TowneBank Reports Full Year and Fourth Quarter financial Results for 2019

20th Consecutive Year of Earnings Improvement

SUFFOLK, Va., Jan. 23, 2020 (GLOBE NEWSWIRE) -- TowneBank (the “Company”) (TOWN) today reported financial results for the full year and the fourth quarter ended December 31, 2019. For the year ended December 31, 2019, earnings were $138.78 million, or $1.92 per diluted share, compared to $133.79 million, or $1.88 per diluted share for the year ended December 31, 2018. Earnings in the fourth quarter of 2019 were $35.08 million, or $0.49 per diluted share, compared to fourth quarter 2018 earnings of $35.99 million, or $0.50 per diluted share.

“In spite of downward pressure on interest rates our Company grew total revenues by 6% climbing to a record $564 million. Our continued focus on attracting noninterest bearing deposits produced an increase of 13% or $328 million during the year and represents approximately 32% of our total deposits. We are excited about the momentum we are building in North Carolina with our newest office in Greensboro recently opened and several new sites planned for the Charlotte market in 2020,” said G. Robert Aston, Jr., Executive Chairman.

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

  • Total revenues were $139.67 million, an increase of $8.25 million, or 6.28%.

  • Loans held for investment increased $401.06 million, or 5.00%, from December 31, 2018, and $236.46 million, or 2.89%, from September 30, 2019, or 11.46% on an annualized basis.

  • Total deposits were $9.27 billion, an increase of $0.90 billion, or 10.76%, compared to prior year but a decrease, due to expected runoff and seasonality, of $0.17 billion, or 1.77%, from September 30, 2019, or a decline of 7.02% on an annualized basis.

  • Noninterest bearing deposits increased by 12.52%, to $2.95 billion, representing 31.83% of total deposits. Compared to the linked quarter, noninterest bearing deposits decreased 2.62%, or 10.38% on an annualized basis.

  • In the quarter comparison, annualized return on average common shareholders' equity was 8.51% and annualized return on average tangible common shareholders' equity was 13.12% (non-GAAP). For the full 12 months, return on average common shareholders' equity was 8.75% and return on average tangible common shareholders' equity was 13.73% (non-GAAP).

  • Net interest margin of 3.33% and taxable equivalent net interest margin of 3.35% (non-GAAP).

  • Effective tax rate of 18.17% compared to 22.33% at December 31, 2018.

“We ended 2019 on a positive note with a strong loan growth across our footprint. We are excited about the planned expansion in North Carolina and opportunities to add Banking, Wealth Management, Mortgage and Insurance talent in each of the markets we serve. 2020 will be an exciting year as we implement a state of the art banking platform to better serve the needs of our members,” said J. Morgan Davis, President and Chief Executive Officer.

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

  • Net interest income was $89.96 million compared to $89.21 million for the quarter ended December 31, 2018.

  • Taxable equivalent net interest margin was 3.35%, including accretion of 9 basis points, compared to 3.55%, including accretion of 12 basis points, for 2018.

  • Average loans held for investment, with an average yield of 4.81%, represented 77.25% of average earning assets in the fourth quarter of 2019 compared to an average yield of 5.00% and 79.04% of average earning assets in the fourth quarter of 2018.

  • Total cost of deposits increased to 0.92% from 0.83% at December 31, 2018.

  • Average interest-earning assets totaled $10.72 billion at December 31, 2019 compared to $10.02 billion at December 31, 2018, an increase of 6.96%.

  • Average interest-bearing liabilities totaled $7.06 billion, an increase of $0.23 billion from the prior year.

  • Total interest expense increased 5.65%, to $26.52 million in fourth quarter 2019 compared to $25.10 million in fourth quarter 2018, but decreased $2.02 million, or 7.07%, compared to the linked quarter. The average cost of deposits declined in fourth quarter 2019 after peaking in the third quarter.

Quarterly Provision for Loan Losses:

  • Recorded a provision for loan losses of $3.60 million compared to $2.29 million one year ago and $1.51 million in the linked quarter, driven by strong fourth quarter 2019 growth.

  • Net charge-offs were $0.80 million compared to $0.43 million one year prior. The ratio of net charge-offs to average loans on an annualized basis was 0.04% compared to 0.03% in the prior quarter and 0.02% for the fourth quarter of 2018.

  • The allowance for loan losses represented 0.69% of total loans compared to 0.68% at September 30, 2019 and 0.65% at December 31, 2018. Loan loss reserve as a percentage of total loans, excluding purchased loans, remained unchanged at 0.81%, from September 30, 2019, and decreased from 0.82% at December 31, 2018. The allowance for loan losses was 3.34 times nonperforming loans compared to 3.95 times at September 30, 2019 and 10.97 times at December 31, 2018.

Quarterly Noninterest Income Compared to the Fourth Quarter of 2018:

  • Total noninterest income was $49.71 million compared to $42.21 million in 2018, an increase of $7.50 million, or 17.78%. Residential mortgage brokerage income increased $2.93 million, insurance commissions increased $1.79 million, and real estate brokerage and property management income increased $0.76 million.

  • Residential mortgage banking income was $15.88 million compared to $12.95 million in fourth quarter 2018. Loan volume in the current quarter was $860.16 million, with purchase activity comprising 70.32%. Loan volume in fourth quarter 2018 was $600.07 million, with purchase activity of 88.64%. Loan volume in the linked quarter was $963.66 million with purchase activity of 68.83%.

  • Total Insurance segment revenue increased $3.96 million, or 24.88%, to $19.88 million in the fourth quarter of 2019. Revenue generated by insurance agencies acquired in January 2019 and September 2019 totaled $1.40 million in the fourth quarter of 2019.

  • Property management fee revenue increased 10.21%, or $0.39 million, as compared to fourth quarter 2018 due to increases in reservation levels.

  • Bank owned life insurance and other noninterest income increased $2.62 million, or 44.84%, as compared to fourth quarter 2018 due to proceeds from life insurance policies and investment commission income.

Quarterly Noninterest Expense Compared to the Fourth Quarter of 2018:

  • Total noninterest expense was $92.34 million compared to $82.34 million, an increase of $10.00 million, or 12.14%. This reflects increases of $5.78 million in salary and benefits expense, $0.96 million in professional fees expense, and $0.29 million in advertising and marketing expenses.

  • The Bank recorded small bank assessment credits from the FDIC of $1.66 million in the fourth quarter of 2019.

  • In addition to growth in production related expenses, changing industry standards and increased regulatory expectations related to exceeding $10 billion in assets, have resulted in enhancements to Company infrastructure, resulting in increased salary and benefits expense and professional fees. Areas of enhancement include: information technology, risk and compliance, accounting, and internal audit.

Quarterly Income Taxes Compared to the Fourth Quarter of 2018:

  • Income tax expense was $7.79 million compared to $10.35 million, one year prior. This represents an effective tax rate of 18.17% compared to 22.33% in the fourth quarter of 2018.

Consolidated Balance Sheet December 31, 2019 Compared to December 31, 2018

  • Total assets were $11.95 billion for the quarter ended December 31, 2019, an increase of 7.03%, compared to $11.16 billion at December 31, 2018. This increase was driven primarily by growth in available for sale securities, mortgage loans held for sale, and loans held for investment. Year-over-year, other assets increased $47.52 million due to the adoption of the leasing standard.

  • Loans held for investment increased $0.40 billion, or 5.00% compared to year end 2018.

  • Total deposits increased $0.90 billion, or 10.76%, over December 31, 2018.

  • Total borrowings declined $0.32 billion, or 29.41%, from December 31, 2018.

Investment Securities:

  • Total investment securities were $1.52 billion compared to $1.41 billion at September 30, 2019 and $1.19 billion at December 31, 2018. The weighted average duration of the portfolio at December 31, 2019 was 3.90 years.

Loans and Asset Quality:

  • Total loans held for investment were $8.42 billion at December 31, 2019 compared to $8.18 billion at September 30, 2019 and $8.02 billion at December 31, 2018.

  • Nonperforming assets were $32.80 million, or 0.27% of total assets, compared to $24.17 million, or 0.22% of total assets, at December 31, 2018.

  • Nonperforming loans were 0.21% of period end loans.

  • Foreclosed property decreased to $13.84 million from $17.16 million at December 31, 2018.

Deposits and Borrowings:

  • Total deposits were $9.27 billion compared to $9.44 billion at September 30, 2019 and $8.37 billion at December 31, 2018.

  • Total loans to total deposits were 90.81% compared to 86.70% at September 30, 2019 and 95.79% at December 31, 2018.

  • Non-interest bearing deposits were 31.83% of total deposits at December 31, 2019 compared to 32.11% at September 30, 2019 and 31.33% at December 31, 2018. Non-interest bearing deposits experienced typical seasonality during the fourth quarter.

  • Total borrowings were $0.77 billion compared to $0.67 billion and $1.09 billion at September 30, 2019 and December 31, 2018, respectively.

Capital:

  • Common equity tier 1 capital ratio of 11.45%.

  • Tier 1 leverage capital ratio of 9.95%.

  • Tier 1 risk-based capital ratio of 11.49%.

  • Total risk-based capital ratio of 14.58%.

  • Book value was $22.58 compared to $22.38 at September 30, 2019 and $21.05 at December 31, 2018.

  • Tangible book value was $15.69 compared to $15.44 at September 30, 2019 and $14.26 at December 31, 2018.

Current Expected Credit Losses ("CECL"):
Effective January 1, 2020, we adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. We currently estimate our loss reserves may increase up to 10% upon the finalization of our adoption of the new ASU.

This increase is driven by:

  • The change in the timing of potential loss recognition from an incurred loss methodology to an expected loss methodology on loans and off-balance sheet commitments,

  • the establishment of life-of-asset loss reserves,

  • the change in accounting for purchased assets,

  • utilization of reasonable and supportable forecasts.

Outlook:
Management reforecasts on a quarterly basis and anticipates:

  • Annual loan growth to be in the mid-single digits in 2020.

  • Our quarterly noninterest expense run rate will range between $94 - $97 million for 2020.

Annual Meeting of Shareholders:
TowneBank will hold its 2020 Annual Meeting of Shareholders at 11:30 a.m. on Wednesday, May 20, 2020 at the Virginia Beach Convention Center, 1000 19th Street in Virginia Beach, Virginia.

About TowneBank:
As one of the top community banks in Virginia and North Carolina, TowneBank operates 42 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, Greensboro, Greenville, Moyock, 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 $11.95 billion as of December 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 accounting principles generally accepted in the United States of America ("GAAP"). The Company's management uses these non-GAAP financial measures in their 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. Since the presentation of these GAAP performance measures and their impact differ between companies, 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 areas; 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

December 31,

September 30,

June 30,

March 31,

December 31,

2019

2019

2019

2019

2018

Income and Performance Ratios:

Total Revenue

$

139,671

$

145,879

$

144,537

$

133,854

$

131,417

Net income

35,948

39,400

36,242

32,082

36,440

Net income attributable to TowneBank

35,075

37,659

34,638

31,409

35,990

Net income per common share - diluted

0.49

0.52

0.48

0.44

0.50

Book value per common share

22.58

22.38

21.95

21.40

21.05

Book value per share - tangible (non-GAAP)

15.69

15.44

15.05

14.46

14.26

Return on average assets

1.16

%

1.26

%

1.20

%

1.14

%

1.28

%

Return on average assets - tangible (non-GAAP)

1.30

%

1.40

%

1.35

%

1.29

%

1.43

%

Return on average equity

8.44

%

9.22

%

8.83

%

8.24

%

9.44

%

Return on average equity - tangible (non-GAAP)

12.97

%

14.20

%

13.90

%

13.24

%

14.91

%

Return on average common equity

8.51

%

9.29

%

8.89

%

8.30

%

9.53

%

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

13.12

%

14.36

%

14.05

%

13.39

%

15.11

%

Noninterest income as a percentage of total revenue

35.59

%

37.55

%

37.86

%

34.65

%

32.12

%

Regulatory Capital Ratios (1):

Common equity tier 1

11.45

%

11.52

%

11.58

%

11.49

%

11.51

%

Tier 1

11.49

%

11.55

%

11.62

%

11.52

%

11.54

%

Total

14.58

%

14.70

%

14.85

%

14.79

%

14.83

%

Tier 1 leverage ratio

9.95

%

9.84

%

9.86

%

9.92

%

9.87

%

Asset Quality:

Allowance for loan losses to nonperforming loans

3.34

x

3.95

x

3.00

x

9.36

x

10.97

x

Allowance for loan losses to period end loans

0.69

%

0.68

%

0.67

%

0.66

%

0.65

%

Allowance for loan losses to period end loans excluding purchased loans

0.81

%

0.81

%

0.81

%

0.81

%

0.82

%

Nonperforming loans to period end loans

0.21

%

0.17

%

0.22

%

0.07

%

0.06

%

Nonperforming assets to period end assets

0.27

%

0.26

%

0.29

%

0.22

%

0.22

%

Net charge-offs to average loans (annualized)

0.04

%

0.03

%

0.08

%

0.01

%

0.02

%

Nonperforming loans

$

17,437

$

14,016

$

18,202

$

5,696

$

4,749

Former bank premises

1,521

1,510

1,510

2,223

2,253

Foreclosed property

13,839

15,517

14,517

17,071

17,163

Total nonperforming assets

$

32,797

$

31,043

$

34,229

$

24,990

$

24,165

Loans past due 90 days and still accruing interest

$

309

$

636

$

415

$

117

$

394

Allowance for loan losses

$

58,234

$

55,428

$

54,527

$

53,303

$

52,094

Mortgage Banking:

Loans originated, mortgage

$

628,279

$

703,922

$

574,638

$

366,643

$

407,787

Loans originated, joint venture

231,879

259,742

246,491

146,884

192,280

Total loans originated

$

860,158

$

963,664

$

821,129

$

513,527

$

600,067

Number of loans originated

2,984

3,360

3,121

1,977

2,304

Number of originators

228

225

229

240

293

Purchase %

70.32

%

68.83

%

84.97

%

86.08

%

88.64

%

Loans sold

$

879,910

$

925,058

$

694,832

$

473,068

$

694,341

Gross realized gain on sales and fees as a % of loans originated

3.38

%

3.45

%

3.43

%

3.58

%

3.37

%

Other Ratios:

Net interest margin

3.33

%

3.41

%

3.49

%

3.54

%

3.53

%

Net interest margin-fully tax equivalent (non-GAAP)

3.35

%

3.43

%

3.52

%

3.57

%

3.55

%

Average earning assets/total average assets

89.57

%

89.53

%

89.46

%

89.50

%

89.91

%

Average loans/average deposits

88.41

%

87.63

%

91.60

%

95.83

%

95.32

%

Average noninterest deposits/total average deposits

32.14

%

31.82

%

31.63

%

31.39

%

31.90

%

Period end equity/period end total assets

13.84

%

13.63

%

13.45

%

13.53

%

13.78

%

Efficiency ratio

66.11

%

66.66

%

66.80

%

68.43

%

62.65

%

(1) Current reporting period regulatory capital ratios are preliminary.


TOWNEBANK

Selected Data (unaudited)

(dollars in thousands)

Investment Securities

% Change

Q4

Q4

Q3

Q4 19 vs.

Q4 19 vs.

Available-for-sale securities, at fair value

2019

2018

2019

Q4 18

Q3 19

U.S. agency securities

$

129,038

$

358,542

$

152,581

(64.01

)%

(15.43

)%

U.S. Treasury notes

1,000

1,246

999

(19.74

)%

0.10

%

Municipal securities

223,106

87,308

173,519

155.54

%

28.58

%

Trust preferred and other corporate securities

53,367

30,992

52,006

72.20

%

2.62

%

Mortgage-backed securities issued by GSE and GNMA

1,034,797

617,251

958,290

67.65

%

7.98

%

Total

$

1,441,308

$

1,095,339

$

1,337,395

31.59

%

7.77

%

Gross unrealized gains (losses) reflected in financial statements

Total gross unrealized gains

$

23,950

$

3,423

$

28,114

599.68

%

(14.81

)%

Total gross unrealized losses

(4,215

)

(15,333

)

(2,046

)

(72.51

)%

106.01

%

Net unrealized gain (loss) on AFS securities

$

19,735

$

(11,910

)

$

26,068

(265.70

)%

(24.29

)%

Held-to-maturity securities, at amortized cost

Municipal securities

$

29,167

$

34,488

$

29,166

(15.43

)%

%

Trust preferred corporate securities

2,369

500

2,381

373.80

%

(0.50

)%

Mortgage-backed securities issued by GSE and GNMA

12,152

15,610

12,947

(22.15

)%

(6.14

)%

Total

$

43,688

$

50,598

$

44,494

(13.66

)%

(1.81

)%

Gross unrealized gains (losses) not reflected in financial statements

Total gross unrealized gains

$

1,520

$

1,271

$

1,688

19.59

%

(9.95

)%

Total gross unrealized losses

(37

)

(601

)

(5

)

(93.84

)%

640.00

%

Net unrealized gain (loss) on HTM securities

$

1,483

$

670

$

1,683

121.34

%

(11.88

)%

Loans Held For Investment

% Change

Q4

Q4

Q3

Q4 19 vs.

Q4 19 vs.

2019

2018

2019

Q4 18

Q3 19

Real estate - construction and development

$

1,120,533

$

1,067,239

$

1,142,225

4.99

%

(1.90

)%

Commercial real estate - investment related properties

2,183,232

1,978,592

2,070,317

10.34

%

5.45

%

Commercial real estate - owner occupied

1,329,144

1,262,748

1,286,137

5.26

%

3.34

%

Real estate - multifamily

243,041

260,987

219,901

(6.88

)%

10.52

%

Real estate - residential 1-4 family

1,653,084

1,626,896

1,621,175

1.61

%

1.97

%

Commercial and industrial business

1,574,275

1,510,364

1,527,515

4.23

%

3.06

%

Consumer and other loans

315,979

311,407

315,559

1.47

%

0.13

%

Total

$

8,419,288

$

8,018,233

$

8,182,829

5.00

%

2.89

%

Deposits

% Change

Q4

Q4

Q3

Q4 19 vs.

Q4 19 vs.

2019

2018

2019

Q4 18

Q3 19

Noninterest-bearing demand

$

2,951,225

$

2,622,761

$

3,030,505

12.52

%

(2.62

)%

Interest-bearing:

Demand and money market accounts

3,586,364

3,223,215

3,534,252

11.27

%

1.47

%

Savings

276,205

286,684

280,552

(3.66

)%

(1.55

)%

Certificates of deposits

2,457,123

2,237,762

2,592,705

9.80

%

(5.23

)%

Total

$

9,270,917

$

8,370,422

$

9,438,014

10.76

%

(1.77

)%


TOWNEBANK

Average Balances, Yields and Rate Paid (unaudited)

(dollars in thousands)

Three Months Ended

Three Months Ended

Three Months Ended

December 31, 2019

September 30, 2019

December 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

$

8,283,388

$

100,504

4.81

%

$

8,096,908

$

102,495

5.02

%

$

7,923,978

$

99,895

5.00

%

Taxable investment securities

1,331,175

9,179

2.76

%

1,266,447

9,087

2.87

%

1,101,892

7,515

2.73

%

Tax-exempt investment securities

118,298

908

3.07

%

121,738

997

3.28

%

80,656

747

3.70

%

Total securities

1,449,473

10,087

2.78

%

1,388,185

10,084

2.91

%

1,182,548

8,262

2.79

%

Interest-bearing deposits

519,737

2,067

1.58

%

711,030

3,745

2.09

%

652,131

3,559

2.17

%

Loans held for sale

469,725

4,413

3.76

%

408,377

3,956

3.87

%

266,058

3,176

4.77

%

Total earning assets

10,722,323

117,071

4.33

%

10,604,500

120,280

4.50

%

10,024,715

114,892

4.55

%

Less: allowance for loan losses

(56,766

)

(54,858

)

(50,792

)

Total nonearning assets

1,305,036

1,295,640

1,176,037

Total assets

$

11,970,593

$

11,845,282

$

11,149,960

Liabilities and Equity:

Interest-bearing deposits

Demand and money market

$

3,533,912

$

6,421

0.72

%

$

3,379,888

$

7,223

0.85

%

$

3,122,973

$

5,670

0.72

%

Savings

278,910

638

0.91

%

278,048

702

1.00

%

293,135

1,022

1.38

%

Certificates of deposit

2,544,845

14,685

2.29

%

2,641,681

15,627

2.35

%

2,245,039

10,803

1.91

%

Total interest-bearing deposits

6,357,667

21,744

1.36

%

6,299,617

23,552

1.48

%

5,661,147

17,495

1.23

%

Borrowings

454,621

1,810

1.56

%

486,644

2,020

1.62

%

920,389

4,643

1.97

%

Subordinated debt, net

248,361

2,962

4.77

%

248,210

2,962

4.77

%

247,769

2,961

4.78

%

Total interest-bearing liabilities

7,060,649

26,516

1.49

%

7,034,471

28,534

1.61

%

6,829,305

25,099

1.46

%

Demand deposits

3,011,688

2,940,370

2,651,495

Other noninterest-bearing liabilities

250,327

250,371

157,238

Total liabilities

10,322,664

10,225,212

9,638,038

Shareholders’ equity

1,647,929

1,620,070

1,511,922

Total liabilities and equity

$

11,970,593

$

11,845,282

$

11,149,960

Net interest income (tax-equivalent basis)

$

90,555

$

91,746

$

89,793

Reconcilement of Non-GAAP Financial Measures

Tax-equivalent basis adjustment

(596

)

(643

)

(585

)

Net interest income (GAAP)

$

89,959

$

91,103

$

89,208

Interest rate spread (1)(3)

2.84

%

2.89

%

3.09

%

Interest expense as a percent of average earning assets

0.98

%

1.07

%

0.99

%

Net interest margin (tax equivalent basis) (2)(3)

3.35

%

3.43

%

3.55

%

Total cost of deposits

0.92

%

1.01

%

0.83

%

(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.

(3) Non-GAAP.


TOWNEBANK

Average Balances, Yields and Rate Paid (unaudited)

(dollars in thousands)

Year Ended December 31,

2019

2018

2017

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

$

8,122,210

$

405,511

4.99

%

$

7,567,570

$

373,057

4.93

%

$

5,901,797

$

276,747

4.69

%

Taxable investment securities

1,202,107

34,141

2.84

%

1,004,080

24,729

2.46

%

600,080

11,597

1.93

%

Tax-exempt investment securities

102,731

3,426

3.34

%

79,720

2,920

3.66

%

48,228

1,590

3.28

%

Total securities

1,304,838

37,567

2.88

%

1,083,800

27,649

2.55

%

648,308

13,187

2.03

%

Interest-bearing deposits

665,903

13,825

2.08

%

560,368

10,229

1.83

%

696,507

7,480

1.07

%

Mortgage loans held for sale

335,588

13,379

3.99

%

293,017

13,124

4.48

%

271,281

10,561

3.89

%

Total earning assets

10,428,539

470,282

4.51

%

9,504,755

424,059

4.46

%

7,517,893

307,975

4.10

%

Less: allowance for loan losses

(54,476

)

(48,737

)

(43,760

)

Total nonearning assets

1,264,363

1,143,167

860,866

Total assets

$

11,638,426

$

10,599,185

$

8,334,999

Liabilities and Equity:

Interest-bearing deposits

Demand and money market

$

3,351,135

$

26,909

0.80

%

$

2,951,038

$

16,458

0.56

%

$

2,260,378

$

8,020

0.35

%

Savings

280,894

3,296

1.17

%

302,435

3,824

1.26

%

319,940

3,305

1.03

%

Certificates of deposit

2,478,663

56,050

2.26

%

2,060,587

32,859

1.59

%

1,668,252

17,467

1.05

%

Total interest-bearing deposits

6,110,692

86,255

1.41

%

5,314,060

53,141

1.00

%

4,248,570

28,792

0.68

%

Borrowings

609,142

11,368

1.84

%

897,574

15,542

1.71

%

617,720

9,942

1.61

%

Subordinated debt, net

248,139

11,847

4.77

%

251,097

12,067

4.81

%

113,752

5,249

4.61

%

Total interest-bearing liabilities

6,967,973

109,470

1.57

%

6,462,731

80,750

1.25

%

4,980,042

43,983

0.88

%

Demand deposits

2,844,178

2,517,173

2,094,753

Other noninterest-bearing liabilities

228,994

164,486

136,616

Total liabilities

10,041,145

9,144,390

7,211,411

Shareholders' equity

1,597,281

1,454,795

1,123,588

Total liabilities and equity

$

11,638,426

$

10,599,185

$

8,334,999

Net interest income (tax-equivalent basis)

$

360,812

$

343,309

$

263,992

Reconcilement of Non-GAAP Financial Measures

Tax-equivalent basis adjustment

(2,457

)

(2,236

)

(2,871

)

Net interest income (GAAP)

$

358,355

$

341,073

$

261,121

Interest rate spread (1)(3)

2.94

%

3.21

%

3.22

%

Interest expense as a percent of average earning assets

1.05

%

0.85

%

0.59

%

Net interest margin (tax-equivalent basis) (2)(3)

3.46

%

3.61

%

3.51

%

Total cost of deposits

0.96

%

0.68

%

0.45

%

(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.

(3) Non-GAAP.


TOWNEBANK

Consolidated Balance Sheets

(dollars in thousands, except per share data)

2019

2018

(unaudited)

(audited)

ASSETS

Cash and due from banks

$

97,593

$

94,604

Interest-bearing deposits at Federal Reserve Bank

322,505

570,425

Interest-bearing deposits in financial institutions

22,518

21,667

Total Cash and Cash Equivalents

442,616

686,696

Securities available for sale, at fair value

1,441,308

1,095,339

Securities held to maturity, at amortized cost

43,688

50,598

Other equity securities

6,462

4,797

Federal Home Loan Bank stock

30,094

43,229

Total Securities

1,521,552

1,193,963

Mortgage loans held for sale

419,233

220,986

Loans, net of unearned income and deferred costs

8,419,288

8,018,233

Less: allowance for loan losses

(58,234

)

(52,094

)

Net Loans

8,361,054

7,966,139

Premises and equipment, net

231,806

211,796

Goodwill

446,816

433,658

Other intangible assets, net

54,399

58,752

Bank-owned life insurance policies

243,062

237,371

Other assets

227,125

153,669

TOTAL ASSETS

$

11,947,663

$

11,163,030

LIABILITIES AND EQUITY

Deposits:

Noninterest-bearing demand

$

2,951,225

$

2,622,761

Interest-bearing:

Demand and money market accounts

3,586,364

3,223,215

Savings

276,205

286,684

Certificates of deposit

2,457,123

2,237,762

Total Deposits

9,270,917

8,370,422

Advances from the Federal Home Loan Bank

471,687

799,315

Subordinated debt, net

248,458

247,861

Repurchase agreements and other borrowings

52,391

47,156

Total Borrowings

772,536

1,094,332

Other liabilities

250,516

159,856

TOTAL LIABILITIES

10,293,969

9,624,610

Preferred stock

Authorized and unissued shares - 2,000,000

Common stock, $1.667 par: Authorized shares - 150,000,000

Issued and outstanding shares 72,649,682 in 2019 and 72,465,923 in 2018

121,107

120,801

Capital surplus

1,041,160

1,034,676

Retained earnings

467,186

379,239

Common stock issued to deferred compensation trust, at cost

818,578 shares in 2019 and 769,200 shares in 2018

(15,555

)

(13,955

)

Deferred compensation trust

15,555

13,955

Accumulated other comprehensive income (loss)

11,302

(9,190

)

TOTAL SHAREHOLDERS’ EQUITY

1,640,755

1,525,526

Noncontrolling interest

12,939

12,894

TOTAL EQUITY

1,653,694

1,538,420

TOTAL LIABILITIES AND EQUITY

$

11,947,663

$

11,163,030


TOWNEBANK

Consolidated Statements of Income

(dollars in thousands, except per share data)

Three Months Ended

Twelve Months Ended

December 31,

December 31,

2019

2018

2019

2018

(unaudited)

(unaudited)

(unaudited)

(audited)

INTEREST INCOME:

Loans, including fees

$

100,059

$

99,446

$

403,675

$

371,343

Investment securities

9,936

8,126

36,946

27,127

Interest-bearing deposits in financial institutions and federal funds sold

2,067

3,559

13,825

10,229

Mortgage loans held for sale

4,413

3,176

13,379

13,124

Total interest income

116,475

114,307

467,825

421,823

INTEREST EXPENSE:

Deposits

21,744

17,495

86,255

53,141

Advances from the Federal Home Loan Bank

1,730

4,585

11,018

15,340

Subordinated debt, net

2,962

2,961

11,847

12,067

Repurchase agreements and other borrowings

80

58

350

202

Total interest expense

26,516

25,099

109,470

80,750

Net interest income

89,959

89,208

358,355

341,073

PROVISION FOR LOAN LOSSES

3,601

2,292

9,371

8,541

Net interest income after provision for loan losses

86,358

86,916

348,984

332,532

NONINTEREST INCOME:

Residential mortgage banking income, net

15,884

12,951

66,812

65,104

Insurance commissions and other title fees and income, net

15,001

13,212

64,478

56,164

Real estate brokerage and property management income, net

6,737

5,982

34,292

31,863

Service charges on deposit accounts

2,245

2,928

10,544

11,808

Credit card merchant fees, net

1,389

1,298

4,746

5,472

Bank owned life insurance

3,865

2,014

9,215

6,836

Other income

4,591

3,824

16,346

14,343

Gain (loss) on investment securities

(845

)

3

Total noninterest income

49,712

42,209

205,588

191,593

NONINTEREST EXPENSE:

Salaries and employee benefits

56,013

50,233

218,920

201,838

Occupancy

7,516

7,352

31,381

27,644

Furniture and equipment

3,598

3,587

14,351

14,477

Amortization - intangibles

3,005

3,123

12,370

11,710

Software expense

2,976

2,694

11,717

10,621

Data processing

2,510

2,466

11,825

10,364

Professional fees

2,990

2,028

12,943

8,323

Advertising and marketing

2,839

2,546

12,279

11,194

Other expenses

10,889

8,308

52,516

55,953

Total noninterest expense

92,336

82,337

378,302

352,124

Income before income tax expense & noncontrolling interest

43,734

46,788

176,270

172,001

Provision for income tax expense

7,786

10,348

32,596

34,227

Net income

$

35,948

$

36,440

$

143,674

$

137,774

Net income attributable to noncontrolling interest

(873

)

(450

)

(4,891

)

(3,981

)

Net income attributable to TowneBank

$

35,075

$

35,990

$

138,783

$

133,793

Per common share information

Basic earnings

$

0.49

$

0.50

$

1.93

$

1.88

Diluted earnings

$

0.49

$

0.50

$

1.92

$

1.88

Cash dividends declared

$

0.18

$

0.16

$

0.70

$

0.62


TOWNEBANK

Consolidated Balance Sheets - Five Quarter Trend

(dollars in thousands, except per share data)

December 31,

September 30,

June 30,

March 31,

December 31,

2019

2019

2019

2019

2018

(unaudited)

(unaudited)

(unaudited)

(unaudited)

(audited)

ASSETS

Cash and due from banks

$

97,593

$

124,439

$

110,580

$

104,091

$

94,604

Interest-bearing deposits at Federal Reserve Bank

322,505

675,288

834,505

775,208

570,425

Interest-bearing deposits in financial institutions

22,518

21,663

21,527

21,001

21,667

Total Cash and Cash Equivalents

442,616

821,390

966,612

900,300

686,696

Securities available for sale, at fair value

1,441,308

1,337,395

1,260,821

1,099,777

1,095,339

Securities held to maturity, at amortized cost

43,688

44,494

50,574

49,687

50,598

Other equity securities

6,462

5,697

5,396

5,022

4,797

Federal Home Loan Bank stock

30,094

26,282

32,657

41,464

43,229

Total Securities

1,521,552

1,413,868

1,349,448

1,195,950

1,193,963

Mortgage loans held for sale

419,233

456,719

362,773

247,021

220,986

Loans, net of unearned income and deferred costs

8,419,288

8,182,829

8,126,729

8,105,370

8,018,233

Less: allowance for loan losses

(58,234

)

(55,428

)

(54,527

)

(53,303

)

(52,094

)

Net Loans

8,361,054

8,127,401

8,072,202

8,052,067

7,966,139

Premises and equipment, net

231,806

231,060

230,177

227,458

211,796

Goodwill

446,816

446,423

442,881

442,881

433,658

Other intangible assets, net

54,399

57,404

58,391

61,333

58,752

Bank-owned life insurance policies

243,062

241,652

240,621

238,977

237,371

Other assets

227,125

225,374

219,375

202,276

153,669

TOTAL ASSETS

$

11,947,663

$

12,021,291

$

11,942,480

$

11,568,263

$

11,163,030

LIABILITIES AND EQUITY

Deposits:

Noninterest-bearing demand

$

2,951,225

$

3,030,505

$

2,950,615

$

2,813,857

$

2,622,761

Interest-bearing:

Demand and money market accounts

3,586,364

3,534,252

3,409,322

3,290,907

3,223,215

Savings

276,205

280,552

277,495

285,790

286,684

Certificates of deposit

2,457,123

2,592,705

2,631,386

2,341,134

2,237,762

Total Deposits

9,270,917

9,438,014

9,268,818

8,731,688

8,370,422

Advances from the Federal Home Loan Bank

471,687

381,846

532,004

739,160

799,315

Subordinated debt, net

248,458

248,309

248,160

248,010

247,861

Repurchase agreements and other borrowings

52,391

42,971

56,355

44,775

47,156

Total Borrowings

772,536

673,126

836,519

1,031,945

1,094,332

Other liabilities

250,516

271,617

230,691

238,974

159,856

TOTAL LIABILITIES

10,293,969

10,382,757

10,336,028

10,002,607

9,624,610

Preferred stock

Authorized shares - 2,000,000

Common stock, $1.667 par value

121,107

121,080

121,038

121,047

120,801

Capital surplus

1,041,160

1,039,156

1,036,982

1,035,563

1,034,676

Retained earnings

467,186

445,186

420,600

399,030

379,239

Common stock issued to deferred compensation trust, at cost

(15,555

)

(15,317

)

(15,160

)

(14,067

)

(13,955

)

Deferred compensation trust

15,555

15,317

15,160

14,067

13,955

Accumulated other comprehensive income (loss)

11,302

19,958

15,143

(1,792

)

(9,190

)

TOTAL SHAREHOLDERS’ EQUITY

1,640,755

1,625,380

1,593,763

1,553,848

1,525,526

Noncontrolling interest

12,939

13,154

12,689

11,808

12,894

TOTAL EQUITY

1,653,694

1,638,534

1,606,452

1,565,656

1,538,420

TOTAL LIABILITIES AND EQUITY

$

11,947,663

$

12,021,291

$

11,942,480

$

11,568,263

$

11,163,030


TOWNEBANK

Consolidated Statements of Income - Five Quarter Trend (unaudited)

(dollars in thousands, except per share data)

Three Months Ended

December 31,

September 30,

June 30,

March 31,

December 31,

2019

2019

2019

2019

2018

INTEREST INCOME:

Loans, including fees

$

100,059

$

102,047

$

101,874

$

99,695

$

99,446

Investment securities

9,936

9,889

8,987

8,134

8,126

Interest-bearing deposits in financial institutions and federal funds sold

2,067

3,745

4,015

3,998

3,559

Mortgage loans held for sale

4,413

3,956

3,007

2,003

3,176

Total interest income

116,475

119,637

117,883

113,830

114,307

INTEREST EXPENSE:

Deposits

21,744

23,552

21,784

19,174

17,495

Advances from the Federal Home Loan Bank

1,730

1,935

3,201

4,153

4,585

Subordinated debt

2,962

2,962

2,962

2,962

2,961

Repurchase agreements and other borrowings

80

85

117

68

58

Total interest expense

26,516

28,534

28,064

26,357

25,099

Net interest income

89,959

91,103

89,819

87,473

89,208

PROVISION FOR LOAN LOSSES

3,601

1,508

2,824

1,438

2,292

Net interest income after provision for loan losses

86,358

89,595

86,995

86,035

86,916

NONINTEREST INCOME:

Residential mortgage banking income, net

15,884

18,855

18,565

13,508

12,951

Insurance commissions and other title fees and income, net

15,001

16,681

17,213

15,582

13,212

Real estate brokerage and property management income, net

6,737

9,444

8,843

9,268

5,982

Service charges on deposit accounts

2,245

2,253

3,185

2,861

2,928

Credit card merchant fees, net

1,389

1,514

660

1,183

1,298

Bank owned life insurance

3,865

2,117

1,635

1,598

2,014

Other income

4,591

3,981

4,617

3,157

3,824

Loss on investment securities

(69

)

(776

)

Total noninterest income

49,712

54,776

54,718

46,381

42,209

NONINTEREST EXPENSE:

Salaries and employee benefits

56,013

55,784

54,263

52,860

50,233

Occupancy expense

7,516

7,953

7,662

8,251

7,352

Furniture and equipment

3,598

3,805

3,578

3,371

3,587

Amortization - intangibles

3,005

3,059

3,113

3,192

3,123

Software expense

2,976

3,208

2,788

2,745

2,694

Data processing

2,510

2,533

3,616

3,166

2,466

Professional fees

2,990

3,566

3,707

2,679

2,028

Advertising and marketing

2,839

3,429

3,182

2,829

2,546

Other expenses

10,889

13,950

14,647

13,030

8,308

Total noninterest expense

92,336

97,287

96,556

92,123

82,337

Income before income tax expense and noncontrolling interest

43,734

47,084

45,157

40,293

46,788

Provision for income tax expense

7,786

7,684

8,915

8,211

10,348

Net income

35,948

39,400

36,242

32,082

36,440

Net income attributable to noncontrolling interest

(873

)

(1,741

)

(1,604

)

(673

)

(450

)

Net income attributable to TowneBank

$

35,075

$

37,659

$

34,638

$

31,409

$

35,990

Per common share information

Basic earnings

$

0.49

$

0.52

$

0.48

$

0.44

$

0.50

Diluted earnings (1)

$

0.49

$

0.52

$

0.48

$

0.44

$

0.50

Basic weighted average shares outstanding

72,132,041

72,091,221

72,044,817

71,992,330

71,905,956

Diluted weighted average shares outstanding

72,311,979

72,222,934

72,145,600

72,099,558

72,043,369

Cash dividends declared

$

0.18

$

0.18

$

0.18

$

0.16

$

0.16

(1) The quarterly diluted EPS do not sum to the total year diluted EPS due to rounding.


TOWNEBANK

Banking Segment Financial Information

(dollars in thousands)

Three Months Ended

Year Ended

Increase/(Decrease)

December 31,

September 30,

December 31,

2019 over 2018

2019

2018

2019

2019

2018

Amount

Percent

Revenue

Net interest income

$

87,637

$

86,433

$

89,490

$

351,969

$

329,584

$

22,385

6.79

%

Noninterest income

Service charges on deposit accounts

2,245

2,928

2,253

10,544

11,808

(1,264

)

(10.70

)%

Credit card merchant fees

1,389

1,298

1,514

4,746

5,472

(726

)

(13.27

)%

Other income

5,271

4,660

5,152

19,620

16,977

2,643

15.57

%

Subtotal

8,905

8,886

8,919

34,910

34,257

653

1.91

%

Gain (loss) on investment securities

(69

)

(845

)

3

(848

)

N/M

Total noninterest income

8,905

8,886

8,850

34,065

34,260

(195

)

(0.57

)%

Total revenue

96,542

95,319

98,340

386,034

363,844

22,190

6.10

%

Provision for loan losses

3,601

2,292

1,508

9,371

8,541

830

9.72

%

Expenses

Salaries and employee benefits

34,183

28,100

33,526

131,149

114,472

16,677

14.57

%

Occupancy expense

4,959

4,789

5,209

20,419

17,410

3,009

17.28

%

Furniture and equipment

2,577

2,426

2,779

10,240

9,912

328

3.31

%

Amortization of intangible assets

1,214

1,428

1,265

5,160

5,658

(498

)

(8.80

)%

Other expenses

14,078

9,759

17,098

66,295

60,697

5,598

9.22

%

Total expenses

57,011

46,502

59,877

233,263

208,149

25,114

12.07

%

Income before income tax, corporate allocation and noncontrolling interest

35,930

46,525

36,955

143,400

147,154

(3,754

)

(2.55

)%

Corporate allocation

627

367

384

2,011

1,736

275

15.84

%

Income before income tax provision and noncontrolling interest

36,557

46,892

37,339

145,411

148,890

(3,479

)

(2.34

)%

Provision for income tax expense

6,368

10,252

5,495

25,706

28,880

(3,174

)

(10.99

)%

Net income

30,189

36,640

31,844

119,705

120,010

(305

)

(0.25

)%

Noncontrolling interest

(1

)

4

2

(8

)

10

N/M

Net income attributable to TowneBank

$

30,188

$

36,644

$

31,844

$

119,707

$

120,002

$

(295

)

(0.25

)%

Efficiency ratio

59.05

%

48.79

%

60.85

%

60.43

%

57.21

%


TOWNEBANK

Realty Segment Financial Information

(dollars in thousands)

Three Months Ended

Year Ended

Increase/(Decrease)

December 31,

September 30,

December 31,

2019 over 2018

2019

2018

2019

2019

2018

Amount

Percent

Revenue

Residential mortgage brokerage income, net

$

16,617

$

13,472

$

19,171

$

68,443

$

66,696

$

1,747

2.62

%

Real estate brokerage income, net

2,550

2,183

2,882

9,865

9,458

407

4.30

%

Title insurance and settlement fees

531

458

617

2,111

1,877

234

12.47

%

Property management fees, net

4,187

3,799

6,562

24,427

22,405

2,022

9.02

%

Income from unconsolidated subsidiary

75

54

185

516

370

146

39.46

%

Net interest and other income

2,787

3,210

1,885

7,724

13,210

(5,486

)

(41.53

)%

Total revenue

26,747

23,176

31,302

113,086

114,016

(930

)

(0.82

)%

Expenses

Salaries and employee benefits

$

12,941

$

14,308

$

13,474

$

52,619

$

58,450

$

(5,831

)

(9.98

)%

Occupancy expense

1,857

1,928

2,055

8,285

7,871

414

5.26

%

Furniture and equipment

773

930

754

3,099

3,697

(598

)

(16.18

)%

Amortization of intangible assets

655

767

666

2,741

2,782

(41

)

(1.47

)%

Other expenses

7,030

6,419

7,478

27,982

28,416

(434

)

(1.53

)%

Total expenses

23,256

24,352

24,427

94,726

101,216

(6,490

)

(6.41

)%

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

3,491