TowneBank Reports Full Year and Fourth Quarter Financial Results for 2014

SUFFOLK, Va., Feb. 2, 2015 (GLOBE NEWSWIRE) -- Hampton Roads based TowneBank (the "Bank") (Nasdaq:TOWN) today reported financial results for the full year and the fourth quarter ended December 31, 2014.

Record Earnings for Full Year 2014

The Bank reported record annual earnings of $42.17 million for the year ended December 31, 2014, as compared to the $41.76 million earned in 2013. The Bank's annual earnings for 2014 included a net of tax charge of $5.49 million in non-recurring severance and acquisition-related charges recorded during the year.

Net income available to common shareholders increased 10.31% to $41.40 million after preferred dividend payments of $0.76 million. Fully diluted earnings per share, including the non-recurring charges, increased 3.51% to $1.18 per share compared to $1.14 per share for 2013.

The Bank's quarterly dividend was increased to $0.11 per share beginning in the second quarter of 2014 resulting in total dividends of $0.43 per share for 2014, an increase of 13% over 2013. On an annualized basis, the current annual dividend rate is $0.44 per share.

"We are pleased to announce our 15th consecutive year of record annual earnings," said G. Robert Aston, Jr., Chairman and Chief Executive Officer. "These earnings were a result of increased revenue growth, control of core operating expenses, and solid balance sheet growth. Additionally, TowneBank's deposit market share in Hampton Roads reached a record level of 16.70%, elevating our hometown bank into a number two position among all banks serving our home market."

"On January 2, 2015, we successfully completed the acquisition and integration of the $1.1 billion Richmond, Virginia-based Franklin Financial Corporation. This strategic merger will enable us to enter the Richmond and central Virginia market with eight banking centers plus an assemblage of an exceptional group of hometown bankers to help us build a community asset for Virginia's capital city," added Aston.

2014 Performance Highlights

• Total revenues were $242.46 million, an increase of $8.04 million, or 3.43%, compared to 2013
  • Taxable equivalent net interest margin was 3.38% compared to 3.61% for 2013
  • Insurance commissions increased 22.02% to $34.56 million
• Core noninterest expense discipline demonstrated as noninterest expense increase of $10.07 million includes the following:
  • Non-recurring charges of $7.83 million, before tax, in severance and acquisition-related expenses
  • Additional operational noninterest expenses of $2.67 million related to insurance agency acquired in 2014
  • Additional operational noninterest expenses of $0.81 million related to resort property management company acquired in 2014
• Loan growth continued as total loans held for investment increased $161.28 million, or 4.98%, from December 31, 2013
  • Commercial and industrial loans increased by $32.75 million, or 6.54%
  • Owner occupied commercial real estate loans increased $15.40 million, or 2.09%
  • Income producing commercial real estate loans increased $66.11 million, or 10.50%
  • Construction and development loans decreased $17.20 million, or 3.66%
  • Consumer and other loans increased $26.67 million, or 54.76%
• Total deposits were $3.85 billion, an increase of $279.50 million, or 7.84%, from 2013
  • Noninterest bearing deposits increased by 18.07%, to $1.22 billion
  • Average interest-bearing deposit costs were 0.52%, down three basis points
  • Noninterest bearing deposits were 31.83% of total deposits compared to 29.07% at December 31, 2013
  • Total cost of deposits declined to 0.36% from 0.39% at December 31, 2013.
• Asset quality showed continued improvement
  • Nonperforming assets were $41.86 million, a decrease of 19.95% from 2013
  • Nonperforming loans decreased 47.14% to $6.74 million
  • Foreclosed property decreased by 11.18% to $35.12 million
• Strategic acquisitions
  • On May 1, 2014, acquired Southern Insurance Agency, Inc. ("Southern"), an independent insurance agency
  • On October 1, 2014, acquired Beach Properties of Hilton Head ("Beach Properties"), a resort property management company in Hilton Head, South Carolina
  • On January 2, 2015, completed the acquisition of Franklin Financial Corporation ("Franklin") and its wholly owned subsidiary, Franklin Federal Savings Bank, based in Richmond, Virginia
• New banking center
  • On June 13, 2014, opened a new banking office in the Wards Corner area in Norfolk, Virginia
  • At December 31, 2014, the Wards Corner banking office had deposits of $42.88 million
• The Bank remained well-capitalized
  • Tier 1 leverage capital ratio of 9.94%
  • Tier 1 risk-based capital ratio of 12.73%
  • Total risk-based capital ratio of 13.67%

Fourth Quarter 2014 Earnings

Net income for the fourth quarter was $7.23 million versus $9.67 million in 2013, reflecting a non-recurring, net-of-tax charge of $4.23 million in severance and acquisition-related expenses. These one-time charges were partially offset by a reversal of previously accrued incentive compensation of $0.59 million, on an after-tax basis, that was unearned for the full calendar year. Fully diluted earnings per share, including the impact of the non-recurring charges, was $0.20 compared to $0.27 in fourth quarter 2013.

Fourth Quarter 2014 Performance Highlights

• Total revenues were $59.54 million, an increase of $4.31 million, or 7.80%, compared to the fourth quarter of 2013
  • Taxable equivalent net interest margin was 3.35% compared to 3.53% for the fourth quarter of 2013
  • Residential mortgage banking income increased 18.26% from the fourth quarter of 2013 to $6.52 million on production volume of $321.31 million
  • Insurance commissions increased 28.51% to $7.74 million
• Core noninterest expense discipline demonstrated as noninterest expense increase of $7.96 million includes the following:
  • Non-recurring charge of $6.32 million, before tax, in severance and acquisition-related expenses
  • Additional operational noninterest expenses of $1.08 million related to Southern acquisition in 2014
  • Additional operational noninterest expenses of $0.81 million related to Beach Properties acquisition in 2014
• Total loans held for investment increased $38.73 million, or 1.15%, from September 30, 2014
• Average interest-bearing deposit costs were 0.50%, down two basis points from third quarter 2014
• Asset quality showed continued improvement
  • Nonperforming assets were $41.86 million, a decrease of 4.44% from third quarter 2014
  • Net charge-offs were 0.03% annualized of average loans versus 0.09% in fourth quarter 2013 and 0.07% in third quarter 2014

Net Interest Income

Net interest income increased to $37.14 million, a $0.68 million, or 1.87%, increase from the fourth quarter of 2013. The primary driver of the increase was growth in average earning assets of $333.31 million, which was partially offset by an 18 basis point narrowing of the tax-equivalent net interest margin to 3.35% in the current quarter from 3.53% in fourth quarter 2013.

On a linked quarter basis, net interest income increased $0.27 million or 0.74%, in fourth quarter 2014 versus the third quarter, while tax-equivalent net interest margin was 3.35% versus 3.32% for the third quarter of 2014.

Noninterest Income

Noninterest income, excluding gains or losses on investment securities, was $22.40 million for the fourth quarter of 2014, an increase of $3.69 million, or 19.72%, from the fourth quarter of 2013. A large portion of the increase from the comparative period in 2013 is attributable to insurance commissions, which increased $1.72 million, or 28.51%, primarily due to the acquisition of Southern in May 2014. Additionally, the acquisition of Beach Properties in fourth quarter 2014 led to an increase in real estate brokerage and property management income. Also contributing to the increase, residential mortgage banking income increased $1.01 million, or 18.26%, from the fourth quarter of 2013 primarily due to improved pricing and increased production. Mortgage production was $321.31 million for the fourth quarter of 2014, which was $47.63 million higher than the fourth quarter of 2013.

In comparison to the third quarter of 2014, noninterest income, excluding gains or losses on investment securities, decreased $3.87 million, or 14.73%. Residential mortgage banking income decreased by $1.34 million, or 16.99%, from the third quarter of 2014 primarily due to a seasonal decrease in mortgage production of $41.24 million. Decreases in real estate brokerage and property management income and insurance commissions from the linked quarter period also reflected the seasonal nature of those businesses.

Noninterest Expense

Noninterest expense increased by $7.96 million, or 19.41%, from the fourth quarter of 2013. Driving the increase was the Company incurring $3.10 million of nonrecurring merger expense in the fourth quarter of 2014 related to the acquisition of Southern in the second quarter of 2014 and the merger with Franklin. Additionally, severance costs resulted in pre-tax salaries and benefits expenses of $2.54 million and legal fees of $0.68 million. Occupancy expense increased 5.70% as the opening of a new banking office in June 2014 led to additional expenses. Excluding the above-mentioned separation costs, salaries and benefits expenses were essentially flat due to previously announced cost-control initiatives launched by the Company in the first quarter of 2014.

Noninterest expense increased by $4.81 million, or 10.88%, from the third quarter of 2014. Driving the increase were merger expenses of $3.10 million up from $1.09 million in the third quarter, combined with the above-mentioned severance costs. Included in fourth quarter 2014 is a reversal of $0.90 million, pre-tax, in previously accrued employee incentive compensation unearned for the full 2014 year. Excluding the severance costs, salaries and benefits expense decreased 9.62% from the previous quarter.

Segment Results

Banking

Net income for the three months ended December 31, 2014 for the Banking segment was $7.19 million, decreasing $2.49 million, or 25.75%, from comparative 2013. The decrease in earnings was driven by an increase in noninterest expenses of $5.57 million primarily caused by acquisition-related expenses from the merger with Franklin and the previously discussed severance costs. These factors were partially offset by a decrease in the provision for loan losses and an increase in net interest income.

The decrease in earnings of $2.38 million, or 24.83% from the third quarter of 2014 was primarily driven by an increase in noninterest expenses of $4.60 million primarily caused by the aforementioned acquisition-related expenses from the merger with Franklin and severance costs. Also contributing to the decrease was an increase in foreclosed property expenses of $0.54 million. These factors were partially offset by a decrease in the provision for loan losses of $1.04 million.

Realty

For the three months ended December 31, 2014, the Realty segment had a net loss of $0.23 million, an improvement of $0.17 million or 42.51% compared to the fourth quarter of 2013. Contributing to the improvement was an increase in noninterest income of $1.55 million as residential mortgage banking income increased by $0.98 million and the previously discussed acquisition of a resort property management company in fourth quarter 2014 contributed to a rise of $0.54 million in real estate brokerage and property management income. These improvements were offset by an increase in noninterest expense of $0.88 million primarily related to the resort property acquisition.

Net income in the Realty segment decreased by $1.77 million from the linked quarter ended September 30, 2014. Residential mortgage banking income decreased $1.29 million due to a seasonal decrease in production volume, and a seasonal decrease also led to a reduction in real estate brokerage and property management income.

Insurance

The Insurance segment had net income of $0.28 million for the three months ended December 31, 2014, a decrease of $0.12 million compared to fourth quarter 2013. The decrease in net income was driven by a one-time adjustment of $0.19 million in state income tax provision.

Net income decreased $0.75 million from the third quarter of 2014. The decline from the linked quarter was driven by a decrease in net commissions and fees of $0.99 million due to expected seasonality of the business.

Balance Sheet

At December 31, 2014, total Bank assets reached $4.98 billion, an increase of $309.49 million, or 6.62%, over December 31, 2013.

Loans

The Bank's loan portfolio ended the period at $3.40 billion representing an increase of 4.98%, or $161.28 million, from December 31, 2013, and an increase of 1.15%, or $38.73 million, from September 30, 2014.

Deposits

The Bank continued to experience solid deposit growth with total deposits increasing to $3.85 billion, up $279.50 million, or 7.84%, from December 31, 2013. The Bank saw continued growth in noninterest bearing demand deposits, which ended the year at $1.22 billion, an 18.07% increase from the prior comparative period. Noninterest bearing deposits represented 31.83% of total deposits at December 31, 2014.

Capital Ratios

The Bank's total equity at December 31, 2014 rose to $618.28 million, an increase of $32.96 million, or 5.63%, from December 31, 2013. Common equity increased 6.53%, or $32.64 million, from December 31, 2013. Total risk-based capital remained strong as total risk-based capital, Tier 1 capital, Tier 1 leverage ratios, and Tier 1 common capital ratios were 13.67%, 12.73%, 9.94%, 10.47%, respectively. All ratios exceed the current regulatory standards for well capitalized status.

Asset Quality  

Continued improvements in credit quality contributed to the Bank's financial results as nonperforming loans decreased to $6.74 million from $12.75 million, at December 31, 2013 and up slightly from $5.85 million at September 30, 2014. Net charge-offs were $0.26 million in the fourth quarter of 2014 compared to $0.73 million in the fourth quarter of 2013 and $0.60 million in the linked quarter. Total nonperforming assets were $41.86 million, or 0.84%, of Bank assets at December 31, 2014, as compared to $52.29 million, or 1.12%, at December 31, 2013, and $41.86 million, or 0.88%, at September 30, 2014.

About TowneBank:

As one of the top community banks in Virginia and North Carolina, TowneBank operates 36 banking offices serving Richmond, Glen Allen, Mechanicsville, Chesterfield County, Chesapeake, Hampton, Newport News, Norfolk, Portsmouth, Suffolk, Virginia Beach, Williamsburg, James City County and York County in Virginia along with Moyock, Grandy, Camden County, Southern Shores, Corolla and Nags Head in North Carolina. Towne also offers a full range of financial services through its controlled divisions and subsidiaries that include Towne Investment Group, Towne Insurance Agency, TFA Benefits, TowneBank Mortgage, TowneBank Commercial Mortgage, Berkshire Hathaway HomeServices Towne Realty, Towne 1031 Exchange, LLC, and Corolla Classic 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 $4.98 billion as of December 31, 2014, 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 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:

Statements made in this release, other than those concerning historical financial information, may be considered forward-looking statements, which speak only as of the date of this release and are based on current expectations and involve a number of assumptions. 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. The Company's ability to predict results, or the actual effect of future plans or strategies, is inherently uncertain. 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; the quality and composition of the loan and securities portfolios; demand for loan products; deposit flows; competition; demand for financial services in the companies' respective market areas; implementation of new technologies; ability to develop and maintain secure and reliable electronic systems; changes in the securities markets; changes in accounting principles, policies and guidelines; mergers and acquisitions; and other risk factors detailed from time to time in filings made by TowneBank with the FDIC. TowneBank undertakes no obligation to update or clarify these forward-looking statements, whether as a result of new information, future events or otherwise.