* The Bank of Richmond Acquisition Completed * Total Assets Exceed $1.7 Billion, Up 64.7% From June 30, 2006 * Loans Exceed $1.3 Billion, Up 58.9% From June 30, 2006 * Deposits Exceed $1.4 Billion, Up 68.7% From June 30, 2006 * Non-interest Income Equals 26% of Total Revenue in the 2007 Second Quarter
VIRGINIA BEACH, Va., July 26, 2007 (PRIME NEWSWIRE) -- Gateway Financial Holdings, Inc. (Nasdaq:GBTS), the holding company for Gateway Bank & Trust Co., reported net income for the second quarter of 2007 of $2.0 million compared with $864,000 for the prior year second quarter, an increase of $1.2 million. The results of operations for both the second quarter and first half of 2007 include those of The Bank of Richmond from the date of the acquisition. Earnings performance was driven by exceptional revenue growth from a 58.9% increase in loans over the past 12 months resulting from the Company's expanding network of financial centers and the recently completed acquisition of The Bank of Richmond, and increased revenues from Gateway's non-banking activities. Effective June 1, Gateway Bank & Trust Co. completed its acquisition of The Bank of Richmond, through which Gateway acquired $197.3 million of assets, including $167.4 million of loans and $177.6 million of deposits. Diluted earnings per share were $0.17 for the second quarter of 2007 compared with $0.08 for the second quarter of the prior year. Per share results reflect the issuance of approximately 1.85 million shares and the assumption of approximately 375,000 stock options on June 1, 2007 for the acquisition of The Bank of Richmond, which was the primary reason for the increase in the weighted average diluted shares from 11,131,691 shares for the second quarter of 2006 to 11,950,358 shares for the second quarter of 2007, an increase of 7.4%. The second quarter results in both years were negatively affected by a loss on the market value and net cash settlement on its economic hedge of $948,000 and $1.2 million in 2007 and 2006, respectively. The loss from the economic hedge has been reported as a component of non-interest income in accordance with GAAP. Diluted earnings per share, excluding the loss on the market value and net cash settlement on the economic hedge of $592,000 in the second quarter of 2007, and $749,000 in the second quarter of 2006 (net of income taxes using a 37.5% blended rate), were $0.22 and $0.14 per share, respectively, an increase of 57.1%. Due to the volatility and lack of earnings comparability caused by the economic hedge, management believes presentation of an adjusted, non-GAAP, diluted earnings per share provides useful information to investors.
For the first six months of 2007, the Company reported net income of $4.5 million, up $3.4 million, from the $1.09 million reported for the year-earlier six-month period. Diluted earnings per share were $0.39 for the 2007 six-month period compared with $0.10 last year. Year-to-date per share results also reflect the stock issuance for The Bank of Richmond acquisition, which was the primary reason for the increase in average diluted shares outstanding for the first six months of 2007 of 4.4%, from 11,124,709 shares for the first six months of 2006 to 11,619,485 for the current six-month period. These results were also negatively affected by a market value loss and net cash settlement of $759,000 and $3.01 million for the first six-months in 2007 and 2006, respectively. Diluted earnings per share, excluding the loss on the market value and net cash settlement on economic hedge of $474,000 in the first six months of 2007, and $1.9 million in the first six months of 2006 (net of income taxes using a 37.5% blended rate), were $0.43 and $0.27 per share, respectively, an increase of 59.3%. Due to the volatility and lack of earnings comparability caused by the economic hedge, management believes presentation of an adjusted, non-GAAP, diluted earnings per share provides useful information to investors.
Commenting on these results, D. Ben Berry, Chairman, President and CEO of Gateway Financial Holdings, stated, "We are very pleased to report another quarter of outstanding earnings, coupled with exceptional growth, while maintaining the same impeccable asset quality that is a hallmark of Gateway's performance. We are extremely excited to have completed our acquisition of The Bank of Richmond as we continue to execute our strategy of attracting the best bankers, entering markets with superior growth potential, and strategically expanding our franchise. As a result of this strategic growth, and expansion of our non-banking activities, we have grown our revenues 39.8% over the past 12 months, while controlling non-interest expenses, which grew only 21.7% year-over-year. We are achieving the economies on our bottom line that we envisioned from the significant expansion we have undertaken over the past few years. The accounting for the economic hedge has resulted in volatile earnings from quarter to quarter but it has not obscured the enormous progress we have made this year."
ROAA was 0.55% for the second quarter and 0.68% for the first six months of 2007 compared with 0.37% and 0.22% for the second quarter and six-month period of the prior year, respectively. ROAA, excluding the net economic hedge losses of $592,000 in the second quarter and $474,000 for the first six months of 2007 (net of income taxes using a 37.5% blended rate), was 0.72% and 0.75%, respectively, as compared with 0.63% and 0.61% for the second quarter and six-month periods of 2006, respectively, excluding the loss on the market value and net cash settlement on economic hedge of $749,000 in the second quarter of 2006, and $1.9 million for the prior year six-month period (net of income taxes using a 37.5% blended rate). ROAE, excluding the impact of the aforementioned economic hedge, was 9.02% and 8.78%, for the second quarter and first six months of 2007, respectively, as compared with 6.29% and 5.86% for the same periods of 2006. Due to the volatility and lack of earnings comparability caused by the economic hedge, management believes presentation of an adjusted, non-GAAP, ROAA and ROAE provides useful information to investors.
Revenues and Net Interest Margin
Total revenue, defined as net interest income and non-interest income, was $14.8 million for the second quarter of 2007, an increase of 39.8% above the $10.6 million reported for the second quarter of 2006. Net interest income for the second quarter of 2007 was $11.7 million, a $2.4 million or 25.7% increase over the $9.3 million reported for the second quarter of 2006. The increase is attributable to a 41.8% increase in average earning assets to $1.3 billion for the 2007 period from $947 million for the 2006 period. This increase was driven by a 44.7% increase in average loans to $1.2 billion for the 2007 second quarter from $823 million for the 2006 second quarter.
Total revenue (excluding the loss and net cash settlement on economic hedge of $759,000) was $30.3 million for the first six months of 2007, an increase of $7.4 million or 32.4% from the $22.9 million reported for the first six months of 2006. Due to the volatility and lack of earnings comparability caused by the economic hedge, management believes presentation of an adjusted, non-GAAP, total revenue provides useful information to investors. Net interest income was $21.7 million for the first six months of 2007, a $4.2 million or 24.0% increase over the $17.5 million reported for the first six-month period of 2006. The increase is attributable to a 37.7% increase in average earning assets, driven by the $336 million or 43.6% increase in average loans to $1.1 billion for the 2007 six month period from $771 million for the 2006 six month period.
The increase in net interest income resulting from the increased volume was partially offset by a decrease in net interest margin of 44 basis points year-over-year to 3.50%. The margin compression resulted from the impact of higher interest rates on Gateway's cost of funds, exacerbated by the flat to inverted yield curve environment. Short-term rates have remained high and US Treasury rates have increased during the second quarter, resulting in increased pricing on some deposit products and higher re-pricing of maturing deposits; as well as having to replace callable Federal Home Loan Bank advances at higher rates during the second quarter of 2007. During this time period variable rate loans have not re-priced since June 29, 2006, when the Federal Reserve Board last increased short term rates. Additionally, competition has increased for the origination of high quality loans, resulting in more aggressive pricing during the first half of this year. On a linked quarter basis, the net interest margin decreased by 12 basis points.
Non-interest income for the second quarter of 2007 was $3.1 million, an increase of $1.8 million or 140% above the prior year second quarter. Excluding the effect of the aforementioned gain and loss and net cash settlement on the economic hedge for both quarters, proforma non-interest income increased $1.6 million or 63% year-over-year to $4.1 million in the second quarter of 2007 from $2.5 million in the prior year second quarter. Non-interest income was $7.8 million for the first six months of 2007, an increase of $5.5 million or 236% above the prior year six-month period. Excluding the effect of the aforementioned gain and loss and net cash settlement on the economic hedge for both six-month periods, proforma non-interest income increased $3.2 million or 60.1% year-over-year to $8.5 million for the first six months of 2007 from $5.3 million for the 2006 six month period. Due to the volatility and lack of comparability caused by the economic hedge, management believes presentation of an adjusted, non-GAAP, non-interest income provides useful information to investors. The increase was primarily related to Gateway's non-banking activities. Revenue from Gateway's insurance operations increased $808,000 or 114% to $1.5 million for the quarter, and $1.4 million or 95.7% to $2.8 million for the first six months of 2007. This increase resulted from internal growth from cross-selling customers and building our customer base in our markets as our franchise has expanded, and higher performance bonuses received in the first quarter of 2007 related to 2006; as well as the two acquisitions of Virginia agencies in the fourth quarter of 2006, and the title insurance company during the first quarter of 2007. Gateway Financial Mortgage commenced operations during the second quarter of 2006. As a result of having a full quarter and six months of operations in 2007, revenue from the mortgage operation increased $453,000 or 162% for the quarter to $733,000, and $1.2 million or 268% for the first six months of 2007 to $1.7 million. Additionally, Gateway had $108,000 higher income from BOLI during the second quarter of 2007, and $200,000 higher income for the first six months of 2007 as compared with the same periods of 2006 primarily as a result of $7 million of additional BOLI purchased during the third quarter of 2006.
Gateway has continuously sought to introduce new products and services in order to better service its customers as well as enhance the overall diversification of its revenue and decrease the reliance on spread income. As a result of this effort, non-interest income as a percentage of total revenues (defined as net interest income plus non-interest income) was 26% for the first six months of 2007 as compared with 12% for the same 2006 period. For the second quarter of 2007, non-interest income comprised 21% of total revenues as compared with 12% for the second quarter of 2006. Excluding the impact of the loss and net cash settlement on the economic hedge, non-interest income as a percent of total revenue was 28% for the six months ended June 30, 2007, up from 23% reported in the corresponding period in 2006. For the quarter ended June 30, 2007 non-interest income was 26% of total revenues compared with 21% reported for the same period in 2006. Due to the volatility and lack of comparability caused by the economic hedge, management believes presentation of an adjusted, non-GAAP, non-interest income as a percent of total revenues provides useful information to investors.
Non-Interest Expenses
Non-interest expense for the second quarter of 2007 was $10.4 million, up $1.9 million, or 21.7% from the $8.6 million reported in the prior year second quarter; and was $19.9 million for the first six months of 2007, up $3.5 million or 21.6% from the $16.4 million reported for the same period in 2006. These increased expenses reflect Gateway's significant infrastructure expansion throughout 2006, increased FDIC insurance charges, and The Bank of Richmond acquisition which added $330,000 in non-interest expenses during the quarter. Salaries and benefits increased 35.3% or $1.5 million to $5.7 million during the second quarter of 2007, and occupancy and equipment costs rose 17% or $292,000 to $2.0 million for the 2007 second quarter, almost all of which was related to expansion activities and The Bank of Richmond acquisition. FTE's have increased from 299 at the end of the second quarter of 2006 to 422 at the end of the second quarter of 2007, including 50 related to The Bank of Richmond. Data processing costs remained flat as compared with the prior year, reflecting a re-negotiation of data processing contracts which offset much of the cost of increased volume associated with the franchise expansion. Other expenses increased slightly ($72,000 or 3.3%) in the second quarter of 2007 as compared with the second quarter of last year. The increase was related to approximately $150,000 in higher FDIC insurance premiums (the FDIC increased its insurance premiums significantly effective the beginning of 2007), offset by lower promotional, professional and consulting expenses. This decrease was primarily the result of the discontinuation of the Haberfeld High Performance checking account program at the end of 2006.
Gateway's efficiency ratio was 70.26% for the second quarter of 2007, down from the 79.99% for the second quarter of 2006. However, the efficiency ratio was negatively affected in both quarters by the loss and net cash settlement on the economic hedge which is reported as a reduction of non-interest income. Excluding the impact of the loss and net cash settlement on the economic hedge of $948,000 and $1.2 million for the second quarter of 2007 and 2006, respectively, the efficiency ratio would have been 66.04% for the second quarter of 2007, as compared with 71.87% for the second quarter of 2006. Due to the volatility and lack of comparability caused by the economic hedge, management believes presentation of an adjusted, non-GAAP, proforma efficiency ratio provides useful information to investors. As a percentage of average assets, non-interest expense has dropped from 3.35% in the second quarter of 2006 to 2.86% for the second quarter of 2007.
For the first six months of 2007, salaries and benefits increased $3.0 million or 38.4% to $11 million and occupancy and equipment expenses increased $560,000 or 17.2% to $3.8 million reflecting the franchise expansion and the acquisition of The Bank of Richmond. For the first six months of 2007, other expenses decreased by $86,000 as compared with the first six months of 2006, primarily related to the lower promotional, professional and consulting expenses which in the aggregate were $900,000 (of which $452,000 was related to Haberfeld) lower than the prior year. These lower expenses have been offset by $200,000 higher insurance expenses, $205,000 higher franchise tax costs, and higher amortization and other miscellaneous expenses.
Loan and Asset Growth
At June 30, 2007, total assets were $1.75 billion, an increase of $687 million, or 64.7%, above the $1.06 billion reported twelve months ago reflecting growth in the franchise as well as the acquisition of The Bank of Richmond. This increase was primarily related to loans which increased $502 million, or 58.9%, to $1.35 billion. For the quarter, loans grew $270.5 million or 25%. Of this increase, $167.4 million was related to loans acquired upon the acquisition of The Bank of Richmond.
Commenting on this growth, Mr. Berry emphasized, "Our results are reflective of the continued vibrancy of the markets we serve, the knowledge, expertise and performance of our lenders who serve them, and the strategic investments we have made in building a solid regional footprint. The Bank of Richmond acquisition adds to this significant market experience, and has provided Gateway with a meaningful presence in the demographically attractive Richmond market. These key elements are fundamental to our strategy, as we continue to gain market share from major national competitors. Our loan growth over the past 12 months is wide-spread over this geographic footprint. The local economies in these market areas continue to experience robust growth. Examples would include the population growth in the Raleigh-Cary MSA, Virginia Beach MSA and Wilmington MSA are projected to be 17.6%, 5.3% and 15.7%, respectively, over the next five years."(Source: ESRI)
Construction loans represented 31.1% of this growth over the last 12 months, up $156.1 million to $319 million at June 30, 2007, and commercial real estate loans grew $240.4 million or 47.9% of the growth since the second quarter of last year to $550 million at June 30, 2007. Additionally, commercial and industrial loans increased by $124.9 million to $238.5 million, representing 24.9% of the growth over the past year. At June 30, 2007, commercial loans (CRE, construction and C&I) totaled $1.1 billion, or 81.9% of the loan portfolio.
Mr. Berry continued, "Although we have a higher concentration of construction and real estate loans, our Chief Credit and Risk Officers have over 30 years of experience of underwriting loans of this type in the markets we serve, giving us a high comfort level with our real estate loan concentration. We continually monitor risk within the construction and commercial real estate loan portfolio by analyzing its portfolio 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. Additionally, we have insurance to cover LTV exceptions on lot loans which reduces our risk."
Asset Quality
Asset quality remains outstanding. Non-performing loans declined to $874,000 at June 30, 2007 from $1.6 million at March 31, 2007. Non-performing loans equaled 0.06% of loans at June 30, 2007, declining from 0.14% of loans at March 31, 2007. Other real estate and repossessed assets equaled $350,000 at June 30, 2007. For the quarter, net loan charges-offs were $321,000 or 0.11% of average loans, down from $416,000 or 0.16% of average loans in 2007 first quarter. At June 30, 2007, the allowance for loan losses was $13.3 million, or .99% of total loans (excluding loans held for sale), up from $10.2 million or 0.95% of total loans at March 31, 2007.
Mr. Berry added, "Asset quality remains a top priority at Gateway. In addition to operating in markets with robust economies, as part of our strategic planning process, we seek out prime locations and identify and hire outstanding bankers and lenders. They are experienced in each market they serve, and astute and highly skilled business people, whose client base has proven to be exceptionally loyal. I have said many times -- we will compete on interest rates on loans, but we will not sacrifice credit quality; and our asset quality numbers support this strategy. I would like to also reiterate that we have essentially no sub-prime or Alt-A mortgage loans. Our asset quality remains outstanding, both for a bank over $1 billion in assets and relative to our peer group."
Deposit Growth and Borrowings
Deposits rose $574.8 million, or 68.7%, over the past twelve months to $1.41 billion. For the quarter, deposits increased $436.1 million or 44.7%, of which $177.6 million were deposits acquired upon the acquisition of The Bank of Richmond. Core deposits (including retail CDs) were up $291.4 million (48.1%) to $897.4 million, and jumbo CDs were up $116.4 million (71.7%) over the past 12 months to $278.6 million at June 30, 2007. Of these increases, $123 million of core deposits and $54.6 million of jumbo CDs were acquired upon the acquisition of The Bank of Richmond. Brokered deposits, primarily used to fund loan growth in the loan production offices and the Raleigh private banking center, grew $159.4 million over the past 12 months to $235.3 million at June 30, 2007. Loans from the loan production offices aggregated $134.2 million at June 30, 2007, an increase of $79.3 over the past 12 months; and loans from the Raleigh private banking center were $172.7 million at June 30, 2007, an increase of $114.3 million since June 30 of the prior year. With the opening of the second financial center in Raleigh at the end of June, and the planned opening of the first financial center in Wilmington in the fourth quarter, it should reduce the reliance on brokered CDs to fund loans in these areas. Core deposits comprised 63.6% of total deposits at June 30, 2007, jumbo CDs were 19.7%, and brokered CDs were 16.7%. Borrowings, including junior subordinated debentures, totaled $175.6 million at June 30, 2007, up $58.2 million from twelve months ago. The Company issued an additional $25 million of junior subordinated debentures (trust preferred securities) during the second quarter which was used to fund the cash portion of The Bank of Richmond acquisition. The remaining increase in borrowings was used to supplement deposits to fund loan growth and acquire investment securities over the past 12 months.
Stockholders' Equity
Stockholders' equity at June 30, 2007 totaled $139.6 million, an increase of $37.3 million, or 36.5%, from June 30, 2006. The increase was primarily related to the issuance of approximately 1.85 million shares of common stock to former Bank of Richmond shareholders as the common stock portion of the consideration. At June 30, 2007, Gateway had 12,819,581 shares outstanding; stockholders' equity equaled 7.98% of total assets, and the total risk-based capital ratio was 10.79%, in excess of the "well-capitalized" regulatory threshold.
Mr. Berry concluded, "We are pleased with our overall performance this quarter and the earnings we generated. Despite the negative effect of an inverted yield curve and margin compression, that are wide spread issues common to all financial institutions, we were still able to substantially increase our earnings during the second quarter over those of the prior year. We were especially pleased to have completed The Bank of Richmond acquisition, and are already seeing positive results as pre-tax operating earnings approximated $300,000 from their financial centers in June. With our expenses stabilizing, our revenues continuing to grow, and our maturing financial centers becoming increasingly profitable, we look forward to the second half of 2007 and 2008. Mr. Berry continued, "As we move into the second half of the year, we plan to open a full service financial center in Wilmington and an additional financial center in Raleigh to add to the one we opened at the end of June. Gateway's strategy continues to focus both on profit growth and franchise growth, as we continue to expand at an impressive rate, while maintaining exceptional asset quality and improving profitability."
Web Cast and Conference Call Information
Gateway's executive management team will host a conference call and simultaneous web cast on Thursday, July 26 at 10:00 AM Eastern Time to discuss the quarterly 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 regional community bank with thirty-one full-service financial centers -- nineteen in Virginia: Virginia Beach (7), Richmond (6), Chesapeake (3), Suffolk, Norfolk and Emporia; and twelve in North Carolina: Elizabeth City (3), Edenton, Kitty Hawk (2), Moyock, Nags Head, Plymouth, Roper and Raleigh (2), and 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 Second Quarter 2007 Financial Information GATEWAY FINANCIAL HOLDINGS, INC. AND SUBSIDIARY CONSOLIDATED FINANCIAL HIGHLIGHTS Quarterly 2nd Qtr 1st Qtr 4th Qtr 3rd Qtr 2nd Qtr 2007 2007 2006 2006 2006 ---------- ---------- ---------- ---------- ---------- (Dollars in thousands except per share data) EARNINGS Net interest income $ 11,709 10,039 9,971 9,493 9,312 Provision for loan losses $ 1,350 1,200 800 600 800 Non Interest income $ 3,117 4,649 2,545 4,416 1,296 Gain (loss) and net cash settlements on economic hedge (948) 189 (502) 1,601 (1,198) Loss on disposition of premises and equipment -- -- (292) -- -- Proforma non- interest income (2) 4,065 4,460 3,339 2,815 2,494 Non Interest expense $ 10,417 9,526 9,557 9,018 8,559 Pre-tax income $ 3,059 3,962 2,159 4,291 1,249 Net income $ 2,019 2,514 1,403 2,778 864 Basic earnings per share (1) $ 0.17 0.23 0.13 0.26 0.08 Diluted earnings per share (1) $ 0.17 0.22 0.13 0.25 0.08 Proforma diluted earnings per share (1) (3) $ 0.22 0.21 0.17 0.16 0.14 Weighted avg. basic shares outstanding (1) 11,608,656 10,990,371 10,889,605 10,805,652 10,789,189 Weighted average diluted shares (1) 11,950,358 11,263,502 11,157,077 11,097,299 11,131,691 PERFORMANCE RATIOS Return on average assets 0.55% 0.83% 0.48% 1.03% 0.37% Proforma return on average assets (3) 0.72% 0.79% 0.66% 0.66% 0.63% Return on average common equity 6.97% 9.21% 5.20% 10.57% 3.41% Proforma return on average common equity (3) 9.02% 8.78% 7.03% 6.77% 6.29% Net interest margin (fully tax- equivalent) 3.50% 3.62% 3.77% 3.84% 3.94% Non-interest income to total revenue 21.02% 31.65% 20.33% 31.75% 12.22% Proforma non- interest income to total revenue (2) 25.77% 30.76% 25.09% 22.87% 21.12% Non-interest expense to average assets 2.86% 3.14% 3.30% 3.38% 3.35% Efficiency ratio 70.26% 66.26% 73.94% 64.20% 79.99% Proforma efficiency ratio (2) 66.04% 67.15% 71.15% 72.56% 71.87% Full-time equivalent employees 422 345 327 310 299 CAPITAL Period-end equity to assets 7.98% 8.41% 9.05% 9.43% 9.62% Tier 1 leverage capital ratio 9.80% 11.40% 11.38% 12.02% 12.30% Tier 1 risk-based capital ratio 9.35% 11.11% 12.11% 13.05% 13.58% Total risk-based capital ratio 10.79% 11.98% 12.99% 13.94% 14.46% Book value per share (1) $ 10.89 10.10 9.99 9.80 9.45 Cash dividend per share (1) $ 0.08 0.05 0.05 0.05 0.03 ASSET QUALITY Gross loan charge- offs $ 329 426 95 58 86 Net loan charge- offs $ 321 416 89 53 76 Net loan charge- offs to average loans (annualized) 0.11% 0.16% 0.04% 0.02% 0.04% Allowance for loan losses $ 13,340 10,189 9,405 8,694 8,147 Allowance for loan losses to total loans 0.99% 0.95% 0.95% 0.97% 0.96% Nonperforming loans $ 874 1,554 3,269 420 138 NPL to total loans 0.06% 0.14% 0.33% 0.05% 0.02% Other real estate and repossessed assets $ 350 0 0 0 0 END OF PERIOD BALANCES Loans (before allowance) $1,354,160 1,083,638 994,592 896,080 852,381 Total earning assets (before allowance) $1,585,126 1,216,893 1,103,363 1,031,613 972,579 Total assets $1,749,091 1,322,613 1,207,477 1,125,144 1,062,241 Deposits $1,411,309 975,222 923,725 834,093 836,528 Stockholders' equity $ 139,554 111,466 109,640 106,058 102,239 AVERAGE BALANCES Loans (before allowance) $1,190,439 1,022,556 936,642 860,038 822,938 Total earning assets (before allowance) $1,342,961 1,125,833 1,049,235 980,105 947,402 Total assets $1,461,595 1,231,223 1,148,128 1,066,917 1,022,762 Deposits (Excludes non-int. DDA) $1,000,075 823,785 753,959 729,485 703,226 Stockholder's equity $ 116,165 110,655 107,124 104,227 102,820 Year to Date 6 Mos. 6 Mos. 2007 2006 ----------- ----------- (Dollars in thousands except per share data) EARNINGS Net interest income $ 21,748 17,534 Provision for loan losses $ 2,550 2,000 Non Interest income $ 7,766 2,309 Gain (loss) and net cash settlements on economic hedge (759) (3,017) Loss on disposition of premises and equipment -- -- Proforma non-interest income (2) 8,525 5,326 Non Interest expense $ 19,943 16,399 Pre-tax income $ 7,021 1,444 Net income $ 4,533 1,088 Basic earnings per share (1) $ 0.40 0.10 Diluted earnings per share (1) $ 0.39 0.10 Proforma diluted earnings per share (1) (3) $ 0.43 0.27 Weighted avg. basic shares outstanding (1) 11,301,222 10,775,739 Weighted average diluted shares (1) 11,619,485 11,124,709 PERFORMANCE RATIOS Return on average assets 0.68% 0.22% Proforma return on average assets (3) 0.75% 0.61% Return on average common equity 7.95% 2.15% Proforma return on average common equity (3) 8.78% 5.86% Net interest margin (fully tax-equivalent) 3.55% 3.94% Non-interest income to total revenue 26.31% 11.64% Proforma non-interest income to total revenue (2) 28.16% 23.30% Non-interest expense to average assets 2.98% 3.38% Efficiency ratio 67.95% 85.46% Proforma efficiency ratio (2) 66.24% 73.85% Full-time equivalent employees 422 299 CAPITAL Period-end equity to assets 7.98% 9.62% Tier 1 leverage capital ratio 9.80% 12.30% Tier 1 risk-based capital ratio 9.35% 13.58% Total risk-based capital ratio 10.79% 14.46% Book value per share (1) $ 10.89 9.45 Cash dividend per share (1) $ 0.13 0.06 ASSET QUALITY Gross loan charge-offs $ 755 152 Net loan charge-offs $ 737 136 Net loan charge-offs to average loans (annualized) 0.13% 0.02% Allowance for loan losses $ 13,340 8,147 Allowance for loan losses to total loans 0.99% 0.96% Nonperforming loans $ 874 138 NPL to total loans 0.06% 0.02% Other real estate and repossessed assets $ 350 0 END OF PERIOD BALANCES Loans (before allowance) $ 1,354,160 852,381 Total earning assets (before allowance) $ 1,585,126 972,579 Total assets $ 1,749,091 1,062,241 Deposits $ 1,411,309 836,528 Stockholders' equity $ 139,554 102,239 AVERAGE BALANCES Loans (before allowance) $ 1,107,156 771,077 Total earning assets (before allowance) $ 1,235,672 897,304 Total assets $ 1,350,941 979,102 Deposits (Excludes non-int. DDA) $ 915,155 658,871 Stockholder's equity $ 115,025 102,260 (1) 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 10% stock dividend distributed on May 15, 2006 and June 20, 2005. (2) 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. (3) 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. Gateway Financial Holdings, Inc. and Subsidiary Second Quarter 2007 Financial Information GATEWAY FINANCIAL HOLDINGS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS THREE MONTHS ENDED June 30, 2007 June 30, 2006 ------------ ------------ Unaudited Unaudited (Amounts in (000), except share and per share data) INTEREST INCOME Loans, including fees $ 24,114 $ 16,603 Trading account securities 349 -- Investment securities - taxable 1,123 1,200 - tax-exempt 116 61 Interest-earning bank deposits 138 35 Other interest and dividends 207 132 ------------ ------------ Total interest income 26,047 18,031 INTEREST EXPENSE Money market, NOW and savings 2,610 1,943 Time deposits 8,846 5,020 Short term debt 543 875 Long-term debt 2,339 881 ------------ ------------ Total interest expense 14,338 8,719 ------------ ------------ Net interest income 11,709 9,312 Provision for loan losses 1,350 800 ------------ ------------ Net interest income after provision for loan losses 10,359 8,512 NON INTEREST INCOME Service charges on accounts 998 848 Mortgage operations 733 280 Insurance operations 1,518 710 Brokerage operations 196 217 Loss and net cash settlements on economic hedge (948) (1,198) Loss from trading securities (21) 0 Other income 641 439 ------------ ------------ Total non interest income 3,117 1,296 NON INTEREST EXPENSE Salaries and benefits 5,726 4,232 Occupancy and equipment 2,007 1,715 Data processing fees 426 426 Other expense 2,258 2,186 ------------ ------------ Total non interest expense 10,417 8,559 ------------ ------------ Income before income taxes 3,059 1,249 Income taxes 1,040 385 ------------ ------------ Net income $ 2,019 $ 864 ------------ ------------ Basic earnings per share(1) $ 0.17 $ 0.08 Diluted earnings per share (1) $ 0.17 $ 0.08 Weighted avg. basic shares outstanding (1) 11,608,656 10,789,189 Weighted average diluted shares (1) 11,950,358 11,131,691 (1) 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 10% stock dividend distributed on May 15, 2006. Gateway Financial Holdings, Inc. and Subsidiary Second Quarter 2007 Financial Information GATEWAY FINANCIAL HOLDINGS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS SIX MONTHS ENDED June 30, 2007 June 30, 2006 ------------ ------------ Unaudited Unaudited (Amounts in (000), except share and per share data) INTEREST INCOME Loans, including fees $ 44,498 $ 30,333 Trading account securities 861 -- Investment securities - taxable 1,519 2,426 - tax-exempt 186 123 Interest-earning bank deposits 172 73 Other interest and dividends 391 280 ----------- ----------- Total interest income 47,627 33,235 INTEREST EXPENSE Money market, NOW and savings 4,866 3,340 Time deposits 15,720 9,077 Short term debt 818 1,478 Long-term debt 4,475 1,806 ----------- ----------- Total interest expense 25,879 15,701 ----------- ----------- Net interest income 21,748 17,534 Provision for loan losses 2,550 2,000 ----------- ----------- Net interest income after provision for loan losses 19,198 15,534 NON INTEREST INCOME Service charges on accounts 1,875 1,563 Mortgage operations 1,665 452 Insurance operations 2,839 1,451 Brokerage operations 462 328 Gain on sales of securities 163 653 Loss and net cash settlements on economic hedge (759) (3,017) Gain from trading securities 259 - Other income 1,262 879 ----------- ----------- Total non interest income 7,766 2,309 NON INTEREST EXPENSE Salaries and benefits 10,985 7,940 Occupancy and equipment 3,817 3,257 Data processing fees 879 854 Other expense 4,262 4,348 ----------- ----------- Total non interest expense 19,943 16,399 ----------- ----------- Income before income taxes 7,021 1,444 Income tax expense 2,488 356 ----------- ----------- Net income $ 4,533 $ 1,088 ----------- ----------- Basic earnings per share(1) $ 0.40 $ 0.10 Diluted earnings per share (1) $ 0.39 $ 0.10 Weighted avg. basic shares outstanding (1) 11,301,222 10,775,739 Weighted average diluted shares (1) 11,619,485 11,124,709 (1) 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 10% stock dividend distributed on May 15, 2006. Gateway Financial Holdings, Inc. and Subsidiary Second Quarter 2007 Financial Information GATEWAY FINANCIAL HOLDINGS, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS June 30, Dec. 31, June 30, 2007 2006* 2006 --------- --------- --------- Unaudited Unaudited (Dollar amounts in thousands) ASSETS Cash and due from banks $ 27,632 $ 22,077 $ 19,822 Interest-earnings deposits in other banks 35,272 4,717 2,751 --------- --------- --------- Total cash and cash equivalents 62,904 26,794 22,573 Trading securities 78,893 - - Securities available for sale 107,417 93,475 109,561 Federal Home Loan Bank stock 5,700 6,970 4,967 Federal Reserve Bank stock 3,684 3,609 2,919 Loans 1,354,160 994,592 852,381 Allowance for loan losses (13,340) (9,405) (8,147) --------- --------- --------- Total loans, net 1,340,820 985,187 844,234 Premises and equipment, net 50,938 38,456 35,948 Bank owned life insurance policies 25,579 25,051 17,515 Goodwill and intangible assets 51,889 12,615 10,101 Accrued interest receivable 10,894 8,742 7,262 Other assets 10,373 6,578 7,161 --------- --------- --------- Total assets $1,749,091 $1,207,477 $1,062,241 --------- --------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Non-interest-bearing $ 139,158 $ 108,007 $ 104,695 Interest-bearing 1,272,151 815,718 731,833 --------- --------- --------- Total deposits 1,411,309 923,725 836,528 Short term debt 42,117 14,500 55,000 Long-term debt 133,513 152,429 62,429 Accrued expenses and other liabilities 22,598 7,183 6,045 --------- --------- --------- Total liabilities 1,609,537 1,097,837 960,002 STOCKHOLDERS' EQUITY Common stock 130,959 101,669 99,062 Retained earnings 10,442 8,708 5,613 Accumulated other comprehensive loss (1,847) (737) (2,436) --------- --------- --------- Total stockholders' equity 139,554 109,640 102,239 Total liabilities and stockholders' equity $1,749,091 $1,207,477 $1,062,241 --------- --------- --------- * Derived from audited financial statements.