TowneBank Reports First Quarter 2018 Earnings


SUFFOLK, Va., April 25, 2018 (GLOBE NEWSWIRE) -- TowneBank (the “Bank” or “Company”) (NASDAQ: TOWN) today reported record financial results of $24.71 million, or $0.36  per diluted share, for the quarter ended March 31, 2018, compared to $21.97 million, or  $0.35 per diluted share, for the quarter ended March 31, 2017.

Excluding acquisition-related expenses, earnings for the quarter ended March 31, 2018 were $31.79 million (non-GAAP), or $0.46 (non-GAAP) per diluted share, compared to the $22.04 million (non-GAAP), or $0.35 (non-GAAP) per diluted share, earned in the same period of 2017.

“Our results for the first quarter were a reflection of our strong operating performance and top-line growth as we successfully completed our merger with Paragon Commercial Corporation and continued to build on the momentum from last year,” said G. Robert Aston, Jr., Executive Chairman.  “We continued to experience strong credit results, a widening of net interest margin, and strong capital and liquidity levels while producing revenue growth of 20.07% and a return on average assets of 1.02%.

Highlights for the First Quarter of 2018 Compared to the First Quarter of 2017:

  • Total revenues were $126.28 million, an increase of $21.11 million, or 20.07%.
  • Successful closing of the merger with Paragon Commercial Corporation ("Paragon") resulted in the addition of loans of $1.43 billion and deposits of $1.25 billion.
  • Loans held for investment increased $1.56 billion, or 26.33%, from March 31, 2017, and $1.52 billion, or 25.61%, from December 31, 2017.  Excluding loans acquired in the Paragon merger of $1.43 billion, loans increased $90.69 million, or 6.18% annualized, from December 31, 2017.
  • Total deposits were $7.83 billion, an increase of $1.63 billion, or 26.40%.
  • Noninterest bearing deposits increased by 21.96%, to $2.50 billion, representing 31.99% of total deposits.
  • Annualized return of average tangible common shareholders' equity (non-GAAP) of 11.77%.
  • Taxable equivalent net interest margin of 3.54%, up 9 basis points.
  • Effective tax rate of 19.74% benefiting from the Tax Cuts and Jobs Act of 2017.

“During the first quarter, we successfully completed the integration and systems conversion process related to the Paragon merger, and we are extremely excited about the transformational opportunity provided by the merger as we enter the robust Raleigh and Charlotte, North Carolina markets,” said J. Morgan Davis, President and Chief Executive Officer.

Quarterly Net Interest Income Compared to the First Quarter of 2017:

  • Net interest income was $76.34 million compared to $60.28 million at March 31, 2017.
  • Taxable equivalent net interest margin was 3.54%, including accretion of 15 basis points, compared to 3.45%, including accretion of 9 basis points, for 2017.
  • Total cost of deposits increased to 0.53% from 0.40% at March 31, 2017.
  • Average interest-earning assets totaled $8.81 billion at March 31, 2018 compared to $7.18 billion at March 31, 2017, an increase of 22.74%.
  • Average loans held for investment represented 78.95% of average earning assets at March 31, 2018 compared to 81.68% in the first quarter of 2017.
  • Average interest-bearing liabilities totaled $6.03 billion, an increase of $1.20 billion from prior year.

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

 
  Discount Accretion (Premium Amortization)
  For the three months ended
  June 30, September 30, December 31, March 31,
  2018 2018 2018 2019
Assets:       
Investment Securities $(75) $(72) $(71) $(72)
Loans 2,506  2,229  1,703  1,611 
         
Liabilities:        
Deposits 128  104  91  60 
         
Total estimated effect on net interest income $2,303  $2,053  $1,541  $1,479 
         
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.
 

Quarterly Provision for Loan Losses:

  • Recorded a provision for loan losses of $1.95 million compared to $0.87 million in the prior quarter and $2.54 million a year ago.
  • Net charge-offs were $0.35 million compared to $1.35 million one year prior.  The ratio of net charge-offs to average loans on an annualized basis was 0.02% compared to 0.01% in the prior quarter and 0.09% for the first quarter of 2017.
  • The allowance for loan losses represented 0.63% of total loans compared to 0.76% at December 31, 2017 and 0.73% at March 31, 2017.  Loan loss reserve as a percentage of total loans, excluding purchased loans, remained steady at 0.86%, unchanged from December 31, 2017, and March 31, 2017.  The allowance for loan losses was 10.40 times nonperforming loans compared to 9.39 times at December 31, 2017 and 3.74 times at March 31, 2017.

Quarterly Noninterest Income Compared to the First Quarter of 2017:

  • Total noninterest income was $49.93 million compared to $44.89 million, an increase of $5.05 million.  This reflects increases of $5.44 million in real estate brokerage and property management income and $0.41 million in service charges on deposit accounts offset by a decrease of $1.43 million in insurance commissions and other title fees primarily related to the timing of revenue due to the adoption of the new accounting guidance on revenue recognition.
  • Property management fee revenue increased $5.20 million, or 147.13%, primarily related to the purchase of a resort property management company in April 2017 and a change in the timing of revenue recognition due to the adoption of new accounting guidance on revenue recognition.  The change in accounting guidance resulted in an increase of property management fee income for the first quarter of approximately $3.04 million.
  • Insurance segment total revenue decreased 6.87% to $15.69 million due to a change in the timing of revenue recognition related to the adoption of new accounting guidance on revenue recognition.  The change in accounting guidance resulted in a reduction of insurance commission revenue for the first quarter of approximately $2.13 million.
  • Residential mortgage banking income was $17.60 million compared to $17.63 million in first quarter 2017.  Loan volume in the current quarter was $703.20 million, with purchases comprising $574.90 million and refinancing activity accounting for $128.30 million.  Loan volume in first quarter 2017 was $706.06 million, with purchase activity of $576.86 million and refinancing activity of $129.20 million.

Quarterly Noninterest Expense Compared to the First Quarter of 2017:

  • Total noninterest expense was $92.30 million compared to $70.25 million, an increase of $22.06 million, or 31.40%.  This reflects increases of $10.87 million in salary and benefits expense, $8.73 million in acquisition-related expenses, $0.73 million in intangible amortization expense, $0.49 million in outside processing fees, and $0.36 million in furniture and equipment expense.
  • Noninterest expense included operational expenses of entities acquired subsequent to first quarter 2017, including Paragon bank division expenses of $5.70 million, acquired resort property management company expenses of $1.83 million, and acquired insurance agency expenses of $0.46 million.

Quarterly Income Taxes Compared to the First Quarter of 2017:

  • Income tax expense was $6.08 million compared to $9.39 million, one year prior.  This represents an effective tax rate of 19.74% compared to 29.94% in the first quarter of 2017.
  • The decrease in the effective tax rate from the prior year is due to the Tax Cuts and Jobs Act of 2017, signed into law on December 22, 2017.  The reduction from 35% to 21% of the U.S. federal corporate tax rate was among the key changes to U.S. tax law, effective January 1, 2018.

Investment Securities:

  • Total investment securities were $1.34 billion compared to $958.55 million at December 31, 2017 and $822.19 million at March 31, 2017.  The carrying value of the available-for-sale portfolio included $17.95 million of net unrealized losses compared to $6.43 million at December 31, 2017, and $4.62 million in net unrealized losses at March 31, 2017.  The carrying value of the held-to-maturity portfolio does not reflect $0.88 million in net unrealized gains compare to $1.58 million in net unrealized gains at December 31, 2017 and $1.79 million in net unrealized gains at March 31, 2017.

Loans:

  • Total loans held for investment were $7.47 billion at March 31, 2018 compared to $5.95 billion at December 31, 2017 and $5.91 billion at March 31, 2017.
        
       % Change
 Q1 Q1 Q4 Q1 18 vs. Q1 18 vs.
(dollars in thousands)2018 2017 2017 Q1 17 Q4 17
Construction and land development$996,159  $898,540  $930,426  10.86% 7.06%
Commercial real estate - investment related properties1,853,737  1,362,184  1,344,774  36.09% 37.85%
Commercial real estate - owner occupied1,164,923  907,049  938,767  28.43% 24.09%
Multifamily real estate297,085  236,782  198,720  25.47% 49.50%
1-4 family residential real estate1,566,449  1,215,278  1,217,349  28.90% 28.68%
Commercial and industrial business loans1,328,357  1,086,273  1,087,157  22.29% 22.19%
Consumer loans and other263,441  206,974  229,772  27.28% 14.65%
Total$7,470,151  $5,913,080  $5,946,965  26.33% 25.61%
 

Asset Quality:

  • Nonperforming assets declined to $28.48 million, or 0.27% of total assets compared to $35.81 million, or 0.44%, at March 31, 2017.
  • Nonperforming loans were 0.06% of period end loans.
  • Foreclosed property increased to $21.73 million.

Deposits and borrowings:

  • Total deposits were $7.83 billion compared to $6.45 billion at December 31, 2017 and $6.19 billion at March 31, 2017.  The increase in deposits includes $1.25 billion acquired in the Paragon merger.  Loans to deposits were 95.46% compared to 92.23% at December 31, 2017 and 95.51% at March 31, 2017.
  • Non-interest bearing deposit were 31.99% of total deposits at March 31, 2018 compared to 33.46% at December 31, 2017 and 33.16% at March 31, 2017.
  • Total borrowings were $1.18 billion compared to $798.97 million and $722.68 million at December 31, 2017 and March 31, 2017, respectively.
        
       % Change
 Q1 Q1 Q4 Q1 18 vs. Q1 18 vs.
(dollars in thousands)2018 2017 2017 Q1 17 Q4 17
Noninterest-bearing demand$2,503,246  $2,052,598  $2,157,338  21.96 % 16.03 %
Interest-bearing:         
Demand and money market accounts3,001,256  2,270,025  2,225,211  32.21 % 34.88 %
Savings309,077  320,104  315,889  (3.44)% (2.16)%
Certificates of deposits2,011,843  1,548,045  1,749,782  29.96 % 14.98 %
Total$7,825,422  $6,190,772  $6,448,220  26.40 % 21.36 %
 

Capital:

  • Common equity tier 1 capital ratio of 11.75%.
  • Tier 1 leverage capital ratio of 10.06%.
  • Tier 1 risk-based capital ratio of 11.78%.
  • Total risk-based capital ratio of 15.36%.
  • Book value was $19.90 compared to $18.06 at December 31, 2017 and $17.42 at March 31, 2017.
  • Tangible book value was $13.34 compared to $13.13 at December 31, 2017 and $12.59 at March 30, 2017.
       
  Q1 Q1 Q4
  2018 2017 2017
Common Equity Tier 1 11.75% 11.94% 12.19%
Tier 1 11.78% 11.98% 12.23%
Total 15.36% 12.62% 16.48%
Tier 1 Leverage Ratio 10.06% 10.49% 10.17%
          

About TowneBank:
As one of the top community banks in Virginia and North Carolina, TowneBank operates 40 banking offices serving Chesapeake, Chesterfield County, Glen Allen, Hampton, James City County, Mechanicsville, Newport News, Norfolk, Portsmouth, Richmond, Suffolk, Virginia Beach, Williamsburg, and York County in Virginia, along with Raleigh, Cary, Charlotte, Moyock, 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 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 $10.62 billion as of March 31, 2018, 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 (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.

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)
 
        Increase/  % Increase/
Three Months Ended March 31,2018 2017  (Decrease)  (Decrease)
         
Results of Operations:       
 Net interest income$76,344  $60,281  $16,063  26.65 %
 Noninterest income49,932  44,886  5,046  11.24 %
 Total Revenue126,276  105,167  21,109  20.07 %
 Acquisition-related expenses8,726  (5) 8,731  N/M 
 Noninterest expenses, excluding acquisition-related expenses83,577  70,253  13,324  18.97 %
 Provision for loan losses1,953  2,541  (588) (23.14)%
 Income before income tax and noncontrolling interest32,020  32,378  (358) (1.11)%
 Provision for income tax expense6,077  9,386  (3,309) (35.25)%
 Net income25,943  22,992  2,951  12.83 %
 Net income attributable to noncontrolling interest(1,238) (1,024) (214) 20.90 %
 Net income attributable to TowneBank24,705  21,968  2,737  12.46 %
 Net income available to common shareholders24,705  21,968  2,737  12.46 %
 Net income per common share - basic0.36  0.35  0.01  2.86 %
 Net income per common share - diluted0.36  0.35  0.01  2.86 %
Period End Data:       
 Total assets$10,620,415  $8,174,786  $2,445,629  29.92 %
 Total assets - tangible10,146,133  7,872,823  2,273,310  28.88 %
 Earning assets9,569,201  7,362,550  2,206,651  29.97 %
 Loans (net of unearned income)7,470,151  5,913,080  1,557,071  26.33 %
 Allowance for loan losses46,735  43,195  3,540  8.20 %
 Goodwill and other intangibles474,282  301,962  172,320  57.07 %
 Nonperforming assets28,479  35,809  (7,330) (20.47)%
 Noninterest bearing deposits2,503,246  2,052,598  450,648  21.96 %
 Interest bearing deposits5,322,176  4,138,174  1,184,002  28.61 %
   Total deposits7,825,422  6,190,772  1,634,650  26.40 %
 Total equity1,449,350  1,101,245  348,105  31.61 %
 Total equity - tangible975,068  799,283  175,785  21.99 %
 Common equity1,438,480  1,089,760  348,720  32.00 %
 Common equity - tangible964,198  787,798  176,400  22.39 %
 Book value per common share19.90  17.42  2.48  14.24 %
 Book value per common share - tangible13.34  12.59  0.75  5.96 %
Daily Average Balances:       
 Total assets$9,848,364  $8,000,366  $1,847,998  23.10 %
 Total assets - tangible9,425,542  7,698,310  1,727,232  22.44 %
 Earning assets8,809,558  7,177,697  1,631,861  22.74 %
 Loans (net of unearned income), excluding nonaccrual loans6,954,777  5,862,799  1,091,978  18.63 %
 Allowance for loan losses46,199  42,610  3,589  8.42 %
 Goodwill and other intangibles422,822  302,056  120,766  39.98 %
 Noninterest bearing deposits2,303,125  1,957,887  345,238  17.63 %
 Interest bearing deposits4,949,775  4,102,109  847,666  20.66 %
   Total deposits7,252,900  6,059,996  1,192,904  19.68 %
 Total equity1,354,984  1,093,490  261,494  23.91 %
 Total equity - tangible932,161  791,433  140,728  17.78 %
 Common equity1,344,541  1,082,324  262,217  24.23 %
 Common equity - tangible921,719  780,268  141,451  18.13 %
Key Ratios:       
 Return on average assets1.02% 1.11% (0.09)% (8.11)%
 Return on average assets - tangible1.15% 1.22% (0.07)% (5.74)%
 Return on average equity7.39% 8.15% (0.76)% (9.33)%
 Return on average equity - tangible11.64% 11.88% (0.24)% (2.02)%
 Return on average common equity7.45% 8.23% (0.78)% (9.48)%
 Return on average common equity - tangible11.77% 12.05% (0.28)% (2.32)%
 Net interest margin-fully tax equivalent (1)3.54% 3.45% 0.09 % 2.61 %
 Net interest margin3.51% 3.41% 0.10 % 2.93 %
 Average earning assets/total average assets89.45% 89.72% (0.27)% (0.30)%
 Average loans/average deposits95.89% 96.75% (0.86)% (0.89)%
 Average noninterest deposits/total average deposits31.75% 32.31% (0.56)% (1.73)%
 Allowance for loan losses/period end loans0.63% 0.73% (0.10)% (13.70)%
 Nonperforming assets to period end assets0.27% 0.44% (0.17)% (38.64)%
 Period end equity/period end total assets13.65% 13.47% 0.18 % 1.34 %
 Efficiency ratio73.10% 66.80% 6.30 % 9.43 %
         
(1) Presented on a tax-equivalent basis       
        


 
TOWNEBANK
Selected Financial Highlights (unaudited)
(dollars in thousands, except per share data)
 
  March 31, December 31, Increase/  % Increase/
Three Months Ended2018 2017 (Decrease)  (Decrease)
         
Results of Operations:       
 Net interest income$76,344  $65,664  $10,680  16.26 %
 Noninterest income49,932  43,477  6,455  14.85 %
 Total Revenue126,276  109,141  17,135  15.70 %
 Acquisition-related expenses8,726  526  8,200  N/M 
 Noninterest expenses, excluding acquisition-related expenses83,577  73,134  10,443  14.28 %
 Provision for loan losses1,953  869  1,084  124.74 %
 Income before income tax and noncontrolling interest32,020  34,612  (2,592) (7.49)%
 Provision for income tax expense6,077  21,325  (15,248) (71.50)%
 Net income25,943  13,287  12,656  95.25 %
 Net income attributable to noncontrolling interest(1,238) (954) (284) 29.77 %
 Net income attributable to TowneBank24,705  12,333  12,372  100.32 %
 Net income available to common shareholders24,705  12,333  12,372  100.32 %
 Net income per common share - basic0.36  0.20  0.16  80.00 %
 Net income per common share - diluted0.36  0.20  0.16  80.00 %
Period End Data:       
 Total assets$10,620,415  $8,522,176  $2,098,239  24.62 %
 Total assets - tangible10,146,133  8,213,358  1,932,775  23.53 %
 Earning assets9,569,201  7,706,747  1,862,454  24.17 %
 Loans (net of unearned income)7,470,151  5,946,965  1,523,186  25.61 %
 Allowance for loan losses46,735  45,131  1,604  3.55 %
 Goodwill and other intangibles474,282  308,819  165,463  53.58 %
 Nonperforming assets28,479  28,094  385  1.37 %
 Noninterest bearing deposits2,503,246  2,157,338  345,908  16.03 %
 Interest bearing deposits5,322,176  4,290,882  1,031,294  24.03 %
   Total deposits7,825,422  6,448,220  1,377,202  21.36 %
 Total equity1,449,350  1,142,505  306,845  26.86 %
 Total equity - tangible975,068  833,686  141,382  16.96 %
 Common equity1,438,480  1,131,240  307,240  27.16 %
 Common equity - tangible964,198  822,421  141,777  17.24 %
 Book value per common share19.90  18.06  1.84  10.19 %
 Book value per common share - tangible13.34  13.13  0.21  1.60 %
Daily Average Balances:       
 Total assets$9,848,364  $8,579,705  $1,268,659  14.79 %
 Total assets - tangible9,425,542  8,269,760  1,155,782  13.98 %
 Earning assets8,809,558  7,729,862  1,079,696  13.97 %
 Loans (net of unearned income), excluding nonaccrual loans6,954,777  5,920,302  1,034,475  17.47 %
 Allowance for loan losses46,199  44,704  1,495  3.34 %
 Goodwill and other intangibles422,822  309,946  112,876  36.42 %
 Noninterest bearing deposits2,303,125  2,162,271  140,854  6.51 %
 Interest bearing deposits4,949,775  4,336,175  613,600  14.15 %
   Total deposits7,252,900  6,498,403  754,497  11.61 %
 Total equity1,354,984  1,149,888  205,096  17.84 %
 Total equity - tangible932,161  839,942  92,219  10.98 %
 Common equity1,344,541  1,138,936  205,605  18.05 %
 Common equity - tangible921,719  828,991  92,728  11.19 %
Key Ratios:       
 Return on average assets1.02% 0.57% 0.45 % 78.95 %
 Return on average assets - tangible1.15% 0.65% 0.50 % 76.92 %
 Return on average equity7.39% 4.26% 3.13 % 73.47 %
 Return on average equity - tangible11.64% 6.39% 5.25 % 82.16 %
 Return on average common equity7.45% 4.30% 3.15 % 73.26 %
 Return on average common equity - tangible11.77% 6.47% 5.30 % 81.92 %
 Net interest margin-fully tax equivalent (1)3.54% 3.41% 0.13 % 3.81 %
 Net interest margin3.51% 3.37% 0.14 % 4.15 %
 Average earning assets/total average assets89.45% 90.09% (0.64)% (0.71)%
 Average loans/average deposits95.89% 91.10% 4.79 % 5.26 %
 Average noninterest deposits/total average deposits31.75% 33.27% (1.52)% (4.57)%
 Allowance for loan losses/period end loans0.63% 0.76% (0.13)% (17.11)%
 Nonperforming assets to period end assets0.27% 0.33% (0.06)% (18.18)%
 Period end equity/period end total assets13.65% 13.41% 0.24 % 1.79 %
 Efficiency ratio73.10% 67.49% 5.61 % 8.31 %
         
(1) Presented on a tax-equivalent basis       
        


 
TOWNEBANK
Average Balances, Yields and Rate Paid (unaudited)
(dollars in thousands)
 
 Three Months Ended Three Months Ended Three Months Ended
 March 31, 2018 December 31, 2017 March 31, 2017
   Interest Average   Interest Average   Interest Average
 Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
 Balance Expense Rate Balance Expense Rate Balance Expense Rate
Assets:                 
Loans (net of unearned income
  and deferred costs), excluding 
  nonaccrual loans
$6,954,777  $82,032  4.78% $5,920,302  $70,044  4.69% $5,862,799  $64,979  4.49%
Taxable investment securities915,166  5,025  2.20% 657,297  3,237  1.97% 627,338  2,843  1.81%
Tax-exempt investment securities73,037  567  3.10% 46,825  361  3.09% 50,485  375  2.97%
Interest-bearing deposits627,475  2,362  1.53% 812,741  2,662  1.30% 450,076  887  0.80%
Loans held for sale239,103  2,379  3.98% 292,697  2,874  3.93% 186,999  1,727  3.69%
Total earning assets8,809,558  92,365  4.25% 7,729,862  79,178  4.06% 7,177,697  70,811  4.00%
  Less: allowance for loan losses(46,199)     (44,704)     (42,610)    
                  
Total nonearning assets1,085,005      894,547      865,279     
                  
  Total assets$9,848,364      $8,579,705      $8,000,366     
                  
Liabilities and Equity:                 
Interest-bearing deposits                 
  Demand and money market$2,774,347  $2,969  0.43% $2,247,745  $2,091  0.37% $2,272,911  $1,865  0.33%
  Savings308,539  876  1.15% 320,218  870  1.08% 320,319  757  0.96%
  Certificates of deposit1,866,889  5,641  1.23% 1,768,212  5,141  1.15% 1,508,879  3,381  0.91%
Total interest-bearing deposits4,949,775  9,486  0.78% 4,336,175  8,102  0.74% 4,102,109  6,003  0.59%
Borrowings820,967  2,878  1.40% 554,039  1,819  1.28% 723,506  3,803  2.10%
Subordinated capital debentures259,205  3,158  4.87% 247,152  2,880  4.66%      
Total interest-bearing liabilities6,029,947  15,522  1.04% 5,137,366  12,801  0.99% 4,825,615  9,806  0.82%
Demand deposits2,303,125      2,162,271      1,957,887     
Other noninterest-bearing liabilities160,308      130,180      123,374     
  Total liabilities8,493,380      7,429,817      6,906,876     
                  
Shareholders’ equity1,354,984      1,149,888      1,093,490     
                  
  Total liabilities and equity$9,848,364      $8,579,705      $8,000,366     
                  
Net interest income (tax-equivalent basis)  $76,843      $66,377      $61,005   
Reconcilement of Non-GAAP Financial
     Measures
                
  Tax-equivalent basis adjustment  (499)     (713)     (724)  
Net interest income (GAAP)  $76,344      $65,664      $60,281   
                  
Interest rate spread (1)    3.21%     3.07%     3.18%
Interest expense as a percent of average earning assets   0.71%     0.66%     0.55%
Net interest margin (tax equivalent basis) (2)   3.54%     3.41%     3.45%
Total cost of deposits    0.53%     0.49%     0.40%
                  

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


 
TOWNEBANK
Consolidated Balance Sheets - Five Quarter Trend
(dollars in thousands, except share data)
 
          
 March 31, December 31, September 30, June 30, March 31,
 2018 2017 2017 2017 2017
 (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
ASSETS         
Cash and due from banks$479,453  $504,095  $651,425  $474,819  $420,364 
Interest-bearing deposits in financial institutions4,613  4,471  5,055  5,071  5,335 
Total Cash and Cash Equivalents484,066  508,566  656,480  479,890  425,699 
Securities available for sale, at fair value1,242,181  867,654  831,483  700,354  720,667 
Securities held to maturity, at amortized cost55,283  61,304  62,487  63,937  65,117 
Federal Home Loan Bank stock, at amortized cost46,400  29,595  29,586  29,586  36,402 
Total Securities1,343,864  958,553  923,556  793,877  822,186 
Mortgage loans held for sale293,731  313,256  318,595  388,523  214,047 
Loans, net of unearned income and deferred costs:7,470,151  5,946,965  5,910,479  5,949,061  5,913,080 
  Less: allowance for loan losses(46,735) (45,131) (44,398) (44,131) (43,195)
Net Loans7,423,416  5,901,834  5,866,081  5,904,930  5,869,885 
Premises and equipment, net207,126  194,900  196,975  199,926  198,664 
Goodwill416,789  270,250  270,901  268,246  264,910 
Other intangible assets, net57,493  38,568  39,751  40,066  37,052 
Bank-owned life insurance policies232,039  195,775  193,823  192,339  190,917 
Other assets161,891  140,474  148,632  159,245  151,426 
TOTAL ASSETS$10,620,415  $8,522,176  $8,614,794  $8,427,042  $8,174,786 
LIABILITIES AND EQUITY         
Deposits:         
Noninterest-bearing demand$2,503,246  $2,157,338  $2,212,047  $2,219,406  $2,052,598 
Interest-bearing:         
Demand and money market accounts3,001,256  2,225,211  2,253,746  2,292,978  2,270,025 
Savings309,077  315,889  320,028  318,714  320,104 
Certificates of deposit2,011,843  1,749,782  1,762,641  1,764,671  1,548,045 
Total Deposits7,825,422  6,448,220  6,548,462  6,595,769  6,190,772 
Advances from the Federal Home Loan Bank873,773  526,923  527,072  527,219  687,366 
Subordinated debt, net257,723  247,196  247,128     
Repurchase agreements and other borrowings52,509  24,850  23,195  28,571  35,318 
Total Borrowings1,184,005  798,969  797,395  555,790  722,684 
Other liabilities161,638  132,482  128,086  152,485  160,085 
TOTAL LIABILITIES9,171,065  7,379,671  7,473,943  7,304,044  7,073,541 
Preferred stock         
Authorized shares - 2,000,000         
          
Common stock, $1.667 par value120,472  104,403  104,387  104,386  104,307 
Capital surplus1,028,985  749,800  748,444  747,867  746,289 
Retained earnings304,896  282,729  279,165  260,783  243,337 
Common stock issued to deferred compensation trust, at cost(12,612) (12,524) (12,304) (11,492) (11,294)
Deferred compensation trust12,612  12,524  12,304  11,492  11,294 
Accumulated other comprehensive loss(15,873) (5,692) (2,408) (2,355) (4,173)
TOTAL SHAREHOLDERS’ EQUITY1,438,480  1,131,240  1,129,588  1,110,681  1,089,760 
Noncontrolling interest10,870  11,265  11,263  12,317  11,485 
TOTAL EQUITY1,449,350  1,142,505  1,140,851  1,122,998  1,101,245 
TOTAL LIABILITIES AND EQUITY$10,620,415  $8,522,176  $8,614,794  $8,427,042  $8,174,786 
 


 
TOWNEBANK
Consolidated Statements of Income - Five Quarter Trend (unaudited)
(dollars in thousands, except per share data)
    
    
 Three Months Ended
 March 31, December 31, September 30, June 30, March 31,
 2018 2017 2017 2017 2017
INTEREST INCOME:         
Loans, including fees$81,533  $69,332  $68,969  $71,443  $64,255 
Investment securities5,592  3,598  3,076  3,171  3,218 
Interest-bearing deposits in financial institutions and
          federal funds sold
2,362  2,661  2,745  1,188  887 
Mortgage loans held for sale2,379  2,874  3,081  2,879  1,727 
Total Interest Income91,866  78,465  77,871  78,681  70,087 
INTEREST EXPENSE:         
Deposits9,486  8,102  7,810  6,877  6,003 
Advances from the Federal Home Loan Bank2,838  1,791  1,750  2,521  3,772 
Subordinated capital debentures3,158  2,880  2,368     
Repurchase agreements and other borrowings40  28  20  30  31 
Total Interest Expense15,522  12,801  11,948  9,428  9,806 
Net Interest Income76,344  65,664  65,923  69,253  60,281 
          
PROVISION FOR LOAN LOSSES1,953  869  696  1,320  2,541 
Net Interest Income after Provision for Loan Losses74,391  64,795  65,227  67,933  57,740 
NONINTEREST INCOME:         
Residential mortgage banking income, net17,604  17,537  19,087  21,594  17,632 
Insurance commissions and other title fees and income, net13,372  12,115  12,116  12,902  14,800 
Real estate brokerage and property management income, net10,429  4,823  10,042  7,629  4,993 
Service charges on deposit accounts2,883  2,809  2,670  2,644  2,472 
Credit card merchant fees, net1,168  1,204  1,388  1,298  1,118 
Bank owned life insurance1,532  1,941  1,425  1,421  1,474 
Other income2,941  3,048  2,688  2,856  2,397 
Net gain (loss) on investment securities3      (1)  
Total Noninterest Income49,932  43,477  49,416  50,343  44,886 
NONINTEREST EXPENSE:         
Salaries and employee benefits50,784  41,965  43,101  44,464  39,919 
Occupancy expense6,477  6,878  6,635  6,658  6,684 
Furniture and equipment3,698  3,456  3,710  3,563  3,343 
Other expenses31,344  21,361  20,740  23,434  20,302 
Total Noninterest Expense92,303  73,660  74,186  78,119  70,248 
Income before income tax expense and noncontrolling interest32,020  34,612  40,457  40,157  32,378 
Provision for income tax expense6,077  21,325  11,862  12,240  9,386 
Net income25,943  13,287  28,595  27,917  22,992 
Net income attributable to noncontrolling interest(1,238) (954) (1,445) (1,704) (1,024)
Net income attributable to TowneBank$24,705  $12,333  $27,150  $26,213  $21,968 
Net income available to common shareholders$24,705  $12,333  $27,150  $26,213  $21,968 
Per common share information         
Basic earnings$0.36  $0.20  $0.44  $0.42  $0.35 
Diluted earnings$0.36  $0.20  $0.44  $0.42  $0.35 
Basic weighted average shares outstanding68,939,573  62,239,028  62,210,834  62,145,045  62,075,983 
Diluted weighted average shares outstanding69,112,637  62,462,629  62,410,591  62,364,260  62,262,789 
Cash dividends declared$0.14  $0.14  $0.14  $0.14  $0.13 
          


 
TOWNEBANK
Banking Segment Financial Information
(dollars in thousands)
 
    
   Increase/(Decrease)
 Three Months Ended March 31, 2018 March 31, 2018
 March 31, December 31, 2017 March 31, 2017 December 31, 2017
 2018 2017  Amount Percent Amount Percent
Revenue             
Net interest income$74,042  $58,444  $63,031  $15,598  26.69 % $11,011  17.47 %
Service charges on deposit accounts2,883  2,472  2,809  411  16.63 % 74  2.63 %
Credit card merchant fees1,168  1,118  1,204  50  4.47 % (36) (2.99)%
Other income3,959  3,106  4,318  853  27.46 % (359) (8.31)%
Total noninterest income8,010  6,696  8,331  1,314  19.62 % (321) (3.85)%
Total revenue82,052  65,140  71,362  16,912  25.96 % 10,690  14.98 %
              
Provision for loan losses1,953  2,541  869  (588) (23.14)% 1,084  124.74 %
              
Expenses             
Salaries and employee benefits30,202  20,065  21,134  10,137  50.52 % 9,068  42.91 %
Occupancy expense4,016  4,128  4,418  (112) (2.71)% (402) (9.10)%
Furniture and equipment2,532  2,274  2,326  258  11.35 % 206  8.86 %
Advertising and marketing1,171  1,041  774  130  12.49 % 397  51.29 %
Charitable contributions1,485  1,313  891  172  13.10 % 594  66.67 %
Outside processing1,403  1,154  1,055  249  21.58 % 348  32.99 %
Foreclosed property expenses211  130  296  81  62.31 % (85) (28.72)%
FDIC and other insurance1,043  987  668  56  5.67 % 375  56.14 %
Professional fees1,436  1,280  1,912  156  12.19 % (476) (24.90)%
Telephone and postage796  904  859  (108) (11.95)% (63) (7.33)%
Other expenses14,424  5,073  5,653  9,351  184.33 % 8,771  155.16 %
Total expenses58,719  38,349  39,986  20,370  53.12 % 18,733  46.85 %
Income before income tax,
     corporate allocation and
     noncontrolling interest
21,380  24,250  30,507  (2,870) (11.84)% (9,127) (29.92)%
Corporate allocation456  484  533  (28) (5.79)% (77) (14.45)%
Income before income tax
     provision and noncontrolling
     interest
21,836  24,734  31,040  (2,898) (11.72)% (9,204) (29.65)%
Provision for income tax expense3,881  6,765  19,510  (2,884) (42.63)% (15,629) (80.11)%
Net income17,955  17,969  11,530  (14) (0.08)% 6,425  55.72 %
Noncontrolling interest(2) (2)     N/M  (2) N/M 
Net income attributable to
     TowneBank
$17,953  $17,967  $11,530  $(14) (0.08)% $6,423  55.71 %
              
Efficiency ratio71.56 % 58.87 % 56.03% 12.69 % 21.56 % 15.53% 27.72 %
                     


 
TOWNEBANK
Realty Segment Financial Information
(dollars in thousands)
 
    
   Increase/(Decrease)
 Three Months Ended March 31, 2018 March 31, 2018
 March 31, December 31, March 31, 2017 December 31, 2017
 2018 2017 2017 Amount Percent Amount Percent
Revenue             
Residential mortgage brokerage
       income, net
$17,661  $17,775  $17,544  $(114) (0.64)% $117  0.67 %
Real estate brokerage income, net1,698  1,460  2,092  238  16.30 % (394) (18.83)%
Title insurance and settlement fees315  355  431  (40) (11.27)% (116) (26.91)%
Property management fees, net8,731  3,533  2,731  5,198  147.13 % 6,000  219.70 %
Income from unconsolidated
       subsidiary
94  124  116  (30) (24.19)% (22) (18.97)%
Net interest and other income2,546  2,203  3,050  343  15.57 % (504) (16.52)%
Total revenue31,045  25,450  25,964  5,595  21.98 % 5,081  19.57 %
              
Expenses             
Salaries and employee benefits13,877  13,695  14,279  182  1.33 % (402) (2.82)%
Occupancy expense1,894  1,964  1,894  (70) (3.56)%    %
Furniture and equipment980  869  960  111  12.77 % 20  2.08 %
Amortization of intangible assets672  559  571  113  20.21 % 101  17.69 %
Other expenses6,294  5,991  6,259  303  5.06 % 35  0.56 %
Total expenses23,717  23,078  23,963  639  2.77 % (246) (1.03)%
              
Income before income tax, corporate allocation and noncontrolling interest7,328  2,372  2,001  4,956  208.94 % 5,327  266.22 %
Corporate allocation(289) (307) (370) 18  (5.86)% 81  (21.89)%
Income before income tax provision and noncontrolling interest7,039  2,065  1,631  4,974  240.87 % 5,408  331.58 %
Provision for income tax expense1,559  627  1,160  932  148.64 % 399  34.40 %
Net income5,480  1,438  471  4,042  281.08 % 5,009  N/M 
Noncontrolling interest(622) (512) (695) (110) 21.48 % 73  (10.50)%
Net income attributable to TowneBank$4,858  $926  $(224) $3,932  424.62 % $5,082  N/M 
              
Efficiency ratio76.40 % 90.68 % 92.29 % (14.28)% (15.75)% (15.89)% (17.22)%
                     


 
TOWNEBANK
Insurance Segment Financial Information
(dollars in thousands)
 
          
   Increase/(Decrease)
 Three Months Ended March 31, 2018 March 31, 2018
 March 31, December 31, March 31, 2017 December 31, 2017
 2018 2017 2017 Amount Percent Amount Percent
Commission and fee income             
Property and casualty$9,356  $8,457  $8,198  $899  10.63 % $1,158  14.13 %
Employee benefits3,196  2,974  3,164  222  7.46 % 32  1.01 %
Travel insurance1,768  1,627  912  141  8.67 % 856  93.86 %
Specialized benefit services169  165  170  4  2.42 % (1) (0.59)%
Total commissions and fees14,489  13,223  12,444  1,266  9.57 % 2,045  16.43 %
              
Contingency and bonus revenue1,133  3,539  1,654  (2,406) (67.99)% (521) (31.50)%
Other income70  88  80  (18) (20.45)% (10) (12.50)%
Total revenue15,692  16,850  14,178  (1,158) (6.87)% 1,514  10.68 %
              
Employee commission expense2,513  2,273  2,362  240  10.56 % 151  6.39 %
Revenue, net of commission expense13,179  14,577  11,816  (1,398) (9.59)% 1,363  11.54 %
              
Salaries and employee benefits6,705  6,159  6,552  546  8.87 % 153  2.34 %
Occupancy expense567  592  566  (25) (4.22)% 1  0.18 %
Furniture and equipment185  200  169  (15) (7.50)% 16  9.47 %
Amortization of intangible assets702  697  726  5  0.72 % (24) (3.31)%
Other expenses1,708  1,173  1,698  535  45.61 % 10  0.59 %
Total operating expenses9,867  8,821  9,711  1,046  11.86 % 156  1.61 %
Income before income tax, corporate allocation and noncontrolling interest3,312  5,756  2,105  (2,444) (42.46)% 1,207  57.34 %
Corporate allocation(167) (177) (164) 10  (5.65)% (3) 1.83 %
Income before income tax provision and noncontrolling interest3,145  5,579  1,941  (2,434) (43.63)% 1,204  62.03 %
Provision for income tax expense637  1,994  655  (1,357) (68.05)% (18) (2.75)%
Net income2,508  3,585  1,286  (1,077) (30.04)% 1,222  95.02 %
Noncontrolling interest(614) (510) (259) (104) 20.39 % (355) 137.07 %
Net income attributable to TowneBank$1,894  $3,075  $1,027  $(1,181) (38.41)% $867  84.42 %
              
Efficiency ratio74.87 % 60.51 % 82.19 % 14.36 % 23.73 % (7.32)% (8.91)%
                     


 
TOWNEBANK
Reconcilement of Non-GAAP Financial Measures
 
      
 Three Months Ended
 March 31, March 31, December 31,
 2018 2017 2017
      
Return on average assets (GAAP)1.02% 1.11% 0.57%
Impact of excluding average goodwill and other
       intangibles and amortization
0.13% 0.11% 0.08%
Return on average tangible assets (non-GAAP)1.15% 1.22% 0.65%
      
Return on average equity (GAAP)7.39% 8.15% 4.26%
Impact of excluding average goodwill and other
       intangibles and amortization
4.25% 3.73% 2.13%
Return on average tangible equity (non-GAAP)11.64% 11.88% 6.39%
      
Return on average common equity (GAAP)7.45% 8.23% 4.30%
Impact of excluding average goodwill and other
        intangibles and amortization
4.32% 3.82% 2.17%
Return on average tangible common equity
(non-GAAP)
11.77% 12.05% 6.47%
      
Book value (GAAP)$19.90  $17.42  $18.06 
Impact of excluding average goodwill and other
       intangibles and amortization
6.56  4.83  4.93 
Tangible book value (non-GAAP)$13.34  $12.59  $13.13 
      


 
TOWNEBANK
Reconcilement of Non-GAAP Financial Measures
(dollars in thousands, except per share data)
           
           
Reconcilement of GAAP Earnings to Operating
Earnings Excluding Certain Items Affecting
Comparability
 Three Months Ended
  March 31, December 31, September 30, June 30, March 31,
  2018 2017 2017 2017 2017
           
Net income (GAAP) $24,705  $12,333  $27,150  $26,213  $21,968 
           
Purchase accounting corrections       (3,889)  
           
Acquisition-related expenses 8,726  526  466  1,281  (5)
           
Total charges 8,726  526  466  (2,608) (5)
Income tax expense -tax reform legislation   10,112       
Income tax expense (benefit) - other items (1,639) (98) (117) 1,167  75 
Income tax expense (benefit) (1,639) 10,014  (117) 1,167  75 
Total charges, net of taxes 7,087  10,540  349  (1,441) 70 
Operating earnings, excluding certain items affecting
comparability (non-GAAP)
 $31,792  $22,873  $27,499  $24,772  $22,038 
           
Weighted average diluted shares 69,112,637  62,462,629  62,410,561  62,364,260  62,262,789 
           
Diluted EPS (GAAP) $0.36  $0.20  $0.44  $0.42  $0.35 
Diluted EPS, excluding certain items affecting
comparability (non-GAAP)
 $0.46  $0.37  $0.44  $0.40  $0.35 
           
Average assets $9,848,364  $8,579,705  $8,570,019  $8,180,959  $8,000,366 
Average tangible equity $932,161  839,942  $824,787  $807,085  $791,433 
           
Return on average assets, excluding certain items
       affecting comparability (non-GAAP)
 1.31% 1.06% 1.27% 1.21% 1.12%
Return on average tangible equity, excluding certain
items affecting comparability (non-GAAP)
 14.72% 11.37% 13.84% 12.96% 11.91%
Efficiency ratio, excluding certain items affecting
       comparability (non-GAAP)
 66.19% 67.01% 63.92% 66.41% 66.80%