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TowneBank Reports First Quarter 2019 Earnings

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  • TOWN

SUFFOLK, Va., April 25, 2019 (GLOBE NEWSWIRE) -- TowneBank (the “Company”) (TOWN) today reported earnings for the quarter ended March 31, 2019, of $31.41 million, or $0.44 per diluted share, compared to $24.71 million or $0.36 per diluted share for the quarter ended March 31, 2018. Excluding acquisition-related expenses, earnings for the quarter ended March 31, 2019 were $31.77 million (non-GAAP), or $0.44 (non-GAAP) per diluted share, compared to $31.79 million (non-GAAP), or $0.46 (non-GAAP) per diluted share for the quarter ended March 31, 2018.

“As we celebrate our twentieth anniversary since the founding of TowneBank, our consistent financial performance continues to enable us to invest in building a solid pathway to the future through our expansion of our North Carolina and Virginia franchise," said G. Robert Aston, Jr., Executive Chairman.

Highlights for the First Quarter of 2019 Compared to the First Quarter of 2018:

  • Total revenues were $133.85 million, an increase of $7.58 million, or 6.0%.

  • Loans held for investment were $8.11 billion, an increase of $0.64 billion, or 8.50%, from March 31, 2018, and $0.09 billion, or 1.09%, from December 31, 2018, or 4.41% on an annualized basis.

  • Total deposits were $8.73 billion, an increase of $0.91 billion, or 11.58%.

  • Noninterest bearing deposits increased by 12.41%, to $2.81 billion, representing 32.23% of total deposits.

  • Annualized return on common shareholders' equity was 8.30% and annualized return on average tangible common shareholders' equity was 13.39% (non-GAAP).

  • Net interest margin for the quarter was 3.54% and taxable equivalent net interest margin was 3.57% (non-GAAP).

  • Effective tax rate of 20.72% in the quarter compared to 19.74% in the first quarter of 2018.

“Deposit growth was robust in the first quarter. We continue to add to our production teams in North Carolina. In addition to 11 member-facing hires in Greensboro and Greenville, North Carolina where we have added over $80 million in new deposits, we have added Jack Clayton in Raleigh as President of Business Strategies for North Carolina. Jack is a 40-year veteran of Wells Fargo where he led the central and northeastern North Carolina regions. His proven ability to recruit talent from the national banks and his extensive business contacts will enhance our already strong double-digit growth in North Carolina," said J. Morgan Davis, President and Chief Executive Officer.

Quarterly Net Interest Income Compared to the First Quarter of 2018:

  • Net interest income was $87.47 million compared to $76.34 million at March 31, 2018.

  • Taxable equivalent net interest margin was 3.57%, including accretion of 11 basis points, compared to 3.54%, including accretion of 15 basis points, for 2018.

  • Total cost of deposits increased to 0.93% from 0.53% at March 31, 2018.

  • Average interest-earning assets totaled $10.02 billion at March 31, 2019 compared to $8.81 billion at March 31, 2018, an increase of 13.73%.

  • Average loans held for investment represented 80.16% of average earning assets at March 31, 2019 compared to 78.95% at March 31, 2018.

  • Average interest-bearing liabilities totaled $6.82 billion, an increase of $0.79 billion from prior year.

  • Management periodically reviews the cost of funds charged to TowneBank Mortgage to fund its operations. Effective January 1, 2019, the line moved a floating-rate structure tied to Federal Home Loan Bank rates. As a result of the funding change, interest income declined in the Realty Segment. All intercompany transaction are eliminated in the Banking Segment.

Quarterly Provision for Loan Losses:

  • Recorded a provision for loan losses of $1.44 million compared to $1.95 million one year ago and $2.29 million in the prior quarter.

  • Net charge-offs were $0.23 million compared to $0.35 million one year prior. The ratio of net charge-offs to average loans on an annualized basis was 0.01% compared to 0.02% in both the prior quarter and the first quarter of 2018.

  • The allowance for loan losses represented 0.66% of total loans compared to 0.65% at December 31, 2018 and 0.63% at March 31, 2018. Loan loss reserve as a percentage of total loans, excluding purchased loans, decreased to 0.81%, from 0.82% at December 31, 2018 and 0.86% at March 31, 2018. The allowance for loan losses was 9.36 times nonperforming loans compared to 10.97 times at December 31, 2018 and 10.40 times at March 31, 2018.

Quarterly Noninterest Income Compared to the First Quarter of 2018:

  • Total noninterest income was $46.38 million compared to $49.93 million in 2018. The increase in insurance commissions and other title fees of $2.21 million was offset by decreases in residential mortgage banking income of $4.10 million and real estate brokerage of $1.16 million.

  • Residential mortgage banking income was $13.51 million compared to $17.60 million in first quarter 2018. Loan volume in the current quarter was $513.53 million, with purchase loan activity comprising 86.08%, compared to first quarter 2018 loan volume of $662.45 million, and 80.86% purchase loan activity. Lower volumes and continued pressure on gain on sale margin contributed to the decline in revenue, combined with a reduction in mortgage producers in certain markets as the Company repositions itself to enhance future growth and profitability.

  • Total Insurance segment revenue increased 17.88% to $18.50 million in first quarter due to additional commission income from two insurance agency acquisitions in 2018 and one insurance agency acquisition in January 2019.

  • Property management fee revenue decreased 11.72%, or $1.02 million, due to lower reservation levels in the current year, as compared to first quarter 2018.

Quarterly Noninterest Expense Compared to the First Quarter of 2018:

  • Total noninterest expense was $92.12 million compared to $92.30 million, a decrease of $0.18 million, or 0.20%. Driving the decrease was a reduction in acquisition-related expenses of $8.32 million, which was partially offset by increases of $2.08 million in salary and benefits expense, $1.05 million in outside processing expenses, $0.78 million in charitable contributions, and $0.71 million in professional fees.

  • Noninterest expense included operational expenses of insurance agencies acquired subsequent to first quarter 2018 of $2.41 million.

Quarterly Income Taxes Compared to the First Quarter of 2018:

  • Income tax expense was $8.21 million compared to $6.08 million, one year prior. This represents an effective tax rate of 20.72% compared to 19.74% in the first quarter of 2018.

Investment Securities:

  • Total investment securities were $1.20 billion compared to $1.19 billion at December 31, 2018 and $1.34 billion at March 31, 2018. The weighted average duration of the portfolio at March 31, 2019 was 3.30 years. The carrying value of the available-for-sale portfolio included $2.22 million of net unrealized losses compared to $11.91 million at December 31, 2018 and $17.95 million in net unrealized losses at March 31, 2018. The decrease in net unrealized losses was primarily due to interest rate fluctuations. During the first quarter of 2019, we sold $100.08 million in available-for-sale securities at a loss of $0.78 million, in order to position our portfolio for better yield, going forward. The carrying value of the held-to-maturity portfolio does not reflect $1.04 million in net unrealized gains compared to $0.67 million in net unrealized gains at December 31, 2018 and $0.88 million in net unrealized gains at March 31, 2018.

Loans and Asset Quality:

  • Total loans held for investment were $8.11 billion at March 31, 2019 compared to $8.02 billion at December 31, 2018 and $7.47 billion at March 31, 2018.

  • Nonperforming assets declined to $24.99 million, or 0.22% of total assets, compared to $28.48 million, or 0.27%, at March 31, 2018.

  • Nonperforming loans were 0.07% of period end loans.

  • Foreclosed property decreased to $17.07 million from $21.73 million at March 31, 2018.

Deposits and Borrowings:

  • Total deposits were $8.73 billion compared to $8.37 billion at December 31, 2018, and $7.83 billion at March 31, 2018.

  • Total loans to total deposits were 92.83% compared to 95.79% at December 31, 2018 and 95.46% at March 31, 2018.

  • Non-interest bearing deposits were 32.23% of total deposits at March 31, 2019 compared to 31.33% at December 31, 2018 and 31.99% at March 31, 2018.

  • Total borrowings were $1.03 billion compared to $1.09 billion and $1.18 billion at December 31, 2018 and March 31, 2018, respectively.

Capital:

  • Common equity tier 1 capital ratio of 11.49%.

  • Tier 1 leverage capital ratio of 9.92%.

  • Tier 1 risk-based capital ratio of 11.52%.

  • Total risk-based capital ratio of 14.79%.

  • Book value was $21.40 compared to $21.05 at December 31, 2018 and $19.90 at March 31, 2018.

  • Tangible book value was $14.46 compared to $14.26 at December 31, 2018 and $13.34 at March 31, 2018.

About TowneBank:
As one of the top community banks in Virginia and North Carolina, TowneBank operates 41 banking offices serving Chesapeake, Chesterfield County, Glen Allen, Hampton, James City County, Mechanicsville, Newport News, Norfolk, Portsmouth, Richmond, Suffolk, Virginia Beach, Williamsburg, and York County in Virginia, along with Raleigh, Cary, Charlotte, Moyock, Greenville, Grandy, Camden County, Southern Shores, Corolla and Nags Head in North Carolina. TowneBank also offers a full range of financial services through its controlled divisions and subsidiaries that include Towne Investment Group, Towne Wealth Management, Towne Insurance Agency, Towne Benefits, TowneBank Mortgage, TowneBank Commercial Mortgage, Berkshire Hathaway HomeServices Towne Realty, Towne 1031 Exchange, LLC, and Towne Vacations. Local decision-making is a hallmark of its hometown banking strategy that is delivered through the leadership of each group’s President and Board of Directors. With total assets of $11.57 billion as of March 31, 2019, TowneBank is one of the largest banks headquartered in Virginia.

Non-GAAP Financial Measures:
This press release contains financial information determined by methods other than in accordance with GAAP. The Company's management uses these non-GAAP financial measures in its analysis of the Company's performance. These measures typically adjust GAAP performance measures to exclude the effects of the amortization of intangibles and include the tax benefit associated with revenue items that are tax-exempt, as well as adjust income available to common shareholders for certain significant activities or transactions that are infrequent in nature. Management believes presentations of these non-GAAP financial measures provide useful supplemental information that is essential to a proper understanding of the operating results of the Company’s core businesses. These non-GAAP disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. Reconciliations of GAAP to non-GAAP disclosures are included as tables at the end of this release.

Forward-Looking Statements:
Certain statements contained in this release constitute forward-looking statements within the meaning of U.S. federal securities laws. These forward-looking statements speak only as of the date of this release, are based on current expectations, and involve a number of assumptions. These include statements regarding TowneBank’s future economic performance, financial condition, prospects, growth, strategies and expectations, and objectives of management, and are generally identified by the use of words such as “believe,” “expect,” “intend,” “anticipate,” “estimate,” or “project” or similar expressions. TowneBank intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and is including this statement for purposes of these safe harbor provisions. You should not place undue reliance on forward-looking statements, which are subject to assumptions that are subject to change. TowneBank’s ability to predict results, or the actual effect of future plans or strategies, is inherently uncertain. These forward-looking statements are subject to a number of factors and uncertainties that could cause actual results to differ from those indicated or implied in the forward-looking statements and such differences may be material. Factors which could have a material effect on the operations and future prospects of TowneBank include but are not limited to: changes in interest rates, general economic and business conditions; legislative/regulatory changes; the monetary and fiscal policies of the U.S. government, including policies of the U.S. Treasury and the Board of Governors of the Federal Reserve System; the quality and composition of TowneBank’s loan and securities portfolios; demand for loan products; deposit flows; competition; demand for financial services in TowneBank’s market area; implementation of new technologies and the ability to develop and maintain secure and reliable electronic systems; changes in the securities markets; changes in accounting principles, policies and guidelines; and other risk factors detailed from time to time in filings made by TowneBank with the Federal Deposit Insurance Corporation. TowneBank undertakes no obligation to update or clarify these forward-looking statements, whether as a result of new information, future events or otherwise.

Media contact:
G. Robert Aston, Jr., Executive Chairman, 757-638-6780
J. Morgan Davis, President and Chief Executive Officer, 757-673-1673

Investor contact:
William B. Littreal, Chief Financial Officer, 757-638-6813


TOWNEBANK

Selected Financial Highlights (unaudited)

(dollars in thousands, except per share data)

Three Months Ended

March 31,

December 31,

September 30,

June 30,

March 31,

2019

2018

2018

2018

2018

Income and Performance Ratios:

Total Revenue

$

133,854

$

131,417

$

137,914

$

137,058

$

126,276

Net income

32,082

36,440

39,252

36,138

25,943

Net income attributable to TowneBank

31,409

35,990

38,293

34,804

24,705

Net income per common share - diluted

0.44

0.50

0.53

0.48

0.36

Book value per common share

21.40

21.05

20.54

20.22

19.90

Tangible book value per share (non-GAAP)

14.46

14.26

13.83

13.50

13.34

Return on average assets

1.14

%

1.28

%

1.40

%

1.32

%

1.02

%

Return on average assets - tangible (non-GAAP)

1.29

%

1.43

%

1.56

%

1.48

%

1.15

%

Return on average equity

8.24

%

9.44

%

10.21

%

9.55

%

7.39

%

Return on average equity - tangible (non-GAAP)

13.24

%

14.91

%

16.08

%

15.19

%

11.64

%

Return on average common equity

8.30

%

9.53

%

10.30

%

9.62

%

7.45

%

Return on average common equity - tangible (non-GAAP)

13.39

%

15.11

%

16.30

%

15.36

%

11.77

%

Noninterest income as a percentage of total revenue

34.65

%

32.12

%

35.69

%

36.65

%

39.54

%

Regulatory Capital Ratios (1):

Common equity tier 1

11.49

%

11.51

%

11.53

%

11.33

%

11.65

%

Tier 1

11.52

%

11.54

%

11.57

%

11.36

%

11.68

%

Total

14.79

%

14.83

%

14.90

%

14.71

%

15.27

%

Tier 1 leverage ratio

9.92

%

9.87

%

9.98

%

10.00

%

9.97

%

Asset Quality:

Allowance for loan losses to nonperforming loans

9.36x

10.97x

7.25x

12.64x

10.40x

Allowance for loan losses to period end loans

0.66

%

0.65

%

0.64

%

0.64

%

0.63

%

Allowance for loan losses to period end loans excluding purchased loans

0.81

%

0.82

%

0.82

%

0.84

%

0.86

%

Nonperforming loans to period end loans

0.07

%

0.06

%

0.09

%

0.05

%

0.06

%

Nonperforming assets to period end assets

0.22

%

0.22

%

0.25

%

0.24

%

0.27

%

Net charge-offs to average loans (annualized)

0.01

%

0.02

%

0.03

%

0.01

%

0.02

%

Nonperforming loans

$

5,697

$

4,749

$

6,926

$

3,919

$

4,495

Former bank premises

2,223

2,253

2,253

2,253

2,253

Foreclosed property

17,070

17,163

18,153

20,133

21,731

Total nonperforming assets

$

24,990

$

24,165

$

27,332

$

26,305

$

28,479

Loans past due 90 days and still accruing interest

$

117

$

394

$

153

$

22

$

199

Allowance for loan losses

$

53,303

$

52,094

$

50,236

$

49,535

$

46,735

Mortgage Banking:

Loans originated, mortgage

$

366,643

$

407,787

$

561,543

$

667,189

$

477,147

Loans originated, joint venture

146,884

192,280

249,956

283,933

185,306

Total loans originated

$

513,527

$

600,067

$

811,499

$

951,122

$

662,453

Number of loans originated

1,977

2,304

3,068

3,687

2,601

Number of originators

240

293

303

324

324

Purchase %

86.08

%

88.64

%

89.72

%

91.23

%

80.86

%

Loans sold

$

473,068

$

694,341

$

852,205

$

825,313

$

677,114

Realized gain on sales and fees as a % of loans closed

3.58

%

3.37

%

3.36

%

3.30

%

3.59

%

Other Ratios:

Net interest margin

3.54

%

3.53

%

3.62

%

3.69

%

3.51

%

Net interest margin-fully tax equivalent (nonGAAP)

3.57

%

3.55

%

3.64

%

3.71

%

3.54

%

Average earning assets/total average assets

89.50

%

89.91

%

89.69

%

89.61

%

89.45

%

Average loans/average deposits

95.83

%

95.32

%

97.55

%

97.79

%

95.89

%

Average noninterest deposits/total average deposits

31.39

%

31.90

%

32.61

%

32.28

%

31.75

%

Period end equity/period end total assets

13.53

%

13.78

%

13.49

%

13.63

%

13.65

%

Efficiency ratio

68.43

%

62.65

%

64.00

%

65.10

%

73.10

%

(1) Current reporting period regulatory capital ratios are preliminary


TOWNEBANK

Selected Data (unaudited)

(dollars in thousands)

Investment Securities

% Change

Q1

Q1

Q4

Q1 19 vs.

Q1 19 vs.

Available-for-sale securities, at fair value

2019

2018

2018

Q1 18

Q4 18

U.S. agency securities

$

260,152

$

428,952

$

358,542

(39.35

)%

(27.44

)%

U.S. Treasury notes

2,229

301,442

1,246

(99.26

)%

78.89

%

Municipal securities

107,278

56,655

87,308

89.35

%

22.87

%

Trust preferred and other corporate securities

32,439

24,570

30,992

32.03

%

4.67

%

Mortgage-backed securities issued by GSE

697,679

425,560

617,251

63.94

%

13.03

%

Total

$

1,099,777

$

1,237,179

$

1,095,339

(11.11

)%

0.41

%

Held-to-maturity securities, at amortized cost

Municipal securities

$

34,472

$

36,056

$

34,488

(4.39

)%

(0.05

)%

Trust preferred corporate securities

500

500

500

%

%

Mortgage-backed securities issued by GSE

14,715

18,727

15,610

(21.42

)%

(5.73

)%

Total

$

49,687

$

55,283

$

50,598

(10.12

)%

(1.80

)%

Loans Held For Investment

% Change

Q1

Q1

Q4

Q1 19 vs.

Q1 19 vs.

2019

2018

2018

Q1 18

Q4 18

Real estate-construction and development

$

1,111,360

$

996,159

$

1,067,239

11.56

%

4.13

%

Commercial real estate - investment related properties

1,951,292

1,853,737

1,978,592

5.26

%

(1.38

)%

Commercial real estate - owner occupied

1,279,039

1,164,923

1,262,748

9.80

%

1.29

%

Real estate-multifamily

255,649

297,085

260,987

(13.95

)%

(2.05

)%

Real estate-residential 1-4 family

1,637,579

1,566,449

1,626,896

4.54

%

0.66

%

Commercial and industrial business

1,547,623

1,328,357

1,510,364

16.51

%

2.47

%

Consumer and other loans

322,828

263,441

311,407

22.54

%

3.67

%

Total

$

8,105,370

$

7,470,151

$

8,018,233

8.50

%

1.09

%

Deposits

% Change

Q1

Q1

Q4

Q1 19 vs.

Q1 19 vs.

2019

2018

2018

Q1 18

Q4 18

Noninterest-bearing demand

$

2,813,857

$

2,503,246

$

2,622,761

12.41

%

7.29

%

Interest-bearing:

Demand and money market accounts

3,290,907

3,001,256

3,223,215

9.65

%

2.10

%

Savings

285,790

309,077

286,684

(7.53

)%

(0.31

)%

Certificates of deposits

2,341,134

2,011,843

2,237,762

16.37

%

4.62

%

Total

$

8,731,688

$

7,825,422

$

8,370,422

11.58

%

4.32

%

The following table sets forth an estimate of the expected effects of the aggregate acquisition accounting adjustments on pre-tax net interest income for the periods shown:

Discount Accretion (Premium Amortization)

For the three months ended

June 30,

September 30,

December 31,

2019

2019

2019

Assets:

Investment Securities

$

(75

)

$

(74

)

$

(75

)

Loans

1,837

1,773

1,716

Liabilities:

Deposits

54

51

47

Total estimated effect on net interest income

$

1,708

$

1,648

$

1,594

Note: This information is intended for informational purposes only and is not necessarily indicative of future results. Actual results may differ due to factors such

factors such as changes in estimated prepayment speeds or projected credit loss rates.


TOWNEBANK

Average Balances, Yields and Rate Paid (unaudited)

(dollars in thousands)

Three Months Ended

Three Months Ended

Three Months Ended

March 31, 2019

December 31, 2018

March 31, 2018

Interest

Average

Interest

Average

Interest

Average

Average

Income/

Yield/

Average

Income/

Yield/

Average

Income/

Yield/

Balance

Expense

Rate

Balance

Expense

Rate

Balance

Expense

Rate

Assets:

Loans (net of unearned income
and deferred costs), excluding
nonaccrual loans

$

8,030,994

$

100,146

5.06

%

$

7,923,978

$

99,895

5.00

%

$

6,954,777

$

81,911

4.78

%

Taxable investment securities

1,036,645

7,529

2.91

%

1,101,892

7,515

2.73

%

902,292

5,041

2.23

%

Tax-exempt investment securities

79,310

765

3.86

%

80,656

747

3.70

%

73,037

672

3.68

%

Total securities

1,115,955

8,294

2.97

%

1,182,548

8,262

2.73

%

975,329

5,713

2.34

%

Interest-bearing deposits

693,365

3,998

2.34

%

652,131

3,559

2.17

%

640,349

2,362

1.50

%

Loans held for sale

178,475

2,003

4.49

%

266,058

3,176

4.77

%

239,103

2,379

3.98

%

Total earning assets

10,018,789

114,441

4.63

%

10,024,715

114,892

4.55

%

8,809,558

92,365

4.25

%

Less: allowance for loan losses

(52,844

)

(50,792

)

(46,199

)

Total nonearning assets

1,228,808

1,176,037

1,085,005

Total assets

$

11,194,753

$

11,149,960

$

9,848,364

Liabilities and Equity:

Interest-bearing deposits

Demand and money market

$

3,174,157

$

6,240

0.80

%

$

3,122,973

$

5,670

0.72

%

$

2,774,347

$

2,969

0.43

%

Savings

285,499

1,027

1.46

%

293,135

1,022

1.38

%

308,539

876

1.15

%

Certificates of deposit

2,290,056

11,907

2.11

%

2,245,039

10,803

1.91

%

1,866,889

5,641

1.23

%

Total interest-bearing deposits

5,749,712

19,174

1.35

%

5,661,147

17,495

1.23

%

4,949,775

9,486

0.78

%

Borrowings

821,889

4,221

2.05

%

920,389

4,643

1.97

%

820,967

2,878

1.40

%

Subordinated debt, net

247,913

2,962

4.78

%

247,769

2,961

4.78

%

259,205

3,158

4.87

%

Total interest-bearing liabilities

6,819,514

26,357

1.57

%

6,829,305

25,099

1.46

%

6,029,947

15,522

1.04

%

Demand deposits

2,630,813

2,651,495

2,303,125

Other noninterest-bearing liabilities

198,527

157,238

160,308

Total liabilities

9,648,854

9,638,038

8,493,380

Shareholders’ equity

1,545,899

1,511,922

1,354,984

Total liabilities and equity

$

11,194,753

$

11,149,960

$

9,848,364

Net interest income (tax-equivalent basis)

$

88,084

$

89,793

$

76,843

Reconcilement of Non-GAAP Financial Measures

Tax-equivalent basis adjustment

(611

)

(585

)

(499

)

Net interest income (GAAP)

$

87,473

$

89,208

$

76,344

Interest rate spread (1)

3.06

%

3.09

%

3.21

%

Interest expense as a percent of average earning assets

1.07

%

0.99

%

0.71

%

Net interest margin (tax equivalent basis) (2)

3.57

%

3.55

%

3.54

%

Total cost of deposits

0.93

%

0.83

%

0.53

%

(1) Interest spread is the average yield earned on earning assets less the average rate paid on interest-bearing liabilities. Fully tax equivalent.
(2) Net interest margin is net interest income expressed as a percentage of average earning assets. Fully tax equivalent.


TOWNEBANK

Consolidated Balance Sheets

(dollars in thousands, except share data)

March 31,

December 31,

2019

2018

(unaudited)

(audited)

ASSETS

Cash and due from banks

$

879,299

$

665,029

Interest-bearing deposits in financial institutions

21,001

21,667

Total Cash and Cash Equivalents

900,300

686,696

Securities available for sale, at fair value

1,099,777

1,095,339

Securities held to maturity, at amortized cost

49,687

50,598

Other securities

5,022

4,797

Federal Home Loan Bank stock, at amortized cost

41,464

43,229

Total Securities

1,195,950

1,193,963

Mortgage loans held for sale

247,021

220,986

Loans, net of unearned income and deferred costs

8,105,370

8,018,233

Less: allowance for loan losses

(53,303

)

(52,094

)

Net Loans

8,052,067

7,966,139

Premises and equipment, net

227,458

211,796

Goodwill

442,881

433,658

Other intangible assets, net

61,333

58,752

Bank-owned life insurance policies

238,977

237,371

Other assets

202,276

153,669

TOTAL ASSETS

$

11,568,263

$

11,163,030

LIABILITIES AND EQUITY

Deposits:

Noninterest-bearing demand

$

2,813,857

$

2,622,761

Interest-bearing:

Demand and money market accounts

3,290,907

3,223,215

Savings

285,790

286,684

Certificates of deposit

2,341,134

2,237,762

Total Deposits

8,731,688

8,370,422

Advances from the Federal Home Loan Bank

739,160

799,315

Subordinated debt, net

248,010

247,861

Repurchase agreements and other borrowings

44,775

47,156

Total Borrowings

1,031,945

1,094,332

Other liabilities

238,974

159,856

TOTAL LIABILITIES

10,002,607

9,624,610

Preferred stock

Authorized and unissued shares - 2,000,000

Common stock, $1.667 par: 150,000,000 shares authorized

72,613,754 and 72,465,923 shares issued at

March 31, 2019 and December 31, 2018, respectively

121,047

120,801

Capital surplus

1,035,563

1,034,676

Retained earnings

399,030

379,239

Common stock issued to deferred compensation trust, at cost

768,274 and 769,200 shares at

March 31, 2019 and December 31, 2018, respectively

(14,067

)

(13,955

)

Deferred compensation trust

14,067

13,955

Accumulated other comprehensive loss

(1,792

)

(9,190

)

TOTAL SHAREHOLDERS’ EQUITY

1,553,848

1,525,526

Noncontrolling interest

11,808

12,894

TOTAL EQUITY

1,565,656

1,538,420

TOTAL LIABILITIES AND EQUITY

$

11,568,263

$

11,163,030


TOWNEBANK

Consolidated Statements of Income (unaudited)

(dollars in thousands, except per share data)

Three Months Ended

March 31,

2019

2018

INTEREST INCOME:

Loans, including fees

$

99,695

$

81,533

Investment securities

8,134

5,592

Interest-bearing deposits in financial institutions and federal funds sold

3,998

2,362

Mortgage loans held for sale

2,003

2,379

Total interest income

113,830

91,866

INTEREST EXPENSE:

Deposits

19,174

9,486

Advances from the Federal Home Loan Bank

4,153

2,838

Subordinated capital debentures

2,962

3,158

Repurchase agreements and other borrowings, net of capitalized interest

68

40

Total interest expense

26,357

15,522

Net interest income

87,473

76,344

PROVISION FOR LOAN LOSSES

1,438

1,953

Net interest income after provision for loan losses

86,035

74,391

NONINTEREST INCOME:

Residential mortgage banking income, net

13,508

17,604

Insurance commissions and other title fees and income, net

15,582

13,372

Real estate brokerage and property management income, net

9,268

10,429

Service charges on deposit accounts

2,861

2,883

Credit card merchant fees, net

1,183

1,168

Bank owned life insurance

1,598

1,532

Other income

3,157

2,941

Gain/(loss) on investment securities

(776

)

3

Total noninterest income

46,381

49,932

NONINTEREST EXPENSE:

Salaries and employee benefits

52,860

50,784

Occupancy

8,251

6,477

Furniture and equipment

3,371

3,698

Other expenses

27,641

31,344

Total noninterest expense

92,123

92,303

Income before income tax expense and noncontrolling interest

40,293

32,020

Provision for income tax expense

8,211

6,077

Net income

$

32,082

$

25,943

Net income attributable to noncontrolling interest

(673

)

(1,238

)

Net income attributable to TowneBank

$

31,409

$

24,705

Per common share information

Basic earnings

$

0.44

$

0.36

Diluted earnings

$

0.44

$

0.36

Cash dividends declared

$

0.16

$

0.14


TOWNEBANK

Consolidated Balance Sheets - Five Quarter Trend

(dollars in thousands, except share data)

March 31,

December 31,

September 30,

June 30,

March 31,

2019

2018

2018

2018

2018

(unaudited)

(audited)

(unaudited)

(unaudited)

(unaudited)

ASSETS

Cash and due from banks

$

879,299

$

665,029

$

688,584

$

440,054

$

479,453

Interest-bearing deposits in financial institutions

21,001

21,667

20,910

17,749

17,728

Total Cash and Cash Equivalents

900,300

686,696

709,494

457,803

497,181

Securities available for sale, at fair value

1,099,777

1,095,339

1,051,773

1,057,663

1,237,179

Securities held to maturity, at amortized cost

49,687

50,598

52,002

53,954

55,283

Other securities

5,022

4,797

5,519

5,206

5,002

Federal Home Loan Bank stock, at amortized cost

41,464

43,229

46,393

46,393

46,400

Total Securities

1,195,950

1,193,963

1,155,687

1,163,216

1,343,864

Mortgage loans held for sale

247,021

220,986

333,354

396,185

293,731

Loans, net of unearned income and deferred costs

8,105,370

8,018,233

7,881,692

7,774,956

7,470,151

Less: allowance for loan losses

(53,303

)

(52,094

)

(50,236

)

(49,535

)

(46,735

)

Net Loans

8,052,067

7,966,139

7,831,456

7,725,421

7,423,416

Premises and equipment, net

227,458

211,796

210,724

207,997

207,126

Goodwill

442,881

433,658

427,117

425,625

416,789

Other intangible assets, net

61,333

58,752

58,165

60,669

57,493

Bank-owned life insurance policies

238,977

237,371

235,348

233,682

232,039

Other assets

202,276

153,669

159,887

161,055

148,776

TOTAL ASSETS

$

11,568,263

$

11,163,030

$

11,121,232

$

10,831,653

$

10,620,415

LIABILITIES AND EQUITY

Deposits:

Noninterest-bearing demand

$

2,813,857

$

2,622,761

$

2,671,558

$

2,597,320

$

2,503,246

Interest-bearing:

Demand and money market accounts

3,290,907

3,223,215

3,096,317

3,017,767

3,001,256

Savings

285,790

286,684

298,368

305,334

309,077

Certificates of deposit

2,341,134

2,237,762

2,233,188

2,070,790

2,011,843

Total Deposits

8,731,688

8,370,422

8,299,431

7,991,211

7,825,422

Advances from the Federal Home Loan Bank

739,160

799,315

873,469

873,622

873,773

Subordinated debt, net

248,010

247,861

247,712

247,563

257,723

Repurchase agreements and other borrowings

44,775

47,156

45,591

50,981

52,509

Total Borrowings

1,031,945

1,094,332

1,166,772

1,172,166

1,184,005

Other liabilities

238,974

159,856

155,205

191,490

161,638

TOTAL LIABILITIES

10,002,607

9,624,610

9,621,408

9,354,867

9,171,065

Preferred stock

Authorized shares - 2,000,000

Common stock, $1.667 par value

121,047

120,801

120,613

120,615

120,472

Capital surplus

1,035,563

1,034,676

1,032,863

1,031,965

1,028,985

Retained earnings

399,030

379,239

354,842

328,125

304,896

Common stock issued to deferred compensation

trust, at cost

(14,067

)

(13,955

)

(13,780

)

(13,500

)

(12,612

)

Deferred compensation trust

14,067

13,955

13,780

13,500

12,612

Accumulated other comprehensive loss

(1,792

)

(9,190

)

(22,348

)

(17,944

)

(15,873

)

TOTAL SHAREHOLDERS’ EQUITY

1,553,848

1,525,526

1,485,970

1,462,761

1,438,480

Noncontrolling interest

11,808

12,894

13,854

14,025

10,870

TOTAL EQUITY

1,565,656

1,538,420

1,499,824

1,476,786

1,449,350

TOTAL LIABILITIES AND EQUITY

$

11,568,263

$

11,163,030

$

11,121,232

$

10,831,653

$

10,620,415


TOWNEBANK

Consolidated Statements of Income - Five Quarter Trend (unaudited)

(dollars in thousands, except share data)

Three Months Ended

March 31,

December 31,

September 30,

June 30,

March 31,

2019

2018

2018

2018

2018

INTEREST INCOME:

Loans, including fees

$

99,695

$

99,446

$

97,215

$

93,150

$

81,533

Investment securities

8,134

8,126

7,019

6,390

5,592

Interest-bearing deposits in financial institutions and federal funds sold

3,998

3,559

2,148

2,159

2,362

Mortgage loans held for sale

2,003

3,176

4,012

3,557

2,379

Total interest income

113,830

114,307

110,394

105,256

91,866

INTEREST EXPENSE:

Deposits

19,174

17,495

14,540

11,620

9,486

Advances from the Federal Home Loan Bank

4,153

4,585

4,153

3,764

2,838

Subordinated capital debentures

2,962

2,961

2,962

2,986

3,158

Repurchase agreements and other borrowings

68

58

42

63

40

Total interest expense

26,357

25,099

21,697

18,433

15,522

Net interest income

87,473

89,208

88,697

86,823

76,344

PROVISION FOR LOAN LOSSES

1,438

2,292

1,241

3,056

1,953

Net interest income after provision for loan losses

86,035

86,916

87,456

83,767

74,391

NONINTEREST INCOME:

Residential mortgage banking income, net

13,508

12,951

15,804

18,745

17,604

Insurance commissions and other title fees and income, net

15,582

13,212

14,493

15,087

13,372

Real estate brokerage and property management income, net

9,268

5,982

8,542

6,910

10,429

Service charges on deposit accounts

2,861

2,928

3,028

2,969

2,883

Credit card merchant fees, net

1,183

1,298

1,563

1,443

1,168

Bank owned life insurance

1,598

2,014

1,657

1,633

1,532

Other income

3,157

3,824

4,130

3,448

2,941

Gain/(loss) on investment securities

(776

)

3

Total noninterest income

46,381

42,209

49,217

50,235

49,932

NONINTEREST EXPENSE:

Salaries and employee benefits

52,860

50,233

50,497

50,324

50,784

Occupancy expense

8,251

7,352

7,013

6,802

6,477

Furniture and equipment

3,371

3,587

3,646

3,546

3,698

Other expenses

27,641

21,165

27,106

28,549

31,344

Total noninterest expense

92,123

82,337

88,262

89,221

92,303

Income before income tax expense and noncontrolling interest

40,293

46,788

48,411

44,781

32,020

Provision for income tax expense

8,211

10,348

9,159

8,643

6,077

Net income

32,082

36,440

39,252

36,138

25,943

Net income attributable to noncontrolling interest

(673

)

(450

)

(959

)

(1,334

)

(1,238

)

Net income attributable to TowneBank

$

31,409

$

35,990

$

38,293

$

34,804

$

24,705

Per common share information

Basic earnings

$

0.44

$

0.50

$

0.53

$

0.48

$

0.36

Diluted earnings

$

0.44

$

0.50

$

0.53

$

0.48

$

0.36

Basic weighted average shares outstanding

71,992,330

71,905,956

71,875,085

71,787,980

68,983,745

Diluted weighted average shares outstanding

72,099,558

$

72,043,369

72,044,355

71,949,590

69,156,809

Cash dividends declared

$

0.16

$

0.16

$

0.16

$

0.16

$

0.14


TOWNEBANK

Banking Segment Financial Information (unaudited)

(dollars in thousands)

Three Months Ended

Increase/(Decrease)

March 31,

December 31,

2019 over 2018

2019

2018

2018

Amount

Percent

Revenue

Net interest income

$

86,400

$

74,042

$

86,433

$

12,358

16.69

%

Noninterest income

Service charges on deposit accounts

2,861

2,883

2,928

(22

)

(0.76

)%

Credit card merchant fees

1,183

1,168

1,298

15

1.28

%

Other income

3,927

3,956

4,660

(29

)

(0.73

)%

Subtotal

7,971

8,007

8,886

(36

)

(0.45

)%

Gain/(loss) on investment securities

(776

)

3

(779

)

N/M

Total noninterest income

7,195

8,010

8,886

(815

)

(10.17

)%

Total revenue

93,595

82,052

95,319

11,543

14.07

%

Provision for loan losses

1,438

1,953

2,292

(515

)

(26.37

)%

Expenses

Salaries and employee benefits

31,087

30,202

28,100

885

2.93

%

Occupancy expense

5,244

4,016

4,789

1,228

30.58

%

Furniture and equipment

2,367

2,532

2,426

(165

)

(6.52

)%

Amortization of intangibles

1,366

1,221

1,428

145

11.88

%

Other expenses

16,181

20,748

9,759

(4,567

)

(22.01

)%

Total expenses

56,245

58,719

46,502

(2,474

)

(4.21

)%

Income before income tax, corporate allocation and noncontrolling interest

35,912

21,380

46,525

14,532

67.97

%

Corporate allocation

452

456

367

(4

)

(0.88

)%

Income before income tax provision and noncontrolling interest

36,364

21,836

46,892

14,528

66.53

%

Provision for income tax expense

7,192

3,881

10,252

3,311

85.31

%

Net income

29,172

17,955

36,640

11,217

62.47

%

Noncontrolling interest

2

(2

)

4

4

N/M

Net income attributable to TowneBank

$

29,174

$

17,953

$

36,644

$

11,221

62.50

%

Efficiency ratio

59.60

%

71.57

%

48.79

%

(11.97

)%

(16.72

)%


TOWNEBANK

Realty Segment Financial Information (unaudited)

(dollars in thousands)

Three Months Ended

Increase/(Decrease)

March 31,

December 31,

2019 over 2018

2019

2018

2018

Amount

Percent

Revenue

Residential mortgage brokerage income, net

$

13,756

$

17,661

$

13,472

$

(3,905

)

(22.11

)%

Real estate brokerage income, net

1,561

1,698

2,183

(137

)

(8.07

)%

Title insurance and settlement fees

368

315

458

53

16.83

%

Property management fees, net

7,708

8,731

3,799

(1,023

)

(11.72

)%

Income from unconsolidated subsidiary

94

94

54

%

Net interest and other income

1,372

2,546

3,210

(1,174

)

(46.11

)%

Total revenue

24,859

31,045

23,176

(6,186

)

(19.93

)%

Expenses

Salaries and employee benefits

12,895

13,877

14,308

(982

)

(7.08

)%

Occupancy expense

2,345

1,894

1,928

451

23.81

%

Furniture and equipment

768

980

930

(212

)

(21.63

)%

Amortization of intangible assets

725

672

767

53

7.89

%

Other expenses

6,241

6,294

6,419

(53

)

(0.84

)%

Total expenses

22,974

23,717

24,352

(743

)

(3.13

)%

Income/(loss) before income tax, corporate allocation and noncontrolling interest

1,885

7,328

(1,176

)

(5,443

)

(74.28

)%

Corporate allocation

(263

)

(289

)

(238

)

26

(9.00

)%

Income before income tax provision and noncontrolling interest

1,622

7,039

(1,414

)

(5,417

)

(76.96

)%

Provision for income tax expense

551

1,559

(86

)

(1,008

)

(64.66

)%

Net income/(loss)

1,071

5,480

(1,328

)

(4,409

)

(80.46

)%

Noncontrolling interest

(252

)

(622

)

(130

)

370

(59.49

)%

Net income/(loss) attributable to TowneBank

$

819

$

4,858

$

(1,458

)

$

(4,039

)

(83.14

)%

Efficiency ratio

92.42

%

76.40

%

105.07

%

16.02

%

20.97

%


TOWNEBANK

Insurance Segment Financial Information (unaudited)

(dollars in thousands)

Three Months Ended

Increase/(Decrease)

March 31,

December 31,

2019 over 2018

2019

2018

2018

Amount

Percent

Commission and fee income

Property and casualty

$

11,873

$

9,356

$

9,770

$

2,517

26.90

%

Employee benefits

3,506

3,196

3,625

310

9.70

%

Travel insurance

1,289

1,768

1,095

(479

)

(27.09

)%

Specialized benefit services

170

169

168

1

0.59

%

Total commissions and fees

16,838

14,489

14,658

2,349

16.21

%

Contingency and bonus revenue

1,585

1,133

1,185

452

39.89

%

Other income

75

70

79

5

7.14

%

Total revenue

18,498

15,692

15,922

2,806

17.88

%

Employee commission expense

3,098

2,513

3,000

585

23.28

%

Revenue, net of commission expense

15,400

13,179

12,922

2,221

16.85

%

Salaries and employee benefits

8,878

6,705

7,825

2,173

32.41

%

Occupancy expense

662

567

635

95

16.75

%

Furniture and equipment

236

185

231

51

27.57

%

Amortization of intangible assets

1,101

702

928

399

56.84

%

Other expenses

2,027

1,708

1,865

319

18.68

%

Total operating expenses

12,904

9,867

11,484

3,037

30.78

%

Income before income tax, corporate allocation and noncontrolling interest

2,496

3,312

1,438

(816

)

(24.64

)%

Corporate allocation

(189

)

(167

)

(128

)

(22

)

13.17

%

Income before income tax provision and noncontrolling interest

2,307

3,145

1,310

(838

)

(26.65

)%

Provision for income tax expense

468

637

182

(169

)

(26.53

)%

Net income

1,839

2,508

1,128

(669

)

(26.67

)%

Noncontrolling interest

(423

)

(614

)

(324

)

191

(31.11

)%

Net income attributable to TowneBank

$

1,416

$

1,894

$

804

$

(478

)

(25.24

)%

Provision for income taxes

468

637

182

(169

)

(26.53

)%

Depreciation, amortization and interest expense

1,333

906

1,152

427

47.13

%

EBITDA

$

3,217

$

3,437

$

2,138

$

(220

)

(6.40

)%

Efficiency ratio

83.79

%

74.87

%

88.87

%

8.92

%

11.91

%


TOWNEBANK

Reconcilement of Non-GAAP Financial Measures

Three Months Ended

March 31,

March 31,

December 31,

2019

2018

2018

Return on average assets (GAAP)

1.14

%

1.02

%

1.28

%

Impact of excluding average goodwill and other intangibles and amortization

0.15

%

0.13

%

0.15

%

Return on average tangible assets (non-GAAP)

1.29

%

1.15

%

1.43

%

Return on average equity (GAAP)

8.24

%

7.39

%

9.44

%

Impact of excluding average goodwill and other intangibles and amortization

5.00

%

4.25

%

5.47

%

Return on average tangible equity (non-GAAP)

13.24

%

11.64

%

14.91

%

Return on average common equity (GAAP)

8.30

%

7.45

%

9.53

%

Impact of excluding average goodwill and other intangibles and amortization

5.09

%

4.32

%

5.58

%

Return on average tangible common equity (non-GAAP)

13.39

%

11.77

%

15.11

%

Book value (GAAP)

$

21.40

$

19.90

$

21.05

Impact of excluding average goodwill and other intangibles and amortization

(6.94

)

(6.56

)

(6.79

)

Tangible book value (non-GAAP)

$

14.46

$

13.34

$

14.26


TOWNEBANK

Reconcilement of Non-GAAP Financial Measures

(dollars in thousands, except per share data)

Reconcilement of GAAP Earnings to Operating Earnings Excluding Certain Items Affecting Comparability

Three Months Ended

March 31,

December 31,

September 30,

June 30,

March 31,

2018

2018

2018

2018

2018

Net income (GAAP)

$

31,409

$

35,990

$

38,293

$

34,804

$

24,705

Acquisition-related expenses

411

(1,518

)

424

797

8,726

Income tax expense -tax reform legislation

696

Income tax expense (benefit) - other items

(52

)

355

(44

)

(93

)

(1,639

)

Income tax expense (benefit)

(52

)

1,051

(44

)

(93

)

(1,639

)

Total charges, net of taxes

359

(467

)

380

704

7,087

Operating earnings, excluding certain items affecting
comparability (non-GAAP)

$

31,768

$

35,523

$

38,673

$

35,508

$

31,792

Weighted average diluted shares

72,099,558

72,043,369

72,044,355

71,949,590

69,156,809

Diluted EPS (GAAP)

$

0.44

$

0.50

$

0.53

$

0.48

$

0.36

Diluted EPS, excluding certain items affecting
comparability (non-GAAP)

$

0.44

$

0.49

$

0.54

$

0.49

$

0.46

Average assets

$

11,194,753

$

11,149,960

$

10,844,570

$

10,536,847

$

9,848,364

Average tangible equity

$

1,039,630

$

1,022,982

$

1,003,151

$

981,607

$

932,161

Return on average assets, excluding certain items
affecting comparability (non-GAAP)

1.15

%

1.26

%

1.41

%

1.35

%

1.31

%

Return on average tangible equity, excluding certain items affecting comparability (non-GAAP)

13.38

%

14.73

%

16.23

%

15.48

%

14.72

%

Return on average common tangible equity, excluding certain items affecting comparability (non-GAAP)

13.53

%

14.93

%

16.45

%

15.66

%

14.89

%

Efficiency ratio, excluding certain items affecting
comparability (non-GAAP)

68.12

%

63.81

%

63.69

%

64.52

%

66.19

%