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TowneBank Reports Second Quarter 2019 Earnings

SUFFOLK, Va., July 25, 2019 (GLOBE NEWSWIRE) -- TowneBank (the “Company”) (TOWN) today reported earnings for the quarter ended June 30, 2019 of $34.64 million, or $0.48 per diluted share, compared to $34.80 million, or $0.48 per diluted share, for the quarter ended June 30, 2018.

“Our second quarter performance was highlighted by record top-line revenues coupled with strong deposit growth. We also continued to strategically invest in recruiting, technology, enhanced services, and infrastructure to support future growth," said G. Robert Aston, Jr., Executive Chairman.

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

  • Total revenues were $144.54 million, an increase of $7.48 million, or 5.46%.

  • Loans held for investment increased $351.77 million, or 4.52%, from June 30, 2018, and $21.36 million, or 0.26%, from March 31, 2019, or 1.06% on an annualized basis.

  • Total deposits were $9.27 billion, an increase of $1.28 billion, or 15.99%, compared to prior year and $0.54 billion, or 6.15% from March 31, 2019, or 24.67% on an annualized basis. In comparison to June 30, 2018, total deposits increased 11.70% in our Hampton Roads region, 28.14% in our Richmond region, and 23.39% in our North Carolina region.

  • Noninterest bearing deposits increased by 13.60%, to $2.95 billion, representing 31.83% of total deposits. Compared to the linked quarter, noninterest bearing deposits increased 4.86%, or 19.49% on an annualized basis.

  • Annualized return on common shareholders' equity of 8.89% and annualized return on average tangible common shareholders' equity of 14.05% (non-GAAP).

  • Net interest margin for the quarter was 3.49% and taxable equivalent net interest margin was 3.52% (non-GAAP).

  • Effective tax rate of 20.47% in the quarter compared to 19.89% in the second quarter of 2018.

“In addition to recruiting Jack Clayton as President of Business Strategies for North Carolina in the first quarter of 2019, we continued to build our production teams in Raleigh, Greensboro, and Charlotte adding Private Bankers and Treasury expertise. We announced that Charity Volman has been appointed President of TowneBank’s newly formed Corporate Banking Group. Joining her team are Karen Priest, Laura Morgan, and Brian Woodell, who served with her at her former bank. In addition, Shane Stevens, was recently appointed Director of Merchant and Treasury Services. Each of these individuals brings a wealth of experience and talent to our HomeTowne Banking platform,” stated J. Morgan Davis, President and Chief Executive Officer.

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

  • Net interest income was $89.82 million compared to $86.82 million at June 30, 2018.

  • Taxable equivalent net interest margin (non-GAAP) was 3.52%, including accretion of 11 basis points, compared to 3.71%, including accretion of 23 basis points, for 2018.

  • Average loans held for investment, with an average yield of 5.08%, represented 78.27% of average earning assets at June 30, 2019 compared to an average yield of 4.97% and 79.99% of average earning assets in the second quarter of 2018.

  • Total cost of deposits increased to 0.99% from 0.60% at June 30, 2018.

  • Average interest-earning assets totaled $10.32 billion at June 30, 2019 compared to $9.44 billion at June 30, 2018, an increase of 9.26%.

  • Average interest-bearing liabilities totaled $6.95 billion, an increase of $0.55 billion from prior year.

Quarterly Provision for Loan Losses:

  • Recorded a provision for loan losses of $2.82 million compared to $3.06 million one year ago and $1.44 million in the linked quarter.

  • Net charge-offs were $1.60 million compared to $0.26 million one year prior. The ratio of net charge-offs to average loans on an annualized basis was 0.08% compared to 0.01% in the prior quarter and 0.01% in the second quarter of 2018. This increase was primarily attributable to the charge-off of one credit relationship.

  • The allowance for loan losses represented 0.67% of total loans compared to 0.66% at March 31, 2019 and 0.64% at June 30, 2018. Loan loss reserve as a percentage of total loans, excluding purchased loans, was 0.81% at June 30, 2019, and March 31, 2019, compared to 0.84% at June 30, 2018. The allowance for loan losses was 3.00 times nonperforming loans compared to 9.36 times at March 31, 2019 and 12.64 times at June 30, 2018.

Quarterly Noninterest Income Compared to the Second Quarter of 2018:

  • Total noninterest income was $54.72 million compared to $50.24 million in 2018, an increase of $4.48 million, or 8.92%. Residential mortgage banking income was relatively flat in the quarter, while insurance commissions and other title fees increased $2.13 million, real estate brokerage and property management income increased $1.93 million, and service charges on deposit accounts increased $0.22 million. Credit card merchant fees declined $0.78 million.

  • Credit card merchant fee income was roughly $0.90 million below normal seasonal levels in second quarter 2019 due to the impact of converting to a new processing platform that will allow us to provide additional services and capabilities.

  • Residential mortgage banking income was $18.57 million compared to $18.75 million in second quarter 2018. Loan volume in the current quarter was $821.13 million, with purchase activity comprising 84.97% of that volume. Loan volume in second quarter 2018 was $951.12 million, with purchase activity of 91.23%. Lower volumes led to the decline in revenue.

  • Total Insurance segment revenue increased 14.95% to $20.20 million in the second quarter due primarily to additional commission income from insurance agencies that were acquired in November 2018 and January 2019.

  • Property management fee revenue increased 45.89%, or $1.88 million, as compared to second quarter 2018 due to increases in reservation levels.

Quarterly Noninterest Expense Compared to the Second Quarter of 2018:

  • Total noninterest expense was $96.56 million compared to $89.22 million in 2018, an increase of $7.34 million, or 8.22%. This reflects increases of $3.94 million in salary and benefits expense, $1.29 million in professional fees, $0.86 million in occupancy expense, and $0.76 million in outside data processing expenses.

  • The increase in salary and benefits expense was attributable to the continued expansion of our functional support teams to enable us to enhance Company infrastructure and meet increased regulatory expectations related to exceeding $10 billion in assets, as well as keep pace with our growth and changing industry standards. Specific areas of focus include: information technology, risk and compliance, accounting, and internal audit.

  • In the wake of the May 2019 tragedy in Virginia Beach, Towne's contribution of $0.50 million to "VBStrong" was included in other expenses.

  • Noninterest expense included operational expenses of $1.60 million related to insurance agencies acquired subsequent to second quarter 2018.

Quarterly Income Taxes Compared to the Second Quarter of 2018:

  • Income tax expense was $8.92 million compared to $8.64 million one year prior. This represents an effective tax rate of 20.47% compared to 19.89% in the second quarter of 2018.

Consolidated Balance Sheet June 30, 2019 Compared to June 30, 2018

  • Total assets were $11.94 billion for the quarter ended June 30, 2019 compared to $11.16 billion at December 31, 2018 and $10.83 billion at June 30, 2018. This increase was driven primarily by growth in cash and cash equivalents, available for sale securities, and loans held for investment. Year-over-year, other assets increased $41.40 million due to the adoption of the leasing standard.

  • Loans held for investment increased $0.11 billion, or 1.35%, or 2.73% on an annualized basis, compared to year end 2018, and $0.35 billion, or 4.52% compared to June 30, 2018.

  • Total liabilities were $10.34 billion at June 30, 2019, an increase of $0.71 billion, or 7.39%, compared to December 31, 2018 and $0.98 billion, or 10.49%, compared to June 30, 2018. Total deposits increased $0.90 billion over December 31, 2018 and $1.28 billion over June 30, 2018. Total borrowings declined $0.26 billion from December 31, 2018 and $0.34 billion from June 30, 2018.

Investment Securities:

  • Total investment securities were $1.35 billion compared to $1.20 billion at March 31, 2019 and $1.16 billion at June 30, 2018. The weighted average duration of the portfolio at June 30, 2019 was 3.1 years. The carrying value of the available-for-sale portfolio included $19.66 million of net unrealized gains compared to $2.22 million at March 31, 2019 and $20.60 million in net unrealized losses at June 30, 2018. The increase in net unrealized gains was primarily due to interest rate fluctuations. The carrying value of the held-to-maturity portfolio does not reflect $1.58 million in net unrealized gains compared to $1.04 million in net unrealized gains at March 31, 2019 and $0.64 million in net unrealized gains at June 30, 2018.

Loans and Asset Quality:

  • Total loans held for investment were $8.13 billion at June 30, 2019 compared to $8.11 billion at March 31, 2019 and $7.77 billion at June 30, 2018.

  • Nonperforming assets were $34.23 million, or 0.29% of total assets, compared to $26.31 million, or 0.24%, at June 30, 2018. This increase was primarily driven by a single commercial relationship of approximately $10 million.

  • Nonperforming loans were 0.22% of period end loans.

  • Foreclosed property decreased to $14.52 million from $20.13 million at June 30, 2018.

Deposits and Borrowings:

  • Total deposits were $9.27 billion compared to $8.73 billion at March 31, 2019 and $7.99 billion at June 30, 2018.

  • Total loans to deposits were 87.68% compared to 92.83% at March 31, 2019 and 97.29% at June 30, 2018.

  • Non-interest bearing deposits were 31.83% of total deposits at June 30, 2019 compared to 32.23% at March 31, 2019 and 32.50% at June 30, 2018.

  • Total borrowings were $0.84 billion compared to $1.03 billion and $1.17 billion at March 31, 2019 and June 30, 2018, respectively.

Capital:

  • Common equity tier 1 capital ratio of 11.58%.

  • Tier 1 leverage capital ratio of 9.86%.

  • Tier 1 risk-based capital ratio of 11.62%.

  • Total risk-based capital ratio of 14.85%.

  • Book value was $21.95 compared to $21.40 at March 31, 2019 and $20.22 at June 30, 2018.

  • Tangible book value (non-GAAP)was $15.05 compared to $14.46 at March 31, 2019 and $13.50 at June 30, 2018.

Outlook:
Management reforecasts on a quarterly basis and anticipates:

  • Annualized loan growth to be in the low-to-mid single digits for the remainder of 2019.

  • Our quarterly noninterest expense run rate will range between $93 - $94 million for the remainder of 2019.

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, 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 $11.94 billion as of June 30, 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, 757-638-681

TOWNEBANK

Selected Financial Highlights (unaudited)

(dollars in thousands, except per share data)

Three Months Ended

June 30,

March 31,

December 31,

September 30,

June 30,

2019

2019

2018

2018

2018

Income and Performance Ratios:

Total Revenue

$

144,537

$

133,854

$

131,417

$

137,914

$

137,058

Net income

36,242

32,082

36,440

39,252

36,138

Net income attributable to TowneBank

34,638

31,409

35,990

38,293

34,804

Net income per common share - diluted

0.48

0.44

0.50

0.53

0.48

Book value per common share

21.95

21.40

21.05

20.54

20.22

Book value per common share - tangible (non-GAAP)

15.05

14.46

14.26

13.83

13.50

Return on average assets

1.20

%

1.14

%

1.28

%

1.40

%

1.32

%

Return on average assets - tangible (non-GAAP)

1.35

%

1.29

%

1.43

%

1.56

%

1.48

%

Return on average equity

8.83

%

8.24

%

9.44

%

10.21

%

9.55

%

Return on average equity - tangible (non-GAAP)

13.90

%

13.24

%

14.91

%

16.08

%

15.19

%

Return on average common equity

8.89

%

8.30

%

9.53

%

10.30

%

9.62

%

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

14.05

%

13.39

%

15.11

%

16.30

%

15.36

%

Noninterest income as a percentage of total revenue

37.86

%

34.65

%

32.12

%

35.69

%

36.65

%

Regulatory Capital Ratios (1):

Common equity tier 1

11.58

%

11.49

%

11.51

%

11.53

%

11.33

%

Tier 1

11.62

%

11.52

%

11.54

%

11.57

%

11.36

%

Total

14.85

%

14.79

%

14.83

%

14.90

%

14.71

%

Tier 1 leverage ratio

9.86

%

9.92

%

9.87

%

9.98

%

10.00

%

Asset Quality:

Allowance for loan losses to nonperforming loans

3.00

x

9.36

x

10.97

x

7.25

x

12.64

x

Allowance for loan losses to period end loans

0.67

%

0.66

%

0.65

%

0.64

%

0.64

%

Allowance for loan losses to period end loans excluding purchased loans

0.81

%

0.81

%

0.82

%

0.82

%

0.84

%

Nonperforming loans to period end loans

0.22

%

0.07

%

0.06

%

0.09

%

0.05

%

Nonperforming assets to period end assets

0.29

%

0.22

%

0.22

%

0.25

%

0.24

%

Net charge-offs to average loans (annualized)

0.08

%

0.01

%

0.02

%

0.03

%

0.01

%

Nonperforming loans

$

18,202

$

5,696

$

4,749

$

6,926

$

3,919

Former bank premises

1,510

2,223

2,253

2,253

2,253

Foreclosed property

14,517

17,071

17,163

18,153

20,133

Total nonperforming assets

$

34,229

$

24,990

$

24,165

$

27,332

$

26,305

Loans past due 90 days and still accruing interest

$

415

$

117

$

394

$

153

$

22

Allowance for loan losses

$

54,527

$

53,303

$

52,094

$

50,236

$

49,535

Mortgage Banking:

Loans originated, mortgage

$

574,638

$

366,643

$

407,787

$

561,543

$

667,189

Loans originated, joint venture

246,491

146,884

192,280

249,956

283,933

Total loans originated

$

821,129

$

513,527

$

600,067

$

811,499

$

951,122

Number of loans originated

3,121

1,977

2,304

3,068

3,687

Number of originators

234

240

293

303

324

Purchase %

84.97

%

86.08

%

88.64

%

89.72

%

91.23

%

Loans sold

$

694,832

$

473,068

$

694,341

$

852,205

$

825,313

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

3.43

%

3.58

%

3.37

%

3.36

%

3.30

%

Other Ratios:

Net interest margin

3.49

%

3.54

%

3.53

%

3.62

%

3.69

%

Net interest margin-fully tax equivalent (nonGAAP)

3.52

%

3.57

%

3.55

%

3.64

%

3.71

%

Average earning assets/total average assets

89.46

%

89.50

%

89.91

%

89.69

%

89.61

%

Average loans/average deposits

91.60

%

95.83

%

95.32

%

97.55

%

97.79

%

Average noninterest deposits/total average deposits

31.63

%

31.39

%

31.90

%

32.61

%

32.28

%

Period end equity/period end total assets

13.45

%

13.53

%

13.78

%

13.49

%

13.63

%

Efficiency ratio

66.80

%

68.43

%

62.65

%

64.00

%

65.10

%

(1) Current reporting period regulatory capital ratios are preliminary


TOWNEBANK

Selected Data (unaudited)

(dollars in thousands)

Investment Securities

% Change

Q2

Q2

Q1

Q2 19 vs.

Q2 19 vs.

Available-for-sale securities, at fair value

2019

2018

2019

Q2 18

Q1 19

U.S. agency securities

$

261,960

$

426,118

$

260,152

(38.52

)%

0.69

%

U.S. Treasury notes

2,241

101,224

2,229

(97.79

)%

0.54

%

Municipal securities

167,466

55,465

107,278

201.93

%

56.10

%

Trust preferred and other corporate securities

43,799

30,718

35,003

42.58

%

25.13

%

Mortgage-backed securities issued by GSE

785,355

444,138

695,115

76.83

%

12.98

%

Total

$

1,260,821

$

1,057,663

$

1,099,777

19.21

%

14.64

%

Held-to-maturity securities, at amortized cost

Municipal securities

$

34,458

$

36,039

$

34,472

(4.39

)%

(0.04

)%

Trust preferred corporate securities

2,393

500

500

378.60

%

378.60

%

Mortgage-backed securities issued by GSE

13,723

17,415

14,715

(21.20

)%

(6.74

)%

Total

$

50,574

$

53,954

$

49,687

(6.26

)%

1.79

%

Loans Held For Investment

% Change

Q2

Q2

Q1

Q2 19 vs.

Q2 19 vs.

2019

2018

2019

Q2 18

Q1 19

Real estate-construction and development

$

1,107,762

$

989,910

$

1,111,360

11.91

%

(0.32

)%

Commercial real estate - investment related properties

1,985,990

1,935,013

1,951,292

2.63

%

1.78

%

Commercial real estate - owner occupied

1,288,478

1,227,072

1,279,039

5.00

%

0.74

%

Real estate-multifamily

267,528

288,043

255,649

(7.12

)%

4.65

%

Real estate-residential 1-4 family

1,639,547

1,596,264

1,637,579

2.71

%

0.12

%

Commercial and industrial business

1,523,607

1,440,625

1,547,623

5.76

%

(1.55

)%

Consumer and other loans

313,817

298,029

322,828

5.30

%

(2.79

)%

Total

$

8,126,729

$

7,774,956

$

8,105,370

4.52

%

0.26

%

Deposits

% Change

Q2

Q2

Q1

Q2 19 vs.

Q2 19 vs.

2019

2018

2019

Q2 18

Q1 19

Noninterest-bearing demand

$

2,950,615

$

2,597,320

$

2,813,857

13.60

%

4.86

%

Interest-bearing:

Demand and money market accounts

3,409,322

2,987,102

3,290,907

14.13

%

3.60

%

Savings

277,495

305,334

285,790

(9.12

)%

(2.90

)%

Certificates of deposits

2,631,386

2,101,455

2,341,134

25.22

%

12.40

%

Total

$

9,268,818

$

7,991,211

$

8,731,688

15.99

%

6.15

%

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

September 30,

December 31,

2019

2019

Assets:

Investment Securities

$

(67

)

$

(65

)

Loans

1,467

1,447

Liabilities:

Deposits

51

47

Total estimated effect on net interest income

$

1,349

$

1,335

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

June 30, 2019

March 31, 2019

June 30, 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

$

8,075,054

$

102,366

5.08

%

$

8,030,994

$

100,146

5.06

%

$

7,552,983

$

93,548

4.97

%

Taxable investment securities

1,170,215

8,346

2.85

%

1,036,645

7,529

2.91

%

987,693

5,787

2.34

%

Tax-exempt investment securities

90,942

756

3.33

%

79,310

765

3.86

%

82,839

719

3.47

%

Total securities

1,261,157

9,102

2.89

%

1,115,955

8,294

2.97

%

1,070,532

6,506

2.43

%

Interest-bearing deposits

698,649

4,016

2.31

%

693,365

3,998

2.34

%

499,349

2,159

1.73

%

Loans held for sale

281,775

3,007

4.27

%

178,475

2,003

4.49

%

319,214

3,557

4.46

%

Total earning assets

10,316,635

118,491

4.61

%

10,018,789

114,441

4.63

%

9,442,078

105,770

4.49

%

Less: allowance for loan losses

(53,386

)

(52,844

)

(47,745

)

Total nonearning assets

1,269,029

1,228,808

1,142,514

Total assets

$

11,532,278

$

11,194,753

$

10,536,847

Liabilities and Equity:

Interest-bearing deposits

Demand and money market

$

3,312,313

$

7,025

0.85

%

$

3,174,157

$

6,240

0.80

%

$

2,945,897

$

3,602

0.49

%

Savings

281,221

929

1.33

%

285,499

(dollars in thousands, except share data)

June 30,

March 31,

December 31,

September 30,

June 30,

2019

2019

2018

2018

2018

(unaudited)

(unaudited)

(audited)

(unaudited)

(unaudited)

ASSETS

Cash and due from banks

$

110,580

$

104,091

$

94,604

$

106,485

$

98,339

Interest-bearing deposits at Federal Reserve Bank

834,505

775,208

570,425

582,099

341,715

Interest-bearing deposits in financial institutions

21,527

21,001

21,667

20,910

17,749

Total Cash and Cash Equivalents

966,612

900,300

686,696

709,494

457,803

Securities available for sale, at fair value

1,260,821

1,099,777

1,095,339

1,051,773

1,057,663

Securities held to maturity, at amortized cost

50,574

49,687

50,598

52,002

53,954

Other equity securities

5,396

5,022

4,797

5,519

5,206

Federal Home Loan Bank stock

32,657

41,464

43,229

46,393

46,393

Total Securities

1,349,448

1,195,950

1,193,963

1,155,687

1,163,216

Mortgage loans held for sale

362,773

247,021

220,986

333,354

396,185

Loans, net of unearned income and deferred costs

8,126,729

8,105,370

8,018,233

7,881,692

7,774,956

Less: allowance for loan losses

(54,527

)

(53,303

)

(52,094

)

(50,236

)

(49,535

)

Net Loans

8,072,202

8,052,067

7,966,139

7,831,456

7,725,421

Premises and equipment, net

230,177

227,458

211,796

210,724

207,997

Goodwill

442,881

442,881

433,658

427,117

425,625

Other intangible assets, net

58,391

61,333

58,752

58,165

60,669

Bank-owned life insurance policies

240,621

238,977

237,371

235,348

233,682

Other assets

219,375

202,276

153,669

159,887

161,055

TOTAL ASSETS

$

11,942,480

$

11,568,263

$

11,163,030

$

11,121,232

$

10,831,653

LIABILITIES AND EQUITY

Deposits:

Noninterest-bearing demand

$

2,950,615

$

2,813,857

$

2,622,761

$

2,671,558

$

2,597,320

Interest-bearing:

Demand and money market accounts

3,409,322

3,290,907

3,223,215

3,096,317

3,017,767

Savings

277,495

285,790

286,684

298,368

305,334

Certificates of deposit

2,631,386

2,341,134

2,237,762

2,233,188

2,070,790

Total Deposits

9,268,818

8,731,688

8,370,422

8,299,431

7,991,211

Advances from the Federal Home Loan Bank

532,004

739,160

799,315

873,469

873,622

Subordinated debt, net

248,160

248,010

247,861

247,712

247,563

Repurchase agreements and other borrowings

56,355

44,775

47,156

45,591

50,981

Total Borrowings

836,519

1,031,945

1,094,332

1,166,772

1,172,166

Other liabilities

230,691

238,974

159,856

155,205

191,490

TOTAL LIABILITIES

10,336,028

10,002,607

9,624,610

9,621,408

9,354,867

Preferred stock

Authorized shares - 2,000,000

Common stock, $1.667 par value

121,038

121,047

120,801

120,613

120,615

Capital surplus

1,036,982

1,035,563

1,034,676

1,032,863

1,031,965

Retained earnings

420,600

399,030

379,239

354,842

328,125

Common stock issued to deferred compensation

trust, at cost

(15,160

)

(14,067

)

(13,955

)

(13,780

)

(13,500

)

Deferred compensation trust

15,160

14,067

13,955

13,780

13,500

Accumulated other comprehensive loss

15,143

(1,792

)

(9,190

)

(22,348

)

(17,944

)

TOTAL SHAREHOLDERS’ EQUITY

1,593,763

1,553,848

1,525,526

1,485,970

1,462,761

Noncontrolling interest

12,689

11,808

12,894

13,854

14,025

TOTAL EQUITY

1,606,452

1,565,656

1,538,420

1,499,824

1,476,786

TOTAL LIABILITIES AND EQUITY

$

11,942,480

$

11,568,263

$

11,163,030

$

11,121,232

$

10,831,653


TOWNEBANK

Consolidated Statements of Income - Five Quarter Trend (unaudited)

(dollars in thousands, except share data)

Three Months Ended

June 30,

March 31,

December 31,

September 30,

June 30,

2019

2019

2018

2018

2018

INTEREST INCOME:

Loans, including fees

$

101,874

$

99,695

$

99,446

$

97,215

$

93,150

Investment securities

8,987

8,134

8,126

7,019

6,390

Interest-bearing deposits in financial institutions and federal funds sold

4,015

3,998

3,559

2,148

2,159

Mortgage loans held for sale

3,007

2,003

3,176

4,012

3,557

Total interest income

117,883

113,830

114,307

110,394

105,256

INTEREST EXPENSE:

Deposits

21,784

19,174

17,495

14,540

11,620

Advances from the Federal Home Loan Bank

3,201

4,153

4,585

4,153

3,764

Subordinated debt

2,962

2,962

2,961

2,962

2,986

Repurchase agreements and other borrowings

117

68

58

42

63

Total interest expense

28,064

26,357

25,099

21,697

18,433

Net interest income

89,819

87,473

89,208

88,697

86,823

PROVISION FOR LOAN LOSSES

2,824

1,438

2,292

1,241

3,056

Net interest income after provision for loan losses

86,995

86,035

86,916

87,456

83,767

NONINTEREST INCOME:

Residential mortgage banking income, net

18,565

13,508

12,951

15,804

18,745

Insurance commissions and other title fees and income, net

17,213

15,582

13,212

14,493

15,087

Real estate brokerage and property management income, net

8,843

9,268

5,982

8,542

6,910

Service charges on deposit accounts

3,185

2,861

2,928

3,028

2,969

Credit card merchant fees, net

660

1,183

1,298

1,563

1,443

Bank owned life insurance

1,635

1,598

2,014

1,657

1,633

Other income

4,617

3,157

3,824

4,130

3,448

Net gain/(loss) on investment securities

(776

)

Total noninterest income

54,718

46,381

42,209

49,217

50,235

NONINTEREST EXPENSE:

Salaries and employee benefits

54,263

52,860

50,233

50,497

50,324

Occupancy expense

7,662

8,251

7,352

7,013

6,802

Furniture and equipment

3,578

3,371

3,587

3,646

3,546

Amortization - intangibles

3,113

3,192

3,123

2,996

2,996

Software expense

2,788

2,745

2,694

2,940

2,648

Outside data processing

3,616

3,166

2,466

2,917

2,859

Professional fees

3,707

2,679

2,028

1,908

2,415

Advertising and marketing

3,182

2,829

2,546

2,874

3,124

Other expenses

14,647

13,030

8,308

13,471

14,507

Total noninterest expense

96,556

92,123

82,337

88,262

89,221

Income before income tax expense and noncontrolling interest

45,157

40,293

46,788

48,411

44,781

Provision for income tax expense

8,915

8,211

10,348

9,159

8,643

Net income

36,242

32,082

36,440

39,252

36,138

Net income attributable to noncontrolling interest

(1,604

)

(673

)

(450

)

(959

)

(1,334

)

Net income attributable to TowneBank

$

34,638

$

31,409

$

35,990

$

38,293

$

34,804

Per common share information

Basic earnings

$

0.48

$

0.44

$

0.50

$

0.53

$

0.48

Diluted earnings

$

0.48

$

0.44

$

0.50

$

0.53

$

0.48

Basic weighted average shares outstanding

72,044,817

71,992,330

71,905,956

71,875,085

71,787,980

Diluted weighted average shares outstanding

72,145,600

$

72,099,558

72,043,369

72,044,355

71,949,590

Cash dividends declared

$

0.18

$

0.16

$

0.16

$

0.16

$

0.16


TOWNEBANK

Banking Segment Financial Information

(dollars in thousands)

Three Months Ended

Six Months Ended

Increase/(Decrease)

June 30,

March 31,

June 30,

2019 over 2018

2019

2018

2019

2019

2018

Amount

Percent

Revenue

Net interest income

$

88,442

$

83,686

$

86,400

$

174,842

$

157,729

$

17,113

10.85

%

Service charges on deposit

accounts

3,185

2,969

2,861

6,046

5,852

194

3.32

%

Credit card merchant fees

660

1,443

1,183

1,843

2,611

(768

)

(29.41

)%

Other income

5,273

4,062

3,927

9,200

8,017

1,183

14.76

%

Subtotal

9,118

8,474

7,971

17,089

16,480

609

3.70

%

Gain/(loss) on investment securities

(776

)

(776

)

3

(779

)

N/M

Total noninterest income

9,118

8,474

7,195

16,313

16,483

(170

)

(1.03

)%

Total revenue

97,560

92,160

93,595

191,155

174,212

16,943

9.73

%

Provision for loan losses

2,824

3,056

1,438

4,262

5,009

(747

)

(14.91

)%

Expenses

Salaries and employee benefits

32,353

27,840

31,087

63,440

58,042

5,398

9.30

%

Occupancy expense

5,007

4,274

5,244

10,251

8,291

1,960

23.64

%

Furniture and equipment

2,517

2,491

2,367

4,884

5,022

(138

)

(2.75

)%

Amortization of intangibles

1,315

1,530

1,366

2,681

2,751

(70

)

(2.54

)%

Other expenses

18,938

15,364

16,181

35,119

36,111

(992

)

(2.75

)%

Total expenses

60,130

51,499

56,245

116,375

110,217

6,158

5.59

%

Income before income tax, corporate allocation and noncontrolling interest

34,606

37,605

35,912

70,518

58,986

11,532

19.55

%

Corporate allocation

546

476

452

998

932

66

7.08

%

Income before income tax provision and noncontrolling interest

35,152

38,081

36,364

71,516

59,918

11,598

19.36

%

Provision for income tax expense

6,650

7,142

7,192

13,842

11,023

2,819

25.57

%

Net income

28,502

30,939

29,172

57,674

48,895

8,779

17.95

%

Noncontrolling interest

1

(6

)

2

3

(8

)

11

N/M

Net income attributable to TowneBank

$

28,503

$

30,933

$

29,174

$

57,677

$

48,887

$

8,790

17.98

%

Efficiency ratio

61.63

%

55.88

%

59.60

%

60.63

%

63.27

%

(2.64

)%

(4.17

)%


TOWNEBANK

Realty Segment Financial Information

(dollars in thousands)

Three Months Ended

Six Months Ended

Increase/(Decrease)

June 30,

March 31,

June 30,

2019 over 2018

2019

2018

2019

2019

2018

Amount

Percent

Revenue

Residential mortgage brokerage
income, net

$

18,898

$

19,344

$

13,756

$

32,654

$

37,005

$

(4,351

)

(11.76

)%

Real estate brokerage income, net

2,873

2,818

1,561

4,434

4,517

(83

)

(1.84

)%

Title insurance and settlement fees

594

579

368

962

895

67

7.49

%

Property management fees, net

5,970

4,092

7,708

13,678

12,823

855

6.67

%

Income from unconsolidated
subsidiary

162

100

94

256

194

62

31.96

%

Net interest and other income

1,677

3,342

1,372

3,049

5,887

(2,838

)

(48.21

)%

Total revenue

30,174

30,275

24,859

55,033

61,321

(6,288

)

(10.25

)%

Expenses

Salaries and employee benefits

13,309

15,403

12,895

26,204

29,280

(3,076

)

(10.51

)%

Occupancy expense

2,028

1,964

2,345

4,373

3,858

515

13.35

%

Furniture and equipment

803

835

768

1,571

1,816

(245

)

(13.49

)%

Amortization of intangible assets

695

672

725

1,420

1,343

77

5.73

%

Other expenses

7,234

8,158

6,241

13,475

14,452

(977

)

(6.76

)%

Total expenses

24,069

27,032

22,974

47,043

50,749

(3,706

)

(7.30

)%

Income before income tax, corporate allocation and noncontrolling interest

6,105

3,243

1,885

7,990

10,572

(2,582

)

(24.42

)%

Corporate allocation

(328

)

(293

)

(263

)

(591

)

(582

)

(9

)

1.55

%

Income before income tax provision and noncontrolling interest

5,777

2,950

1,622

7,399

9,990

(2,591

)

(25.94

)%

Provision for income tax expense

1,287

633

551

1,838

2,192

(354

)

(16.15

)%

Net income

4,490

2,317

1,071

5,561

7,798

(2,237

)

(28.69

)%

Noncontrolling interest

(1,248

)

(891

)

(252

)

(1,500

)

(1,512

)

12

(0.79

)%

Net income attributable to TowneBank

$

3,242

$

1,426

$

819

$

4,061

$

6,286

$

(2,225

)

(35.40

)%

Efficiency ratio

79.77

%

89.29

%

92.42

%

85.48

%

82.76

%

2.72

%

3.29

%


TOWNEBANK

Insurance Segment Financial Information

(dollars in thousands)

Three Months Ended

Six Months Ended

Increase/(Decrease)

June 30,

March 31,

June 30,

2019 over 2018

2019

2018

2019

2019

2018

Amount

Percent

Commission and fee income

Property and casualty

$

13,067

$

11,059

$

11,873

$

24,940

$

20,416

$

4,524

22.16

%

Employee benefits

3,833

3,454

3,506

7,339

6,650

689

10.36

%

Travel insurance

1,169

1,389

1,289

2,458

3,157

(699

)

(22.14

)%

Specialized benefit services

163

171

170

333

340

(7

)

(2.06

)%

Total commissions and fees

18,232

16,073

16,838

35,070

30,563

4,507

14.75

%

Contingency and bonus revenue

1,893

1,433

1,585

3,479

2,566

913

35.58

%

Other income

79

71

75

154

141

13

9.22

%

Total revenue

20,204

17,577

18,498

38,703

33,270

5,433

16.33

%

Employee commission expense

3,401

2,953

3,098

6,500

5,468

1,032

18.87

%

Revenue, net of commission expense

16,803

14,624

15,400

32,203

27,802

4,401

15.83

%

Salaries and employee benefits

8,601

7,081

8,878

17,479

13,786

3,693

26.79

%

Occupancy expense

627

564

662

1,289

1,130

159

14.07

%

Furniture and equipment

258

220

236

494

406

88

21.67

%

Amortization of intangible assets

1,103

794

1,101

2,204

1,497

707

47.23

%

Other expenses

1,768

2,032

2,027

3,795

3,739

56

1.50

%

Total operating expenses

12,357

10,691

12,904

25,261

20,558

4,703

22.88

%

Income before income tax, corporate allocation and noncontrolling interest

4,446

3,933

2,496

6,942

7,244

(302

)

(4.17

)%

Corporate allocation

(218

)

(183

)

(189

)

(407

)

(350

)

(57

)

16.29

%

Income before income tax provision and noncontrolling interest

4,228

3,750

2,307

6,535

6,894

(359

)

(5.21

)%

Provision for income tax expense

978

868

468

1,446

1,505

(59

)

(3.92

)%

Net income

3,250

2,882

1,839

5,089

5,389

(300

)

(5.57

)%

Noncontrolling interest

(357

)

(437

)

(423

)

(780

)

(1,052

)

272

(25.86

)%

Net income attributable to TowneBank

$

2,893

$

2,445

$

1,416

$

4,309

$

4,337

$

(28

)

(0.65

)%

Provision for income taxes

978

868

468

1,446

1,505

(59

)

(3.92

)%

Depreciation, amortization and interest expense

1,309

1,007

1,333

2,642

1,913

729

38.11

%

EBITDA (non-GAAP)

$

5,180

$

4,320

$

3,217

$

8,397

$

7,755

$

642

8.28

%

Efficiency ratio

73.54

%

73.11

%

83.79

%

78.44

%

73.94

%

4.50

%

6.09

%


TOWNEBANK

Reconcilement of Non-GAAP Financial Measures

Three Months Ended

Six Months Ended

June 30,

June 30,

March 31,

June 30,

June 30,

2019

2018

2019

2019

2018

Return on average assets (GAAP)

1.20

%

1.32

%

1.14

%

1.17

%

1.18

%

Impact of excluding average goodwill and other
intangibles and amortization

0.15

%

0.16

%

0.15

%

0.15

%

0.14

%

Return on average tangible assets (non-GAAP)

1.35

%

1.48

%

1.29

%

1.32

%

1.32

%

Return on average equity (GAAP)

8.83

%

9.55

%

8.24

%

8.54

%

8.52

%

Impact of excluding average goodwill and other
intangibles and amortization

5.07

%

5.64

%

5.00

%

5.03

%

4.95

%

Return on average tangible equity (non-GAAP)

13.90

%

15.19

%

13.24

%

13.57

%

13.47

%

Return on average common equity (GAAP)

8.89

%

9.62

%

8.30

%

8.60

%

8.59

%

Impact of excluding average goodwill and other
intangibles and amortization

5.16

%

5.74

%

5.09

%

5.13

%

5.03

%

Return on average tangible common equity
(non-GAAP)

14.05

%

15.36

%

13.39

%

13.73

%

13.62

%

Book value (GAAP)

$

21.95

$

20.22

$

21.40

$

21.95

$

20.22

Impact of excluding average goodwill and other
intangibles and amortization

(6.90

)

(6.72

)

(6.94

)

(6.90

)

(6.72

)

Tangible book value (non-GAAP)

$

15.05

$

13.50

$

14.46

$

15.05

$

13.50


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

June 30,

March 31,

December 31,

September 30,

June 30,

2019

2019

2018

2018

2018

Net income (GAAP)

$

34,638

$

31,409

$

35,990

$

38,293

$

34,804

Acquisition-related expenses

20

411

(1,518

)

424

797

Income tax expense -tax reform legislation

696

Income tax expense (benefit) - other items

(3

)

(52

)

355

(44

)

(93

)

Income tax expense (benefit)

(3

)

(52

)

1,051

(44

)

(93

)

Total charges, net of taxes

17

359

(467

)

380

704

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

$

34,655

$

31,768

$

35,523

$

38,673

$

35,508

Weighted average diluted shares

72,145,600

72,099,558

72,043,369

72,044,355

71,949,590

Diluted EPS (GAAP)

$

0.48

$

0.44

$

0.50

$

0.53

$

0.48

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

$

0.48

$

0.44

$

0.49

$

0.54

$

0.49

Average assets

$

11,532,278

$

11,194,753

$

11,149,960

$

10,844,570

$

10,536,847

Average tangible equity

$

1,070,634

$

1,039,630

1,022,982

$

1,003,151

$

981,607

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

1.21

%

1.15

%

1.26

%

1.41

%

1.35

%

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

13.90

%

13.38

%

14.73

%

16.23

%

15.48

%

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

14.06

%

13.53

%

14.93

%

16.45

%

15.66

%

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

66.79

%

68.12

%

63.81

%

63.69

%

64.52

%


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

Six months ended

June 30,

June 30,

2019

2018

Net income (GAAP)

$

66,047

$

59,510

Acquisition-related expenses

431

9,523

Total charges

431

9,523

Income tax expense (benefit) - other items

(55

)

(1,732

)

Income tax expense (benefit)

(55

)

(1,732

)

Total charges, net of taxes

376

7,791

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

$

66,423

$

67,301

Weighted average diluted shares

72,122,467

70,551,537

Diluted EPS (GAAP)

$

0.92

$

0.84

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

$

0.92

$

0.95

Average assets

$

11,364,448

$

10,194,507

Average tangible equity

$

1,055,218

$

957,021

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

1.18

%

1.33

%

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

13.65

%

15.11

%

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

13.80

%

15.29

%

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

67.43

%

65.32

%