11.24 $ 11.15 $ 10.89
Cash dividend per share $ 0.08 $ 0.08 $ 0.08
ASSET QUALITY
Gross loan charge-offs $ 350 $ 50 $ 329
Net loan charge-offs $ 307 $ 44 $ 321
Net loan charge-offs to
average loans (annualized) 0.08% 0.01% 0.11%
Allowance for loan losses $ 15,339 $ 14,046 $ 13,340
Allowance for loan losses to
total loans 1.01% 1.00% 0.99%
Nonperforming loans $ 3,407 $ 2,817 $ 874
NPL to total loans 0.22% 0.20% 0.06%
Other real estate and
repossessed assets $ 482 $ 350 $ 350
END OF PERIOD BALANCES
Loans (before allowance) $ 1,522,401 $ 1,407,861 $ 1,354,160
Total earning assets
(before allowance) $ 1,688,914 $ 1,572,937 $ 1,585,126
Total assets $ 1,868,185 $ 1,737,245 $ 1,749,258
Deposits $ 1,408,919 $ 1,353,297 $ 1,411,231
Stockholders' equity $ 164,407 $ 141,101 $ 139,799
AVERAGE BALANCES
Loans (before allowance) $ 1,453,957 $ 1,376,807 $ 1,190,439
Total earning assets
(before allowance) $ 1,607,473 $ 1,543,071 $ 1,342,961
Total assets $ 1,781,477 $ 1,711,453 $ 1,461,595
Interest-Bearing Deposits $ 1,224,835 $ 1,268,285 $ 1,000,075
Stockholder's equity $ 145,656 $ 139,815 $ 116,165
6 Mos. 6 Mos.
2008 2007
----------- -----------
EARNINGS
Net interest income $ 26,354 $ 21,748
Provision for loan losses $ 3,800 $ 2,550
Non Interest income $ 11,719 $ 7,766
Gain (loss) and net cash settlements on
economic hedge $ -- $ (759)
Gain (loss) on disposition of premises
and equipment $ -- $ --
Proforma non-interest income (1) $ 11,719 $ 8,525
Non Interest expense $ 27,181 $ 19,943
Pre-tax income $ 7,092 $ 7,021
Net income $ 5,083 $ 4,533
Basic earnings per share $ 0.33 $ 0.40
Diluted earnings per share $ 0.32 $ 0.39
Proforma diluted earnings per share (2) $ 0.32 $ 0.43
Weighted avg. basic shares outstanding 12,519,089 11,301,222
Weighted average diluted shares 12,857,273 11,619,485
PERFORMANCE RATIOS
Return on average assets 0.51% 0.68%
Proforma return on average assets (2) 0.51% 0.75%
Return on average common equity 5.77% 7.95%
Proforma return on average common
equity (2) 5.77% 8.78%
Net interest margin (fully tax-
equivalent) 2.94% 3.55%
Non-interest income to total revenue 30.78% 26.31%
Proforma non-interest income to total
revenue (1) 30.78% 28.16%
Non-interest expense to average assets 2.74% 2.98%
Efficiency ratio 71.39% 67.95%
Proforma efficiency ratio (1) 71.39% 66.24%
Full-time equivalent employees 485 422
CAPITAL
Period-end equity to assets 7.69% 7.98%
Tier 1 leverage capital ratio 8.36% 9.83%
Tier 1 risk-based capital ratio 8.83% 9.39%
Total risk-based capital ratio 10.84% 10.82%
Book value per common share (3) $ 11.05 $ 10.89
Cash dividend per share $ 0.16 $ 0.13
ASSET QUALITY
Gross loan charge-offs $ 953 $ 755
Net loan charge-offs $ 936 $ 737
Net loan charge-offs to average loans
(annualized) 0.11% 0.13%
Allowance for loan losses $ 18,203 $ 15,340
Allowance for loan losses to total loans 1.04% 0.99%
Nonperforming loans $ 7,056 $ 874
NPL to total loans 0.40% 0.06%
Other real estate and repossessed assets $ 2,985 $ 350
END OF PERIOD BALANCES
Loans (before allowance) $ 1,752,007 $ 1,354,160
Total earning assets (before allowance) $ 1,919,577 $ 1,585,126
Total assets $ 2,127,725 $ 1,749,258
Deposits $ 1,618,541 $ 1,411,231
Stockholders' equity $ 163,684 $ 139,799
AVERAGE BALANCES
Loans (before allowance) $ 1,640,007 $ 1,107,156
Total earning assets (before allowance) $ 1,801,829 $ 1,235,672
Total assets $ 1,997,788 $ 1,350,941
Interest-Bearing Deposits $ 1,411,432 $ 915,155
Stockholder's equity $ 165,172 $ 115,025
(1) Proforma non-interest income and proforma efficiency ratio are
non-GAAP measures that excludes the gain (loss) and net cash
settlements on economic hedge and loss on disposition of
premises and equipment, that management believes provides more
comparable, useful information to investors.
(2) Proforma diluted earnings per share, ROAA, and ROAE are non-GAAP
measures that excludes the gain (loss) and net cash settlements
on economic hedge and loss on disposition of premises and
equipment, net of income taxes using a 37.5% blended rate,
that management believes provides more comparable, useful
information to investors.
(3) Book value per common share calculation subtracts the
liquidation value of $23.3 million of the non-cumulative,
perpetual preferred stock from net assets.