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TowneBank Reports Third Quarter 2019 Earnings

SUFFOLK, Va., Oct. 24, 2019 (GLOBE NEWSWIRE) -- TowneBank (the “Company”) (TOWN) today reported earnings for the quarter ended September 30, 2019 of $37.66 million, or $0.52 per diluted share, compared to $38.29 million, or $0.53 per diluted share, for the quarter ended September 30, 2018.

“Our third quarter continued the trend of solid growth in top-line revenues which climbed to $145.88 million, or a 5.78% increase, over the same period in 2018 driven by strong performances in our noninterest income sources. Noninterest bearing deposits increased 10.74% on an annualized basis during the quarter and represents 32.11% of our total deposits. During the past year, we continued to increase our deposit market share and remain the market leader in the Hampton Roads, Virginia MSA while our leadership teams in Richmond and the North Carolina markets provided an outstanding deposit growth rate of 19.67% and 27.70%, respectively, compared to the quarter ended September 30, 2018," said G. Robert Aston, Jr., Executive Chairman. “The year 2019 has been a year of significant investment in the future, as we have absorbed the expense related to enhancements in company infrastructure driven by changing industry standards and increased regulatory expectations due to crossing the $10 billion asset threshold. Additionally, we have successfully recruited 27 new staff members on the production and revenue side of the bank, expanding Towne’s presence into Greensboro and Greenville, North Carolina as well as adding an eight person Corporate Banking team in the Hampton Roads market,” added Aston.

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

  • Total revenues were $145.88 million, an increase of $7.97 million, or 5.78%.

  • Loans held for investment increased $301.14 million, or 3.82%, from September 30, 2018, and $56.10 million, or 0.69%, from June 30, 2019, or 2.74% on an annualized basis.

  • Total deposits were $9.44 billion, an increase of $1.14 billion, or 13.72%, compared to prior year and $0.17 billion, or 1.83%, from June 30, 2019, or 7.24% on an annualized basis. In comparison to September 30, 2018, total deposits increased 8.52% in our Hampton Roads region, 19.67% in our Richmond region, and 27.70% in our North Carolina region.

  • Noninterest bearing deposits increased by 13.44%, to $3.03 billion, representing 32.11% of total deposits. Compared to the linked quarter, noninterest bearing deposits increased 2.71%, or 10.74% on an annualized basis.

  • Annualized return on common shareholders' equity was 9.29% and annualized return on average tangible common shareholders' equity was 14.36% (non-GAAP).

  • Net interest margin for the quarter was 3.41% and taxable equivalent net interest margin was 3.43% (non-GAAP).

  • Effective tax rate of 16.95% in the quarter compared to 19.30% in the third quarter of 2018.

“Continued diversity in our revenue composition has been a consistent objective of our Company for many years. As pressures on net interest margin and required infrastructure investments continue to challenge our bottom line returns, it is important to keep our focus on growing top-line revenues. We were pleased to announce the completion of a strategic insurance acquisition in Charlotte, North Carolina, which will serve to strengthen our product delivery in one of our key growth markets,” stated J. Morgan Davis, President and Chief Executive Officer.

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

  • Net interest income was $91.10 million compared to $88.70 million at September 30, 2018.

  • Taxable equivalent net interest margin (non-GAAP) was 3.43%, including accretion of 11 basis points, compared to 3.64%, including accretion of 18 basis points, for 2018.

  • Average loans held for investment, with an average yield of 5.02%, represented 76.35% of average earning assets at September 30, 2019 compared to an average yield of 4.95% and 80.45% of average earning assets in the third quarter of 2018.

  • Total cost of deposits increased to 1.01% from 0.72% at September 30, 2018.

  • Average interest-earning assets totaled $10.60 billion at September 30, 2019 compared to $9.73 billion at September 30, 2018, an increase of 9.03%.

  • Average interest-bearing liabilities totaled $7.03 billion, an increase of $0.46 billion from prior year.

Quarterly Provision for Loan Losses:

  • Recorded a provision for loan losses of $1.51 million compared to $1.24 million one year ago and $2.82 million in the linked quarter.

  • Net charge-offs were $0.61 million compared to $0.54 million one year prior. The ratio of net charge-offs to average loans on an annualized basis was 0.03% compared to 0.08% in the prior quarter and 0.03% in the third quarter of 2018.

  • The allowance for loan losses represented 0.68% of total loans compared to 0.67% at June 30, 2019 and 0.64% at September 30, 2018. Loan loss reserve as a percentage of total loans, excluding purchased loans, was 0.81% at September 30, 2019, and June 30, 2019, compared to 0.82% at September 30, 2018. The allowance for loan losses was 3.95 times nonperforming loans compared to 3.00 times at June 30, 2019 and 7.25 times at September 30, 2018.

Quarterly Noninterest Income Compared to the Third Quarter of 2018:

  • Total noninterest income was $54.78 million compared to $49.22 million in 2018, an increase of $5.56 million, or 11.29%. Residential mortgage banking income increased $3.05 million in the quarter, insurance commissions and other title fees increased $2.19 million, real estate brokerage and property management income increased $0.90 million, while service charges on deposit accounts decreased $0.78 million.

  • Residential mortgage banking income was $18.86 million compared to $15.80 million in third quarter 2018. Loan volume in the current quarter was $963.66 million, with purchase activity comprising 68.83% of that volume. Loan volume in third quarter 2018 was $811.50 million, with purchase activity of 89.72%.

  • Total Insurance segment revenue increased 16.59% to $19.62 million in the third quarter due primarily to additional commission income from insurance agencies that were acquired in November 2018 and January 2019. An additional insurance agency, Angel Insurance and Financial Services, Inc., was acquired, effective September 1, 2019.

  • Property management fee revenue increased 13.47%, or $0.78 million, as compared to third quarter 2018 due to increases in reservation levels.

Quarterly Noninterest Expense Compared to the Third Quarter of 2018:

  • Total noninterest expense was $97.29 million compared to $88.26 million in 2018, an increase of $9.03 million, or 10.23%. This reflects increases of $5.29 million in salary and benefits expense, $1.66 million in professional fees, $0.94 million in occupancy expense, and $0.56 million in advertising and marketing expenses.

  • 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.

  • Noninterest expense included operational expenses of $1.86 million related to insurance agencies acquired subsequent to third quarter 2018.

Quarterly Income Taxes Compared to the Third Quarter of 2018:

  • Income tax expense was $7.68 million compared to $9.16 million one year prior. This represents an effective tax rate of 16.95% compared to 19.30% in the third quarter of 2018.

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

  • Total assets were $12.02 billion for the quarter ended September 30, 2019, an increase of 7.69%, or 10.28% on an annualized basis, compared to $11.16 billion at December 31, 2018. Total assets increased $0.90 billion, or 8.09%, from $11.12 billion at September 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 $49.66 million due to the adoption of the leasing standard.

  • Loans held for investment increased $0.16 billion, or 2.05%, or 2.74% on an annualized basis, compared to year end 2018, and $0.30 billion, or 3.82% compared to September 30, 2018.

  • Total liabilities were $10.38 billion at September 30, 2019, an increase of $758.15 million, or 7.88%, compared to December 31, 2018 and $761.35 million, or 7.91%, compared to September 30, 2018.

  • Total deposits increased $1.07 billion, or 12.75%, or 17.05% on an annualized basis, over December 31, 2018 and $1.14 billion, or 13.72%, over September 30, 2018.

  • Total borrowings declined $0.42 billion, or 38.49%, or 51.46% on an annualized basis from December 31, 2018 and $0.49 billion from September 30, 2018.

Investment Securities:

  • Total investment securities were $1.41 billion compared to $1.35 billion at June 30, 2019 and $1.16 billion at September 30, 2018. The weighted average duration of the portfolio at September 30, 2019 was 3.6 years. The carrying value of the available-for-sale portfolio included $26.07 million of net unrealized gains compared to $19.66 million at June 30, 2019 and $26.22 million in net unrealized losses at September 30, 2018. The increase in net unrealized gains was primarily due to further declines in interest rates. The carrying value of the held-to-maturity portfolio does not reflect $1.68 million in net unrealized gains compared to $1.58 million in net unrealized gains at June 30, 2019 and $0.17 million in net unrealized gains at September 30, 2018.

Loans and Asset Quality:

  • Total loans held for investment were $8.18 billion at September 30, 2019 compared to $8.13 billion at June 30, 2019 and $7.88 billion at September 30, 2018.

  • Nonperforming assets were $31.04 million, or 0.26% of total assets, compared to $27.33 million, or 0.25%, at September 30, 2018.

  • Nonperforming loans were 0.17% of period end loans.

  • Foreclosed property decreased to $15.52 million from $18.15 million at September 30, 2018.

Deposits and Borrowings:

  • Total deposits were $9.44 billion compared to $9.27 billion at June 30, 2019 and $8.30 billion at September 30, 2018.

  • Total loans to deposits were 86.70% compared to 87.68% at June 30, 2019 and 94.97% at September 30, 2018.

  • Non-interest bearing deposits were 32.11% of total deposits at September 30, 2019 compared to 31.83% at June 30, 2019 and 32.19% at September 30, 2018.

  • Total borrowings were $0.67 billion compared to $0.84 billion and $1.17 billion at June 30, 2019 and September 30, 2018, respectively.

Capital:

  • Common equity tier 1 capital ratio of 11.52%.

  • Tier 1 leverage capital ratio of 9.84%.

  • Tier 1 risk-based capital ratio of 11.55%.

  • Total risk-based capital ratio of 14.70%.

  • Book value was $22.38 compared to $21.95 at June 30, 2019 and $20.54 at September 30, 2018.

  • Tangible book value (non-GAAP)was $15.44 compared to $15.05 at June 30, 2019 and $13.83 at September 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 $94 - $96 million for 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 $12.02 billion as of September 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, 757-638-6813

TOWNEBANK

Selected Financial Highlights (unaudited)

(dollars in thousands, except per share data)

Three Months Ended

September 30,

June 30,

March 31,

December 31,

September 30,

2019

2019

2019

2018

2018

Income and Performance Ratios:

Total Revenue

$

145,879

$

144,537

$

133,854

$

131,417

$

137,914

Net income

39,400

36,242

32,082

36,440

39,252

Net income attributable to TowneBank

37,659

34,638

31,409

35,990

38,293

Net income per common share - diluted

0.52

0.48

0.44

0.50

0.53

Book value per common share

22.38

21.95

21.40

21.05

20.54

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

15.44

15.05

14.46

14.26

13.83

Return on average assets

1.26

%

1.20

%

1.14

%

1.28

%

1.40

%

Return on average assets - tangible (non-GAAP)

1.40

%

1.35

%

1.29

%

1.43

%

1.56

%

Return on average equity

9.22

%

8.83

%

8.24

%

9.44

%

10.21

%

Return on average equity - tangible (non-GAAP)

14.20

%

13.90

%

13.24

%

14.91

%

16.08

%

Return on average common equity

9.29

%

8.89

%

8.30

%

9.53

%

10.30

%

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

14.36

%

14.05

%

13.39

%

15.11

%

16.30

%

Noninterest income as a percentage of total revenue

37.55

%

37.86

%

34.65

%

32.12

%

35.69

%

Regulatory Capital Ratios (1):

Common equity tier 1

11.52

%

11.58

%

11.49

%

11.51

%

11.53

%

Tier 1

11.55

%

11.62

%

11.52

%

11.54

%

11.57

%

Total

14.70

%

14.85

%

14.79

%

14.83

%

14.90

%

Tier 1 leverage ratio

9.84

%

9.86

%

9.92

%

9.87

%

9.98

%

Asset Quality:

Allowance for loan losses to nonperforming loans

3.95

x

3.00

x

9.36

x

10.97

x

7.25

x

Allowance for loan losses to period end loans

0.68

%

0.67

%

0.66

%

0.65

%

0.64

%

Allowance for loan losses to period end loans excluding purchased loans

0.81

%

0.81

%

0.81

%

0.82

%

0.82

%

Nonperforming loans to period end loans

0.17

%

0.22

%

0.07

%

0.06

%

0.09

%

Nonperforming assets to period end assets

0.26

%

0.29

%

0.22

%

0.22

%

0.25

%

Net charge-offs to average loans (annualized)

0.03

%

0.08

%

0.01

%

0.02

%

0.03

%

Nonperforming loans

$

14,016

$

18,202

$

5,696

$

4,749

$

6,926

Former bank premises

1,510

1,510

2,223

2,253

2,253

Foreclosed property

15,517

14,517

17,071

17,163

18,153

Total nonperforming assets

$

31,043

$

34,229

$

24,990

$

24,165

$

27,332

Loans past due 90 days and still accruing interest

$

636

$

415

$

117

$

394

$

153

Allowance for loan losses

$

55,428

$

54,527

$

53,303

$

52,094

$

50,236

Mortgage Banking:

Loans originated, mortgage

$

703,922

$

574,638

$

366,643

$

407,787

$

561,543

Loans originated, joint venture

259,742

246,491

146,884

192,280

249,956

Total loans originated

$

963,664

$

821,129

$

513,527

$

600,067

$

811,499

Number of loans originated

3,360

3,121

1,977

2,304

3,068

Number of originators

225

229

240

293

303

Purchase %

68.83

%

84.97

%

86.08

%

88.64

%

89.72

%

Loans sold

$

925,058

$

694,832

$

473,068

$

694,341

$

852,205

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

3.45

%

3.43

%

3.58

%

3.37

%

3.36

%

Other Ratios:

Net interest margin

3.41

%

3.49

%

3.54

%

3.53

%

3.62

%

Net interest margin-fully tax equivalent (nonGAAP)

3.43

%

3.52

%

3.57

%

3.55

%

3.64

%

Average earning assets/total average assets

89.53

%

89.46

%

89.50

%

89.91

%

89.69

%

Average loans/average deposits

87.63

%

91.60

%

95.83

%

95.32

%

97.55

%

Average noninterest deposits/total average deposits

31.82

%

31.63

%

31.39

%

31.90

%

32.61

%

Period end equity/period end total assets

13.63

%

13.45

%

13.53

%

13.78

%

13.49

%

Efficiency ratio

66.66

%

66.80

%

68.43

%

62.65

%

64.00

%

(1) Current reporting period regulatory capital ratios are preliminary


TOWNEBANK

Selected Data (unaudited)

(dollars in thousands)

Investment Securities

% Change

Q3

Q3

Q2

Q3 19 vs.

Q3 19 vs.

Available-for-sale securities, at fair value

2019

2018

2019

Q3 18

Q2 19

U.S. agency securities

$

152,581

$

388,904

$

261,960

(60.77

)%

(41.75

)%

U.S. Treasury notes

999

1,245

2,241

(19.76

)%

(55.42

)%

Municipal securities

173,519

72,818

167,466

138.29

%

3.61

%

Trust preferred and other corporate securities

52,006

30,648

43,799

69.69

%

18.74

%

Mortgage-backed securities issued by GSE and GNMA

958,290

558,158

785,355

71.69

%

22.02

%

Total

$

1,337,395

$

1,051,773

$

1,260,821

27.16

%

6.07

%

Held-to-maturity securities, at amortized cost

Municipal securities

$

29,166

$

35,007

$

34,458

(16.69

)%

(15.36

)%

Trust preferred corporate securities

2,381

500

2,393

376.20

%

(0.50

)%

Mortgage-backed securities issued by GSE and GNMA

12,947

16,495

13,723

(21.51

)%

(5.65

)%

Total

$

44,494

$

52,002

$

50,574

(14.44

)%

(12.02

)%

Loans Held For Investment

% Change

Q3

Q3

Q2

Q3 19 vs.

Q3 19 vs.

2019

2018

2019

Q3 18

Q2 19

Real estate - construction and development

$

1,142,225

$

1,016,120

$

1,107,762

12.41

%

3.11

%

Commercial real estate - investment related properties

2,070,317

1,957,297

1,985,990

5.77

%

4.25

%

Commercial real estate - owner occupied

1,286,137

1,259,368

1,288,478

2.13

%

(0.18

)%

Real estate - multifamily

219,901

284,423

267,528

(22.69

)%

(17.80

)%

Real estate - residential 1-4 family

1,621,175

1,608,517

1,639,547

0.79

%

(1.12

)%

Commercial and industrial business

1,527,515

1,447,794

1,523,607

5.51

%

0.26

%

Consumer and other loans

315,559

308,173

313,817

2.40

%

0.56

%

Total

$

8,182,829

$

7,881,692

$

8,126,729

3.82

%

0.69

%

Deposits

% Change

Q3

Q3

Q2

Q3 19 vs.

Q3 19 vs.

2019

2018

2019

Q3 18

Q2 19

Noninterest-bearing demand

$

3,030,505

$

2,671,558

$

2,950,615

13.44

%

2.71

%

Interest-bearing:

Demand and money market accounts

3,534,252

3,096,317

3,409,322

14.14

%

3.66

%

Savings

280,552

298,368

277,495

(5.97

)%

1.10

%

Certificates of deposits

2,592,705

2,233,188

2,631,386

16.10

%

(1.47

)%

Total

$

9,438,014

$

8,299,431

$

9,268,818

13.72

%

1.83

%


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

December 31,

2019

Assets:

$

(74

)

Investment Securities

1,403

Loans

Liabilities:

Deposits

47

Total estimated effect on net interest income

$

1,282

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 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

September 30, 2019

June 30, 2019

September 30, 2018

Average
Balance

Interest
Income/
Expense

Average
Yield/
Rate

Average
Balance

Interest
Income/
Expense

Average
Yield/
Rate

Average
Balance

Interest
Income/
Expense

Average
Yield/
Rate

Assets:

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

$

8,096,908

$

102,495

5.02

%

$

8,075,054

$

102,366

5.08

%

$

7,825,065

$

97,705

4.95

%

Taxable investment securities

1,266,447

9,087

2.87

%

1,170,215

8,346

2.85

%

1,022,051

6,402

2.51

%

Tax-exempt investment securities

121,738

997

3.28

%

90,942

756

3.33

%

82,235

766

3.73

%

Total securities

1,388,185

10,084

2.91

%

1,261,157

9,102

2.89

%

1,104,286

7,168

2.60

%

Interest-bearing deposits

711,030

3,745

2.09

%

698,649

4,016

2.31

%

450,455

2,148

1.89

%

Loans held for sale

408,377

3,956

3.87

%

281,775

3,007

4.27

%

346,806

4,012

4.63

%

Total earning assets

10,604,500

120,280

4.50

%

10,316,635

118,491

4.61

%

9,726,612

111,033

4.53

%

Less: allowance for loan losses

(54,858

)

(53,386

)

(50,144

)

Total nonearning assets

1,295,640

1,269,029

1,168,102

Total assets

$

11,845,282

$

11,532,278

$

10,844,570

Liabilities and Equity:

Interest-bearing deposits

Demand and money market

$

3,379,888

$

7,223

0.85

%

$

3,312,313

$

7,025

0.85

%

$

2,957,037

$

4,217

0.57

%

Savings

278,048

702

1.00

%

281,221

929

1.33

%

301,311

984

1.30

%

Certificates of deposit

2,641,681

15,627

2.35

%

2,433,479

13,830

2.28

%

2,147,338

9,339

1.73

%

Total interest-bearing deposits

6,299,617

23,552

1.48

%

6,027,013

21,784

1.45

%

5,405,686

14,540

1.07

%

Borrowings

486,644

2,020

1.62

%

678,799

3,318

1.93

%

920,380

4,195

1.78

%

Subordinated debt, net

248,210

2,962

4.77

%

21,001

21,667

20,910

Total Cash and Cash Equivalents

821,390

966,612

900,300

686,696

709,494

Securities available for sale, at fair value

1,337,395

1,260,821

1,099,777

1,095,339

1,051,773

Securities held to maturity, at amortized cost

44,494

50,574

49,687

50,598

52,002

Other equity securities

5,697

5,396

5,022

4,797

5,519

Federal Home Loan Bank stock

26,282

32,657

41,464

43,229

46,393

Total Securities

1,413,868

1,349,448

1,195,950

1,193,963

1,155,687

Mortgage loans held for sale

456,719

362,773

247,021

220,986

333,354

Loans, net of unearned income and deferred costs

8,182,829

8,126,729

8,105,370

8,018,233

7,881,692

Less: allowance for loan losses

(55,428

)

(54,527

)

(53,303

)

(52,094

)

(50,236

)

Net Loans

8,127,401

8,072,202

8,052,067

7,966,139

7,831,456

Premises and equipment, net

231,060

230,177

227,458

211,796

210,724

Goodwill

446,423

442,881

442,881

433,658

427,117

Other intangible assets, net

57,404

58,391

61,333

58,752

58,165

Bank-owned life insurance policies

241,652

240,621

238,977

237,371

235,348

Other assets

225,374

219,375

202,276

153,669

159,887

TOTAL ASSETS

$

12,021,291

$

11,942,480

$

11,568,263

$

11,163,030

$

11,121,232

LIABILITIES AND EQUITY

Deposits:

Noninterest-bearing demand

$

3,030,505

$

2,950,615

$

2,813,857

$

2,622,761

$

2,671,558

Interest-bearing:

Demand and money market accounts

3,534,252

3,409,322

3,290,907

3,223,215

3,096,317

Savings

280,552

277,495

285,790

286,684

298,368

Certificates of deposit

2,592,705

2,631,386

2,341,134

2,237,762

2,233,188

Total Deposits

9,438,014

9,268,818

8,731,688

8,370,422

8,299,431

Advances from the Federal Home Loan Bank

381,846

532,004

739,160

799,315

873,469

Subordinated debt, net

248,309

248,160

248,010

247,861

247,712

Repurchase agreements and other borrowings

42,971

56,355

44,775

47,156

45,591

Total Borrowings

673,126

836,519

1,031,945

1,094,332

1,166,772

Other liabilities

271,617

230,691

238,974

159,856

155,205

TOTAL LIABILITIES

10,382,757

10,336,028

10,002,607

9,624,610

9,621,408

Preferred stock

Authorized shares - 2,000,000

Common stock, $1.667 par value

121,080

121,038

121,047

120,801

120,613

Capital surplus

1,039,156

1,036,982

1,035,563

1,034,676

1,032,863

Retained earnings

445,186

420,600

399,030

379,239

354,842

Common stock issued to deferred compensation

trust, at cost

(15,317

)

(15,160

)

(14,067

)

(13,955

)

(13,780

)

Deferred compensation trust

15,317

15,160

14,067

13,955

13,780

Accumulated other comprehensive income (loss)

19,958

15,143

(1,792

)

(9,190

)

(22,348

)

TOTAL SHAREHOLDERS’ EQUITY

1,625,380

1,593,763

1,553,848

1,525,526

1,485,970

Noncontrolling interest

13,154

12,689

11,808

12,894

13,854

TOTAL EQUITY

1,638,534

1,606,452

1,565,656

1,538,420

1,499,824

TOTAL LIABILITIES AND EQUITY

$

12,021,291

$

11,942,480

$

11,568,263

$

11,163,030

$

11,121,232


TOWNEBANK

Consolidated Statements of Income - Five Quarter Trend (unaudited)

(dollars in thousands, except share data)

Three Months Ended

September 30,
2019

June 30,
2019

March 31,
2019

December 31,
2018

September 30,
2018

INTEREST INCOME:

Loans, including fees

$

102,047

$

101,874

$

99,695

$

99,446

$

97,215

Investment securities

9,889

8,987

8,134

8,126

7,019

Interest-bearing deposits in financial institutions and federal funds sold

3,745

4,015

3,998

3,559

2,148

Mortgage loans held for sale

3,956

3,007

2,003

3,176

4,012

Total interest income

119,637

117,883

113,830

114,307

110,394

INTEREST EXPENSE:

Deposits

23,552

21,784

19,174

17,495

14,540

Advances from the Federal Home Loan Bank

1,935

3,201

4,153

4,585

4,153

Subordinated debt

2,962

2,962

2,962

2,961

2,962

Repurchase agreements and other borrowings

85

117

68

58

42

Total interest expense

28,534

28,064

26,357

25,099

21,697

Net interest income

91,103

89,819

87,473

89,208

88,697

PROVISION FOR LOAN LOSSES

1,508

2,824

1,438

2,292

1,241

Net interest income after provision for loan losses

89,595

86,995

86,035

86,916

87,456

NONINTEREST INCOME:

Residential mortgage banking income, net

18,855

18,565

13,508

12,951

15,804

Insurance commissions and other title fees and income, net

16,681

17,213

15,582

13,212

14,493

Real estate brokerage and property management income, net

9,444

8,843

9,268

5,982

8,542

Service charges on deposit accounts

2,253

3,185

2,861

2,928

3,028

Credit card merchant fees, net

1,514

660

1,183

1,298

1,563

Bank owned life insurance

2,117

1,635

1,598

2,014

1,657

Other income

3,981

4,617

3,157

3,824

4,130

Net gain/(loss) on investment securities

(69

)

(776

)

Total noninterest income

54,776

54,718

46,381

42,209

49,217

NONINTEREST EXPENSE:

Salaries and employee benefits

55,784

54,263

52,860

50,233

50,497

Occupancy expense

7,953

7,662

8,251

7,352

7,013

Furniture and equipment

3,805

3,578

3,371

3,587

3,646

Amortization - intangibles

3,059

3,113

3,192

3,123

2,996

Software expense

3,208

2,788

2,745

2,694

2,940

Outside data processing

2,533

3,616

3,166

2,466

2,917

Professional fees

3,566

3,707

2,679

2,028

1,908

Advertising and marketing

3,429

3,182

2,829

2,546

2,874

Other expenses

13,950

14,647

13,030

8,308

13,471

Total noninterest expense

97,287

96,556

92,123

82,337

88,262

Income before income tax expense and noncontrolling interest

47,084

45,157

40,293

46,788

48,411

Provision for income tax expense

7,684

8,915

8,211

10,348

9,159

Net income

39,400

36,242

32,082

36,440

39,252

Net income attributable to noncontrolling interest

(1,741

)

(1,604

)

(673

)

(450

)

(959

)

Net income attributable to TowneBank

$

37,659

$

34,638

$

31,409

$

35,990

$

38,293

Per common share information

Basic earnings

$

0.52

$

0.48

$

0.44

$

0.50

$

0.53

Diluted earnings

$

0.52

$

0.48

$

0.44

$

0.50

$

0.53

Basic weighted average shares outstanding

72,091,221

72,044,817

71,992,330

71,905,956

71,875,085

Diluted weighted average shares outstanding

72,222,934

$

72,145,600

72,099,558

72,043,369

72,044,355

Cash dividends declared

$

0.18

$

0.18

$

0.16

$

0.16

$

0.16


TOWNEBANK

Banking Segment Financial Information (unaudited)

(dollars in thousands)

Three Months Ended

Nine Months Ended

Increase/(Decrease)

September 30,

June 30,

September 30,

2019 over 2018

2019

2018

2019

2019

2018

Amount

Percent

Revenue

Net interest income

$

89,490

$

85,423

$

88,442

$

264,332

$

243,151

$

21,181

8.71

%

Service charges on deposit

accounts

2,253

3,028

3,185

8,299

8,880

(581

)

(6.54

)%

Credit card merchant fees

1,514

1,563

660

3,357

4,174

(817

)

(19.57

)%

Other income

5,152

4,300

5,273

14,350

12,318

2,032

16.50

%

Subtotal

8,919

8,891

9,118

26,006

25,372

634

2.50

%

Net gain/(loss) on investment securities

(69

)

(845

)

3

(848

)

N/M

Total noninterest income

8,850

8,891

9,118

25,161

25,375

(214

)

(0.84

)%

Total revenue

98,340

94,314

97,560

289,493

268,526

20,967

7.81

%

Provision for loan losses

1,508

1,241

2,824

5,770

6,249

(479

)

(7.67

)%

Expenses

Salaries and employee benefits

33,526

28,329

32,353

96,966

86,372

10,594

12.27

%

Occupancy expense

5,209

4,331

5,007

15,460

12,621

2,839

22.49

%

Furniture and equipment

2,779

2,463

2,517

7,662

7,485

177

2.36

%

Amortization of intangibles

1,265

1,479

1,315

3,946

4,230

(284

)

(6.71

)%

Other expenses

17,098

14,829

18,938

52,218

50,940

1,278

2.51

%

Total expenses

59,877

51,431

60,130

176,252

161,648

14,604

9.03

%

Income before income tax, corporate allocation and noncontrolling interest

36,955

41,642

34,606

107,471

100,629

6,842

6.80

%

Corporate allocation

384

438

546

1,383

1,370

13

0.95

%

Income before income tax provision and noncontrolling interest

37,339

42,080

35,152

108,854

101,999

6,855

6.72

%

Provision for income tax expense

5,495

7,604

6,650

19,337

18,629

708

3.80

%

Net income

31,844

34,476

28,502

89,517

83,370

6,147

7.37

%

Noncontrolling interest

(4

)

1

4

(12

)

16

N/M

Net income attributable to TowneBank

$

31,844

$

34,472

$

28,503

$

89,521

$

83,358

$

6,163

7.39

%

Efficiency ratio

60.85

%

54.53

%

61.63

%

60.71

%

60.20

%

0.51

%

0.85

%


TOWNEBANK

Realty Segment Financial Information (unaudited)

(dollars in thousands)

Three Months Ended

Nine Months Ended

Increase/(Decrease)

September 30,

June 30,

September 30,

2019 over 2018

2019

2018

2019

2019

2018

Amount

Percent

Revenue

Residential mortgage brokerage
income, net

$

19,171

$

16,219

$

18,898

$

51,826

$

53,223

$

(1,397

)

(2.62

)%

Real estate brokerage income, net

2,882

2,758

2,873

7,315

7,275

40

0.55

%

Title insurance and settlement fees

617

525

594

1,581

1,420

161

11.34

%

Property management fees, net

6,562

5,783

5,970

20,240

18,606

1,634

8.78

%

Income from unconsolidated
subsidiary

185

122

162

441

316

125

39.56

%

Net interest and other income

1,885

4,111

1,677

4,937

9,999

(5,062

)

(50.63

)%

Total revenue

31,302

29,518

30,174

86,340

90,839

(4,499

)

(4.95

)%

Expenses

Salaries and employee benefits

13,474

14,862

13,309

39,678

44,142

(4,464

)

(10.11

)%

Occupancy expense

2,055

2,084

2,028

6,428

5,942

486

8.18

%

Furniture and equipment

754

952

803

2,326

2,768

(442

)

(15.97

)%

Amortization of intangible assets

666

672

695

2,086

2,015

71

3.52

%

Other expenses

7,478

7,543

7,234

20,953

21,996

(1,043

)

(4.74

)%

Total expenses

24,427

26,113

24,069

71,471

76,863

(5,392

)

(7.02

)%

Income before income tax, corporate allocation and noncontrolling interest

6,875

3,405

6,105

14,869

13,976

893

6.39

%

Corporate allocation

(208

)

(270

)

(328

)

(800

)

(853

)

53

(6.21

)%

Income before income tax provision and noncontrolling interest

6,667

3,135

5,777

14,069

13,123

946

7.21

%

Provision for income tax expense

1,454

786

1,287

3,292

2,977

315

10.58

%

Net income

5,213

2,349

4,490

10,777

10,146

631

6.22

%

Noncontrolling interest

(1,496

)

(756

)

(1,248

)

(2,997

)

(2,268

)

(729

)

32.14

%

Net income attributable to TowneBank

$

3,717

$

1,593

$

3,242

$

7,780

$

7,878

$

(98

)

(1.24

)%

Efficiency ratio

78.04

%

88.46

%

79.77

%

82.78

%

84.61

%

(1.83

)%

(2.16

)%


TOWNEBANK

Insurance Segment Financial Information (unaudited)

(dollars in thousands)

Three Months Ended

Nine Months Ended

Increase/(Decrease)

September 30,

June 30,

September 30,

2019 over 2018

2019

2018

2019

2019

2018

Amount

Percent

Commission and fee income

Property and casualty

$

13,481

$

10,762

$

13,067

$

38,421

$

31,178

$

7,243

23.23

%

Employee benefits

3,629

3,813

3,833

10,968

10,463

505

4.83

%

Travel insurance

834

871

1,169

3,292

4,028

(736

)

(18.27

)%

Specialized benefit services

166

166

163

499

506

(7

)

(1.38

)%

Total commissions and fees

18,110

15,612

18,232

53,180

46,175

7,005

15.17

%

Contingency and bonus revenue

1,431

1,137

1,893

4,910

3,703

1,207

32.60

%

Other income

74

75

79

227

215

12

5.58

%

Total revenue

19,615

16,824

20,204

58,317

50,093

8,224

16.42

%

Employee commission expense

3,378

2,742

3,401

9,878

8,209

1,669

20.33

%

Revenue, net of commission expense

16,237

14,082

16,803

48,439

41,884

6,555

15.65

%

Salaries and employee benefits

8,784

7,306

8,601

26,263

21,092

5,171

24.52

%

Occupancy expense

689

598

627

1,978

1,729

249

14.40

%

Furniture and equipment

272

232

258

765

637

128

20.09

%

Amortization of intangible assets

1,128

845

1,103

3,332

2,342

990

42.27

%

Other expenses

2,110

1,737

1,768

5,906

5,476

430

7.85

%

Total operating expenses

12,983

10,718

12,357

38,244

31,276

6,968

22.28

%

Income before income tax, corporate allocation and noncontrolling interest

3,254

3,364

4,446

10,195

10,608

(413

)

(3.89

)%

Corporate allocation

(176

)

(168

)

(218

)

(583

)

(517

)

(66

)

12.77

%

Income before income tax provision and noncontrolling interest

3,078

3,196

4,228

9,612

10,091

(479

)

(4.75

)%

Provision for income tax expense

735

769

978

2,181

2,273

(92

)

(4.05

)%

Net income

2,343

2,427

3,250

7,431

7,818

(387

)

(4.95

)%

Noncontrolling interest

(245

)

(199

)

(357

)

(1,025

)

(1,251

)

226

(18.07

)%

Net income attributable to TowneBank

$

2,098

$

2,228

$

2,893

$

6,406

$

6,567

$

(161

)

(2.45

)%

Provision for income taxes

735

769

978

2,181

2,273

(92

)

(4.05

)%

Depreciation, amortization and interest expense

1,325

1,068

1,309

3,943

2,982

961

32.23

%

EBITDA (non-GAAP)

$

4,158

$

4,065

$

5,180

$

12,530

$

11,822

$

708

5.99

%

Efficiency ratio

79.96

%

76.11

%

73.54

%

78.95

%

74.67

%

4.28

%

5.73

%


TOWNEBANK

Reconcilement of Non-GAAP Financial Measures

(dollars in thousands)

Three Months Ended

Nine Months Ended

September 30,
2019

September 30,
2018

June 30,
2019

September 30,
2019

September 30,
2018

Return on average assets (GAAP)

1.26

%

1.40

%

1.20

%

1.20

%

1.26

%

Impact of excluding average goodwill and other intangibles and amortization

0.14

%

0.16

%

0.15

%

0.15

%

0.15

%

Return on average tangible assets (non-GAAP)

1.40

%

1.56

%

1.35

%

1.35

%

1.41

%

Return on average equity (GAAP)

9.22

%

10.21

%

8.83

%

8.77

%

9.11

%

Impact of excluding average goodwill and other intangibles and amortization

4.98

%

5.87

%

5.07

%

5.02

%

5.27

%

Return on average tangible equity (non-GAAP)

14.20

%

16.08

%

13.90

%

13.79

%

14.38

%

Return on average common equity (GAAP)

9.29

%

10.30

%

8.89

%

8.84

%

9.18

%

Impact of excluding average goodwill and other intangibles and amortization

5.07

%

6.00

%

5.16

%

5.11

%

5.37

%

Return on average tangible common equity (non-GAAP)

14.36

%

16.30

%

14.05

%

13.95

%

14.55

%

Book value (GAAP)

$

22.38

$

20.54

$

21.95

$

22.38

$

20.54

Impact of excluding average goodwill and other intangibles and amortization

(6.94

)

(6.71

)

(6.90

)

(6.94

)

(6.71

)

Tangible book value (non-GAAP)

$

15.44

$

13.83

$

15.05

$

15.44

$

13.83

Average assets (GAAP)

$

11,845,282

$

10,844,570

$

11,532,278

$

11,526,487

$

10,413,575

Less: average goodwill

442,919

425,725

442,881

442,890

405,726

Less: average intangible assets

57,327

59,492

60,339

60,333

57,251

Average tangible assets (non-GAAP)

$

11,345,036

$

10,359,353

$

11,029,058

$

11,023,264

$

9,950,598

Average equity (GAAP)

$

1,620,070

$

1,488,368

$

1,573,855

$

1,580,213

$

1,435,544

Less: average goodwill

442,919

425,725

442,881

442,890

405,726

Less: average intangible assets

57,327

59,492

60,339

60,333

57,251

Average tangible equity (non-GAAP)

$

1,119,824

$

1,003,151

$

1,070,635

$

1,076,990

$

972,567

Average common equity (GAAP)

$

1,607,853

$

1,474,833

$

1,562,214

$

1,568,336

$

1,423,787

Less: average goodwill

442,919

425,725

442,881

442,890

405,726

Less: average intangible assets

57,327

59,492

60,339

60,333

57,251

Average tangible common equity (non-GAAP)

$

1,107,607

$

989,616

$

1,058,994

$

1,065,113

$

960,810


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

September 30,
2019

June 30,
2019

March 31,
2019

December 31,
2018

September 30,
2018

Net income (GAAP)

$

37,659

$

34,638

$

31,409

$

35,990

$

38,293

Acquisition-related expenses

207

20

411

(1,518

)

424

Income tax expense -tax reform legislation

696

Income tax expense (benefit) - other items

(20

)

(3

)

(52

)

355

(44

)

Income tax expense (benefit)

(20

)

(3

)

(52

)

1,051

(44

)

Total charges, net of taxes

187

17

359

(467

)

380

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

$

37,846

$

34,655

$

31,768

$

35,523

$

38,673

Weighted average diluted shares

72,222,934

72,145,600

72,099,558

72,043,369

72,044,355

Diluted EPS (GAAP)

$

0.52

$

0.48

$

0.44

$

0.50

$

0.53

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

$

0.52

$

0.48

$

0.44

$

0.49

$

0.54

Average assets

$

11,845,282

$

11,532,278

$

11,194,753

$

11,149,960

$

10,844,570

Average tangible equity

$

1,119,824

$

1,070,635

1,039,630

$

1,022,982

$

1,003,151

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

1.27

%

1.21

%

1.15

%

1.26

%

1.41

%

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

14.26

%

13.90

%

13.38

%

14.73

%

16.23

%

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

14.42

%

14.06

%

13.53

%

14.93

%

16.45

%

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

66.52

%

66.79

%

68.12

%

63.81

%

63.69

%


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

Nine months ended

September 30,
2019

September 30,
2018

Net income (GAAP)

$

103,707

$

97,803

Acquisition-related expenses

638

9,947

Total charges

638

9,947

Income tax expense (benefit) - other items

(75

)

(1,776

)

Income tax expense (benefit)

(75

)

(1,776

)

Total charges, net of taxes

563

8,171

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

$

104,270

$

105,974

Weighted average diluted shares

72,152,643

71,043,039

Diluted EPS (GAAP)

$

1.44

$

1.38

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

$

1.45

$

1.49

Average assets

$

11,526,487

$

10,413,575

Average tangible equity

$

1,076,990

$

972,567

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

1.21

%

1.36

%

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

13.86

%

15.50

%

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

14.02

%

15.69

%

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

67.12

%

64.76

%