TOWN - TowneBank Reports First Quarter 2019 Earnings

April, 25 2019 08:30 AM Towne Bank

SUFFOLK, Va., April 25, 2019 (GLOBE NEWSWIRE) -- TowneBank (the “Company”) (NASDAQ: TOWN) today reported earnings for the quarter ended March 31, 2019, of $31.41 million, or $0.44 per diluted share, compared to $24.71 million or $0.36 per diluted share for the quarter ended March 31, 2018. Excluding acquisition-related expenses, earnings for the quarter ended March 31, 2019 were $31.77 million (non-GAAP), or $0.44 (non-GAAP) per diluted share, compared to $31.79 million (non-GAAP), or $0.46 (non-GAAP) per diluted share for the quarter ended March 31, 2018.

“As we celebrate our twentieth anniversary since the founding of TowneBank, our consistent financial performance continues to enable us to invest in building a solid pathway to the future through our expansion of our North Carolina and Virginia franchise," said G. Robert Aston, Jr., Executive Chairman.

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

Total revenues were $133.85 million, an increase of $7.58 million, or 6.0%.
Loans held for investment were $8.11 billion, an increase of $0.64 billion, or 8.50%, from March 31, 2018, and $0.09 billion, or 1.09%, from December 31, 2018, or 4.41% on an annualized basis.
Total deposits were $8.73 billion, an increase of $0.91 billion, or 11.58%.
Noninterest bearing deposits increased by 12.41%, to $2.81 billion, representing 32.23% of total deposits.
Annualized return on common shareholders' equity was 8.30% and annualized return on average tangible common shareholders' equity was 13.39% (non-GAAP).
Net interest margin for the quarter was 3.54% and taxable equivalent net interest margin was 3.57% (non-GAAP).
Effective tax rate of 20.72% in the quarter compared to 19.74% in the first quarter of 2018.

“Deposit growth was robust in the first quarter. We continue to add to our production teams in North Carolina. In addition to 11 member-facing hires in Greensboro and Greenville, North Carolina where we have added over $80 million in new deposits, we have added Jack Clayton in Raleigh as President of Business Strategies for North Carolina. Jack is a 40-year veteran of Wells Fargo where he led the central and northeastern North Carolina regions. His proven ability to recruit talent from the national banks and his extensive business contacts will enhance our already strong double-digit growth in North Carolina," said J. Morgan Davis, President and Chief Executive Officer.

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

Net interest income was $87.47 million compared to $76.34 million at March 31, 2018.
Taxable equivalent net interest margin was 3.57%, including accretion of 11 basis points, compared to 3.54%, including accretion of 15 basis points, for 2018.
Total cost of deposits increased to 0.93% from 0.53% at March 31, 2018.
Average interest-earning assets totaled $10.02 billion at March 31, 2019 compared to $8.81 billion at March 31, 2018, an increase of 13.73%.
Average loans held for investment represented 80.16% of average earning assets at March 31, 2019 compared to 78.95% at March 31, 2018.
Average interest-bearing liabilities totaled $6.82 billion, an increase of $0.79 billion from prior year.
Management periodically reviews the cost of funds charged to TowneBank Mortgage to fund its operations. Effective January 1, 2019, the line moved a floating-rate structure tied to Federal Home Loan Bank rates. As a result of the funding change, interest income declined in the Realty Segment. All intercompany transaction are eliminated in the Banking Segment.

Quarterly Provision for Loan Losses:

Recorded a provision for loan losses of $1.44 million compared to $1.95 million one year ago and $2.29 million in the prior quarter.
Net charge-offs were $0.23 million compared to $0.35 million one year prior. The ratio of net charge-offs to average loans on an annualized basis was 0.01% compared to 0.02% in both the prior quarter and the first quarter of 2018.
The allowance for loan losses represented 0.66% of total loans compared to 0.65% at December 31, 2018 and 0.63% at March 31, 2018. Loan loss reserve as a percentage of total loans, excluding purchased loans, decreased to 0.81%, from 0.82% at December 31, 2018 and 0.86% at March 31, 2018. The allowance for loan losses was 9.36 times nonperforming loans compared to 10.97 times at December 31, 2018 and 10.40 times at March 31, 2018.

Quarterly Noninterest Income Compared to the First Quarter of 2018:

Total noninterest income was $46.38 million compared to $49.93 million in 2018. The increase in insurance commissions and other title fees of $2.21 million was offset by decreases in residential mortgage banking income of $4.10 million and real estate brokerage of $1.16 million.
Residential mortgage banking income was $13.51 million compared to $17.60 million in first quarter 2018. Loan volume in the current quarter was $513.53 million, with purchase loan activity comprising 86.08%, compared to first quarter 2018 loan volume of $662.45 million, and 80.86% purchase loan activity. Lower volumes and continued pressure on gain on sale margin contributed to the decline in revenue, combined with a reduction in mortgage producers in certain markets as the Company repositions itself to enhance future growth and profitability.
Total Insurance segment revenue increased 17.88% to $18.50 million in first quarter due to additional commission income from two insurance agency acquisitions in 2018 and one insurance agency acquisition in January 2019.
Property management fee revenue decreased 11.72%, or $1.02 million, due to lower reservation levels in the current year, as compared to first quarter 2018.

Quarterly Noninterest Expense Compared to the First Quarter of 2018:

Total noninterest expense was $92.12 million compared to $92.30 million, a decrease of $0.18 million, or 0.20%. Driving the decrease was a reduction in acquisition-related expenses of $8.32 million, which was partially offset by increases of $2.08 million in salary and benefits expense, $1.05 million in outside processing expenses, $0.78 million in charitable contributions, and $0.71 million in professional fees.
Noninterest expense included operational expenses of insurance agencies acquired subsequent to first quarter 2018 of $2.41 million.

Quarterly Income Taxes Compared to the First Quarter of 2018:

Income tax expense was $8.21 million compared to $6.08 million, one year prior. This represents an effective tax rate of 20.72% compared to 19.74% in the first quarter of 2018.

Investment Securities:

Total investment securities were $1.20 billion compared to $1.19 billion at December 31, 2018 and $1.34 billion at March 31, 2018. The weighted average duration of the portfolio at March 31, 2019 was 3.30 years. The carrying value of the available-for-sale portfolio included $2.22 million of net unrealized losses compared to $11.91 million at December 31, 2018 and $17.95 million in net unrealized losses at March 31, 2018. The decrease in net unrealized losses was primarily due to interest rate fluctuations. During the first quarter of 2019, we sold $100.08 million in available-for-sale securities at a loss of $0.78 million, in order to position our portfolio for better yield, going forward. The carrying value of the held-to-maturity portfolio does not reflect $1.04 million in net unrealized gains compared to $0.67 million in net unrealized gains at December 31, 2018 and $0.88 million in net unrealized gains at March 31, 2018.

Loans and Asset Quality:

Total loans held for investment were $8.11 billion at March 31, 2019 compared to $8.02 billion at December 31, 2018 and $7.47 billion at March 31, 2018.
Nonperforming assets declined to $24.99 million, or 0.22% of total assets, compared to $28.48 million, or 0.27%, at March 31, 2018.
Nonperforming loans were 0.07% of period end loans.
Foreclosed property decreased to $17.07 million from $21.73 million at March 31, 2018.

Deposits and Borrowings:

Total deposits were $8.73 billion compared to $8.37 billion at December 31, 2018, and $7.83 billion at March 31, 2018.
Total loans to total deposits were 92.83% compared to 95.79% at December 31, 2018 and 95.46% at March 31, 2018.
Non-interest bearing deposits were 32.23% of total deposits at March 31, 2019 compared to 31.33% at December 31, 2018 and 31.99% at March 31, 2018.
Total borrowings were $1.03 billion compared to $1.09 billion and $1.18 billion at December 31, 2018 and March 31, 2018, respectively.

Capital:

Common equity tier 1 capital ratio of 11.49%.
Tier 1 leverage capital ratio of 9.92%.
Tier 1 risk-based capital ratio of 11.52%.
Total risk-based capital ratio of 14.79%.
Book value was $21.40 compared to $21.05 at December 31, 2018 and $19.90 at March 31, 2018.
Tangible book value was $14.46 compared to $14.26 at December 31, 2018 and $13.34 at March 31, 2018.

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, Moyock, Greenville, Grandy, Camden County, Southern Shores, Corolla and Nags Head in North Carolina. TowneBank also offers a full range of financial services through its controlled divisions and subsidiaries that include Towne Investment Group, Towne Wealth Management, Towne Insurance Agency, Towne Benefits, TowneBank Mortgage, TowneBank Commercial Mortgage, Berkshire Hathaway HomeServices Towne Realty, Towne 1031 Exchange, LLC, and Towne Vacations. Local decision-making is a hallmark of its hometown banking strategy that is delivered through the leadership of each group’s President and Board of Directors. With total assets of $11.57 billion as of March 31, 2019, TowneBank is one of the largest banks headquartered in Virginia.

Non-GAAP Financial Measures:
This press release contains financial information determined by methods other than in accordance with 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


March 31,

December 31,

September 30,

June 30,

March 31,

2019

2018

2018

2018

2018
Income and Performance Ratios:










Total Revenue
$
133,854


$
131,417


$
137,914


$
137,058


$
126,276


Net income
32,082


36,440


39,252


36,138


25,943


Net income attributable to TowneBank
31,409


35,990


38,293


34,804


24,705


Net income per common share - diluted
0.44


0.50


0.53


0.48


0.36


Book value per common share
21.40


21.05


20.54


20.22


19.90


Tangible book value per share ^(non-GAAP)
14.46


14.26


13.83


13.50


13.34


Return on average assets
1.14
%

1.28
%

1.40
%

1.32
%

1.02
%

Return on average assets - tangible ^(non-GAAP)
1.29
%

1.43
%

1.56
%

1.48
%

1.15
%

Return on average equity
8.24
%

9.44
%

10.21
%

9.55
%

7.39
%

Return on average equity - tangible ^(non-GAAP)
13.24
%

14.91
%

16.08
%

15.19
%

11.64
%

Return on average common equity
8.30
%

9.53
%

10.30
%

9.62
%

7.45
%

Return on average common equity - tangible ^(non-GAAP)
13.39
%

15.11
%

16.30
%

15.36
%

11.77
%

Noninterest income as a percentage of total revenue
34.65
%

32.12
%

35.69
%

36.65
%

39.54
%











Regulatory Capital Ratios (1):










Common equity tier 1
11.49
%

11.51
%

11.53
%

11.33
%

11.65
%

Tier 1
11.52
%

11.54
%

11.57
%

11.36
%

11.68
%

Total
14.79
%

14.83
%

14.90
%

14.71
%

15.27
%

Tier 1 leverage ratio
9.92
%

9.87
%

9.98
%

10.00
%

9.97
%











Asset Quality:










Allowance for loan losses to nonperforming loans

9.36x



10.97x



7.25x



12.64x



10.40x


Allowance for loan losses to period end loans
0.66
%

0.65
%

0.64
%

0.64
%

0.63
%

Allowance for loan losses to period end loans excluding purchased loans
0.81
%

0.82
%

0.82
%

0.84
%

0.86
%

Nonperforming loans to period end loans
0.07
%

0.06
%

0.09
%

0.05
%

0.06
%

Nonperforming assets to period end assets
0.22
%

0.22
%

0.25
%

0.24
%

0.27
%

Net charge-offs to average loans (annualized)
0.01
%

0.02
%

0.03
%

0.01
%

0.02
%












Nonperforming loans
$
5,697


$
4,749


$
6,926


$
3,919


$
4,495


Former bank premises
2,223


2,253


2,253


2,253


2,253


Foreclosed property
17,070


17,163


18,153


20,133


21,731


Total nonperforming assets
$
24,990


$
24,165


$
27,332


$
26,305


$
28,479


Loans past due 90 days and still accruing interest
$
117


$
394


$
153


$
22


$
199













Allowance for loan losses
$
53,303


$
52,094


$
50,236


$
49,535


$
46,735












Mortgage Banking:










Loans originated, mortgage
$
366,643


$
407,787


$
561,543


$
667,189


$
477,147


Loans originated, joint venture
146,884


192,280


249,956


283,933


185,306


Total loans originated
$
513,527


$
600,067


$
811,499


$
951,122


$
662,453


Number of loans originated
1,977


2,304


3,068


3,687


2,601


Number of originators
240


293


303


324


324


Purchase %
86.08
%

88.64
%

89.72
%

91.23
%

80.86
%

Loans sold
$
473,068


$
694,341


$
852,205


$
825,313


$
677,114


Realized gain on sales and fees as a % of loans closed
3.58
%

3.37
%

3.36
%

3.30
%

3.59
%











Other Ratios:










Net interest margin
3.54
%

3.53
%

3.62
%

3.69
%

3.51
%

Net interest margin-fully tax equivalent ^(nonGAAP)
3.57
%

3.55
%

3.64
%

3.71
%

3.54
%

Average earning assets/total average assets
89.50
%

89.91
%

89.69
%

89.61
%

89.45
%

Average loans/average deposits
95.83
%

95.32
%

97.55
%

97.79
%

95.89
%

Average noninterest deposits/total average deposits
31.39
%

31.90
%

32.61
%

32.28
%

31.75
%

Period end equity/period end total assets
13.53
%

13.78
%

13.49
%

13.63
%

13.65
%

Efficiency ratio
68.43
%

62.65
%

64.00
%

65.10
%

73.10
%












(1) Current reporting period regulatory capital ratios are preliminary

TOWNEBANK
Selected Data (unaudited)
(dollars in thousands)











Investment Securities






% Change

Q1

Q1

Q4

Q1 19 vs.

Q1 19 vs.
*Available-for-sale securities, at fair value*
2019

2018

2018

Q1 18

Q4 18
U.S. agency securities
$
260,152


$
428,952


$
358,542


(39.35
)%

(27.44
)%
U.S. Treasury notes
2,229


301,442


1,246


(99.26
)%

78.89
%
Municipal securities
107,278


56,655


87,308


89.35
%

22.87
%
Trust preferred and other corporate securities
32,439


24,570


30,992


32.03
%

4.67
%
Mortgage-backed securities issued by GSE
697,679


425,560


617,251


63.94
%

13.03
%
Total
$
1,099,777


$
1,237,179


$
1,095,339


(11.11
)%

0.41
%










*Held-to-maturity securities, at amortized cost*









Municipal securities
$
34,472


$
36,056


$
34,488


(4.39
)%

(0.05
)%
Trust preferred corporate securities
500


500


500


—
%

—
%
Mortgage-backed securities issued by GSE
14,715


18,727


15,610


(21.42
)%

(5.73
)%
Total
$
49,687


$
55,283


$
50,598


(10.12
)%

(1.80
)%




















Loans Held For Investment






% Change

Q1

Q1

Q4

Q1 19 vs.

Q1 19 vs.

2019

2018

2018

Q1 18

Q4 18
Real estate-construction and development
$
1,111,360


$
996,159


$
1,067,239


11.56
%

4.13
%
Commercial real estate - investment related properties
1,951,292


1,853,737


1,978,592


5.26
%

(1.38
)%
Commercial real estate - owner occupied
1,279,039


1,164,923


1,262,748


9.80
%

1.29
%
Real estate-multifamily
255,649


297,085


260,987


(13.95
)%

(2.05
)%
Real estate-residential 1-4 family
1,637,579


1,566,449


1,626,896


4.54
%

0.66
%
Commercial and industrial business
1,547,623


1,328,357


1,510,364


16.51
%

2.47
%
Consumer and other loans
322,828


263,441


311,407


22.54
%

3.67
%
Total
$
8,105,370


$
7,470,151


$
8,018,233


8.50
%

1.09
%




















Deposits






% Change

Q1

Q1

Q4

Q1 19 vs.

Q1 19 vs.

2019

2018

2018

Q1 18

Q4 18
Noninterest-bearing demand
$
2,813,857


$
2,503,246


$
2,622,761


12.41
%

7.29
%
Interest-bearing:









Demand and money market accounts
3,290,907


3,001,256


3,223,215


9.65
%

2.10
%
Savings
285,790


309,077


286,684


(7.53
)%

(0.31
)%
Certificates of deposits
2,341,134


2,011,843


2,237,762


16.37
%

4.62
%
Total
$
8,731,688


$
7,825,422


$
8,370,422


11.58
%

4.32
%




















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




June 30,

September 30,

December 31,




2019

2019

2019


Assets:








Investment Securities

$
(75
)

$
(74
)

$
(75
)


Loans

1,837


1,773


1,716












Liabilities:








Deposits

54


51


47












Total estimated effect on net interest income

$
1,708


$
1,648


$
1,594



Note: This information is intended for informational purposes only and is not necessarily indicative of future results. Actual results may differ due to factors such
factors such as changes in estimated prepayment speeds or projected credit loss rates.

TOWNEBANK
Average Balances, Yields and Rate Paid (unaudited)
(dollars in thousands)


Three Months Ended

Three Months Ended

Three Months Ended

March 31, 2019

December 31, 2018

March 31, 2018



Interest

Average



Interest

Average



Interest

Average

Average

Income/

Yield/

Average

Income/

Yield/

Average

Income/

Yield/

Balance

Expense

Rate

Balance

Expense

Rate

Balance

Expense

Rate
Assets:

















Loans (net of unearned income and deferred costs), excluding nonaccrual loans
$
8,030,994


$
100,146


5.06
%

$
7,923,978


$
99,895


5.00
%

$
6,954,777


$
81,911


4.78
%
Taxable investment securities
1,036,645


7,529


2.91
%

1,101,892


7,515


2.73
%

902,292


5,041


2.23
%
Tax-exempt investment securities
79,310


765


3.86
%

80,656


747


3.70
%

73,037


672


3.68
%
Total securities
1,115,955


8,294


2.97
%

1,182,548


8,262


2.73
%

975,329


5,713


2.34
%
Interest-bearing deposits
693,365


3,998


2.34
%

652,131


3,559


2.17
%

640,349


2,362


1.50
%
Loans held for sale
178,475


2,003


4.49
%

266,058


3,176


4.77
%

239,103


2,379


3.98
%
Total earning assets
10,018,789


114,441


4.63
%

10,024,715


114,892


4.55
%

8,809,558


92,365


4.25
%
Less: allowance for loan losses
(52,844
)





(50,792
)





(46,199
)






















Total nonearning assets
1,228,808






1,176,037






1,085,005























Total assets
$
11,194,753






$
11,149,960






$
9,848,364























Liabilities and Equity:

















Interest-bearing deposits

















Demand and money market
$
3,174,157


$
6,240


0.80
%

$
3,122,973


$
5,670


0.72
%

$
2,774,347


$
2,969


0.43
%
Savings
285,499


1,027


1.46
%

293,135


1,022


1.38
%

308,539


876


1.15
%
Certificates of deposit
2,290,056


11,907


2.11
%

2,245,039


10,803


1.91
%

1,866,889


5,641


1.23
%
Total interest-bearing deposits
5,749,712


19,174


1.35
%

5,661,147


17,495


1.23
%

4,949,775


9,486


0.78
%
Borrowings
821,889


4,221


2.05
%

920,389


4,643


1.97
%

820,967


2,878


1.40
%
Subordinated debt, net
247,913


2,962


4.78
%

247,769


2,961


4.78
%

259,205


3,158


4.87
%
Total interest-bearing liabilities
6,819,514


26,357


1.57
%

6,829,305


25,099


1.46
%

6,029,947


15,522


1.04
%
Demand deposits
2,630,813






2,651,495






2,303,125





Other noninterest-bearing liabilities
198,527






157,238






160,308





Total liabilities
9,648,854






9,638,038






8,493,380























Shareholders’ equity
1,545,899






1,511,922






1,354,984























Total liabilities and equity
$
11,194,753






$
11,149,960






$
9,848,364























Net interest income (tax-equivalent basis)


$
88,084






$
89,793






$
76,843



Reconcilement of Non-GAAP Financial Measures
















Tax-equivalent basis adjustment


(611
)





(585
)





(499
)


Net interest income (GAAP)


$
87,473






$
89,208






$
76,344





















Interest rate spread (1)




3.06
%





3.09
%





3.21
%
Interest expense as a percent of average earning assets



1.07
%





0.99
%





0.71
%
Net interest margin (tax equivalent basis) (2)



3.57
%





3.55
%





3.54
%
Total cost of deposits




0.93
%





0.83
%





0.53
%

(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
(dollars in thousands, except share data)






March 31,

December 31,

2019

2018

(unaudited)

(audited)
ASSETS



Cash and due from banks
$
879,299


$
665,029

Interest-bearing deposits in financial institutions
21,001


21,667

Total Cash and Cash Equivalents
900,300


686,696

Securities available for sale, at fair value
1,099,777


1,095,339

Securities held to maturity, at amortized cost
49,687


50,598

Other securities
5,022


4,797

Federal Home Loan Bank stock, at amortized cost
41,464


43,229

Total Securities
1,195,950


1,193,963

Mortgage loans held for sale
247,021


220,986

Loans, net of unearned income and deferred costs
8,105,370


8,018,233

Less: allowance for loan losses
(53,303
)

(52,094
)
Net Loans
8,052,067


7,966,139

Premises and equipment, net
227,458


211,796

Goodwill
442,881


433,658

Other intangible assets, net
61,333


58,752

Bank-owned life insurance policies
238,977


237,371

Other assets
202,276


153,669

TOTAL ASSETS
$
11,568,263


$
11,163,030





LIABILITIES AND EQUITY



Deposits:



Noninterest-bearing demand
$
2,813,857


$
2,622,761

Interest-bearing:



Demand and money market accounts
3,290,907


3,223,215

Savings
285,790


286,684

Certificates of deposit
2,341,134


2,237,762

Total Deposits
8,731,688


8,370,422

Advances from the Federal Home Loan Bank
739,160


799,315

Subordinated debt, net
248,010


247,861

Repurchase agreements and other borrowings
44,775


47,156

Total Borrowings
1,031,945


1,094,332

Other liabilities
238,974


159,856

TOTAL LIABILITIES
10,002,607


9,624,610

Preferred stock



Authorized and unissued shares - 2,000,000
—


—

Common stock, $1.667 par: 150,000,000 shares authorized



72,613,754 and 72,465,923 shares issued at



March 31, 2019 and December 31, 2018, respectively
121,047


120,801

Capital surplus
1,035,563


1,034,676

Retained earnings
399,030


379,239

Common stock issued to deferred compensation trust, at cost



768,274 and 769,200 shares at



March 31, 2019 and December 31, 2018, respectively
(14,067
)

(13,955
)
Deferred compensation trust
14,067


13,955

Accumulated other comprehensive loss
(1,792
)

(9,190
)
TOTAL SHAREHOLDERS’ EQUITY
1,553,848


1,525,526

Noncontrolling interest
11,808


12,894

TOTAL EQUITY
1,565,656


1,538,420

TOTAL LIABILITIES AND EQUITY
$
11,568,263


$
11,163,030

TOWNEBANK
Consolidated Statements of Income (unaudited)
(dollars in thousands, except per share data)









Three Months Ended

March 31,

2019

2018
INTEREST INCOME:



Loans, including fees
$
99,695


$
81,533

Investment securities
8,134


5,592

Interest-bearing deposits in financial institutions and federal funds sold
3,998


2,362

Mortgage loans held for sale
2,003


2,379

Total interest income
113,830


91,866

INTEREST EXPENSE:



Deposits
19,174


9,486

Advances from the Federal Home Loan Bank
4,153


2,838

Subordinated capital debentures
2,962


3,158

Repurchase agreements and other borrowings, net of capitalized interest
68


40

Total interest expense
26,357


15,522

Net interest income
87,473


76,344





PROVISION FOR LOAN LOSSES
1,438


1,953

Net interest income after provision for loan losses
86,035


74,391

NONINTEREST INCOME:



Residential mortgage banking income, net
13,508


17,604

Insurance commissions and other title fees and income, net
15,582


13,372

Real estate brokerage and property management income, net
9,268


10,429

Service charges on deposit accounts
2,861


2,883

Credit card merchant fees, net
1,183


1,168

Bank owned life insurance
1,598


1,532

Other income
3,157


2,941

Gain/(loss) on investment securities
(776
)

3

Total noninterest income
46,381


49,932

NONINTEREST EXPENSE:



Salaries and employee benefits
52,860


50,784

Occupancy
8,251


6,477

Furniture and equipment
3,371


3,698

Other expenses
27,641


31,344

Total noninterest expense
92,123


92,303

Income before income tax expense and noncontrolling interest
40,293


32,020

Provision for income tax expense
8,211


6,077

Net income
$
32,082


$
25,943

Net income attributable to noncontrolling interest
(673
)

(1,238
)
Net income attributable to TowneBank
$
31,409


$
24,705

Per common share information



Basic earnings
$
0.44


$
0.36

Diluted earnings
$
0.44


$
0.36

Cash dividends declared
$
0.16


$
0.14

TOWNEBANK
Consolidated Balance Sheets - Five Quarter Trend
(dollars in thousands, except share data)












March 31,

December 31,

September 30,

June 30,

March 31,

2019

2018

2018

2018

2018

(unaudited)

(audited)

(unaudited)

(unaudited)

(unaudited)
ASSETS









Cash and due from banks
$
879,299


$
665,029


$
688,584


$
440,054


$
479,453

Interest-bearing deposits in financial institutions
21,001


21,667


20,910


17,749


17,728

Total Cash and Cash Equivalents
900,300


686,696


709,494


457,803


497,181

Securities available for sale, at fair value
1,099,777


1,095,339


1,051,773


1,057,663


1,237,179

Securities held to maturity, at amortized cost
49,687


50,598


52,002


53,954


55,283

Other securities
5,022


4,797


5,519


5,206


5,002

Federal Home Loan Bank stock, at amortized cost
41,464


43,229


46,393


46,393


46,400

Total Securities
1,195,950


1,193,963


1,155,687


1,163,216


1,343,864

Mortgage loans held for sale
247,021


220,986


333,354


396,185


293,731

Loans, net of unearned income and deferred costs
8,105,370


8,018,233


7,881,692


7,774,956


7,470,151

Less: allowance for loan losses
(53,303
)

(52,094
)

(50,236
)

(49,535
)

(46,735
)
Net Loans
8,052,067


7,966,139


7,831,456


7,725,421


7,423,416

Premises and equipment, net
227,458


211,796


210,724


207,997


207,126

Goodwill
442,881


433,658


427,117


425,625


416,789

Other intangible assets, net
61,333


58,752


58,165


60,669


57,493

Bank-owned life insurance policies
238,977


237,371


235,348


233,682


232,039

Other assets
202,276


153,669


159,887


161,055


148,776

TOTAL ASSETS
$
11,568,263


$
11,163,030


$
11,121,232


$
10,831,653


$
10,620,415

LIABILITIES AND EQUITY









Deposits:









Noninterest-bearing demand
$
2,813,857


$
2,622,761


$
2,671,558


$
2,597,320


$
2,503,246

Interest-bearing:









Demand and money market accounts
3,290,907


3,223,215


3,096,317


3,017,767


3,001,256

Savings
285,790


286,684


298,368


305,334


309,077

Certificates of deposit
2,341,134


2,237,762


2,233,188


2,070,790


2,011,843

Total Deposits
8,731,688


8,370,422


8,299,431


7,991,211


7,825,422

Advances from the Federal Home Loan Bank
739,160


799,315


873,469


873,622


873,773

Subordinated debt, net
248,010


247,861


247,712


247,563


257,723

Repurchase agreements and other borrowings
44,775


47,156


45,591


50,981


52,509

Total Borrowings
1,031,945


1,094,332


1,166,772


1,172,166


1,184,005

Other liabilities
238,974


159,856


155,205


191,490


161,638

TOTAL LIABILITIES
10,002,607


9,624,610


9,621,408


9,354,867


9,171,065

Preferred stock









Authorized shares - 2,000,000
—


—


—


—


—











Common stock, $1.667 par value
121,047


120,801


120,613


120,615


120,472

Capital surplus
1,035,563


1,034,676


1,032,863


1,031,965


1,028,985

Retained earnings
399,030


379,239


354,842


328,125


304,896

Common stock issued to deferred compensation









trust, at cost
(14,067
)

(13,955
)

(13,780
)

(13,500
)

(12,612
)
Deferred compensation trust
14,067


13,955


13,780


13,500


12,612

Accumulated other comprehensive loss
(1,792
)

(9,190
)

(22,348
)

(17,944
)

(15,873
)
TOTAL SHAREHOLDERS’ EQUITY
1,553,848


1,525,526


1,485,970


1,462,761


1,438,480

Noncontrolling interest
11,808


12,894


13,854


14,025


10,870

TOTAL EQUITY
1,565,656


1,538,420


1,499,824


1,476,786


1,449,350

TOTAL LIABILITIES AND EQUITY
$
11,568,263


$
11,163,030


$
11,121,232


$
10,831,653


$
10,620,415

TOWNEBANK
Consolidated Statements of Income - Five Quarter Trend (unaudited)
(dollars in thousands, except share data)





Three Months Ended

March 31,

December 31,

September 30,

June 30,

March 31,

2019

2018

2018

2018

2018
INTEREST INCOME:









Loans, including fees
$
99,695


$
99,446


$
97,215


$
93,150


$
81,533

Investment securities
8,134


8,126


7,019


6,390


5,592

Interest-bearing deposits in financial institutions and federal funds sold
3,998


3,559


2,148


2,159


2,362

Mortgage loans held for sale
2,003


3,176


4,012


3,557


2,379

Total interest income
113,830


114,307


110,394


105,256


91,866

INTEREST EXPENSE:









Deposits
19,174


17,495


14,540


11,620


9,486

Advances from the Federal Home Loan Bank
4,153


4,585


4,153


3,764


2,838

Subordinated capital debentures
2,962


2,961


2,962


2,986


3,158

Repurchase agreements and other borrowings
68


58


42


63


40

Total interest expense
26,357


25,099


21,697


18,433


15,522

Net interest income
87,473


89,208


88,697


86,823


76,344











PROVISION FOR LOAN LOSSES
1,438


2,292


1,241


3,056


1,953

Net interest income after provision for loan losses
86,035


86,916


87,456


83,767


74,391

NONINTEREST INCOME:









Residential mortgage banking income, net
13,508


12,951


15,804


18,745


17,604

Insurance commissions and other title fees and income, net
15,582


13,212


14,493


15,087


13,372

Real estate brokerage and property management income, net
9,268


5,982


8,542


6,910


10,429

Service charges on deposit accounts
2,861


2,928


3,028


2,969


2,883

Credit card merchant fees, net
1,183


1,298


1,563


1,443


1,168

Bank owned life insurance
1,598


2,014


1,657


1,633


1,532

Other income
3,157


3,824


4,130


3,448


2,941

Gain/(loss) on investment securities
(776
)

—


—


—


3

Total noninterest income
46,381


42,209


49,217


50,235


49,932

NONINTEREST EXPENSE:









Salaries and employee benefits
52,860


50,233


50,497


50,324


50,784

Occupancy expense
8,251


7,352


7,013


6,802


6,477

Furniture and equipment
3,371


3,587


3,646


3,546


3,698

Other expenses
27,641


21,165


27,106


28,549


31,344

Total noninterest expense
92,123


82,337


88,262


89,221


92,303

Income before income tax expense and noncontrolling interest
40,293


46,788


48,411


44,781


32,020

Provision for income tax expense
8,211


10,348


9,159


8,643


6,077

Net income
32,082


36,440


39,252


36,138


25,943

Net income attributable to noncontrolling interest
(673
)

(450
)

(959
)

(1,334
)

(1,238
)
Net income attributable to TowneBank
$
31,409


$
35,990


$
38,293


$
34,804


$
24,705

Per common share information









Basic earnings
$
0.44


$
0.50


$
0.53


$
0.48


$
0.36

Diluted earnings
$
0.44


$
0.50


$
0.53


$
0.48


$
0.36

Basic weighted average shares outstanding
71,992,330


71,905,956


71,875,085


71,787,980


68,983,745

Diluted weighted average shares outstanding
72,099,558


$
72,043,369


72,044,355


71,949,590


69,156,809

Cash dividends declared
$
0.16


$
0.16


$
0.16


$
0.16


$
0.14

TOWNEBANK
Banking Segment Financial Information (unaudited)
(dollars in thousands)








Three Months Ended

Increase/(Decrease)

March 31,

December 31,

2019 over 2018

2019

2018

2018

Amount

Percent
Revenue









Net interest income
$
86,400


$
74,042


$
86,433


$
12,358


16.69
%
Noninterest income









Service charges on deposit accounts
2,861


2,883


2,928


(22
)

(0.76
)%
Credit card merchant fees
1,183


1,168


1,298


15


1.28
%
Other income
3,927


3,956


4,660


(29
)

(0.73
)%
Subtotal
7,971


8,007


8,886


(36
)

(0.45
)%
Gain/(loss) on investment securities
(776
)

3


—


(779
)

N/M

Total noninterest income
7,195


8,010


8,886


(815
)

(10.17
)%
Total revenue
93,595


82,052


95,319


11,543


14.07
%










Provision for loan losses
1,438


1,953


2,292


(515
)

(26.37
)%










Expenses









Salaries and employee benefits
31,087


30,202


28,100


885


2.93
%
Occupancy expense
5,244


4,016


4,789


1,228


30.58
%
Furniture and equipment
2,367


2,532


2,426


(165
)

(6.52
)%
Amortization of intangibles
1,366


1,221


1,428


145


11.88
%
Other expenses
16,181


20,748


9,759


(4,567
)

(22.01
)%
Total expenses
56,245


58,719


46,502


(2,474
)

(4.21
)%
Income before income tax, corporate allocation and noncontrolling interest
35,912


21,380


46,525


14,532


67.97
%
Corporate allocation
452


456


367


(4
)

(0.88
)%
Income before income tax provision and noncontrolling interest
36,364


21,836


46,892


14,528


66.53
%
Provision for income tax expense
7,192


3,881


10,252


3,311


85.31
%
Net income
29,172


17,955


36,640


11,217


62.47
%
Noncontrolling interest
2


(2
)

4


4


N/M

Net income attributable to TowneBank
$
29,174


$
17,953


$
36,644


$
11,221


62.50
%










Efficiency ratio
59.60
%

71.57
%

48.79
%

(11.97
)%

(16.72
)%

TOWNEBANK
Realty Segment Financial Information (unaudited)
(dollars in thousands)





Three Months Ended

Increase/(Decrease)

March 31,

December 31,

2019 over 2018

2019

2018

2018

Amount

Percent
Revenue









Residential mortgage brokerage income, net
$
13,756


$
17,661


$
13,472


$
(3,905
)

(22.11
)%
Real estate brokerage income, net
1,561


1,698


2,183


(137
)

(8.07
)%
Title insurance and settlement fees
368


315


458


53


16.83
%
Property management fees, net
7,708


8,731


3,799


(1,023
)

(11.72
)%
Income from unconsolidated subsidiary
94


94


54


—


—
%
Net interest and other income
1,372


2,546


3,210


(1,174
)

(46.11
)%
Total revenue
24,859


31,045


23,176


(6,186
)

(19.93
)%










Expenses









Salaries and employee benefits
12,895


13,877


14,308


(982
)

(7.08
)%
Occupancy expense
2,345


1,894


1,928


451


23.81
%
Furniture and equipment
768


980


930


(212
)

(21.63
)%
Amortization of intangible assets
725


672


767


53


7.89
%
Other expenses
6,241


6,294


6,419


(53
)

(0.84
)%
Total expenses
22,974


23,717


24,352


(743
)

(3.13
)%










Income/(loss) before income tax, corporate allocation and noncontrolling interest
1,885


7,328


(1,176
)

(5,443
)

(74.28
)%
Corporate allocation
(263
)

(289
)

(238
)

26


(9.00
)%
Income before income tax provision and noncontrolling interest
1,622


7,039


(1,414
)

(5,417
)

(76.96
)%
Provision for income tax expense
551


1,559


(86
)

(1,008
)

(64.66
)%
Net income/(loss)
1,071


5,480


(1,328
)

(4,409
)

(80.46
)%
Noncontrolling interest
(252
)

(622
)

(130
)

370


(59.49
)%
Net income/(loss) attributable to TowneBank
$
819


$
4,858


$
(1,458
)

$
(4,039
)

(83.14
)%










Efficiency ratio
92.42
%

76.40
%

105.07
%

16.02
%

20.97
%

TOWNEBANK
Insurance Segment Financial Information (unaudited)
(dollars in thousands)












Three Months Ended

Increase/(Decrease)

March 31,

December 31,

2019 over 2018

2019

2018

2018

Amount

Percent
Commission and fee income









Property and casualty
$
11,873


$
9,356


$
9,770


$
2,517


26.90
%
Employee benefits
3,506


3,196


3,625


310


9.70
%
Travel insurance
1,289


1,768


1,095


(479
)

(27.09
)%
Specialized benefit services
170


169


168


1


0.59
%
Total commissions and fees
16,838


14,489


14,658


2,349


16.21
%










Contingency and bonus revenue
1,585


1,133


1,185


452


39.89
%
Other income
75


70


79


5


7.14
%
Total revenue
18,498


15,692


15,922


2,806


17.88
%










Employee commission expense
3,098


2,513


3,000


585


23.28
%
Revenue, net of commission expense
15,400


13,179


12,922


2,221


16.85
%










Salaries and employee benefits
8,878


6,705


7,825


2,173


32.41
%
Occupancy expense
662


567


635


95


16.75
%
Furniture and equipment
236


185


231


51


27.57
%
Amortization of intangible assets
1,101


702


928


399


56.84
%
Other expenses
2,027


1,708


1,865


319


18.68
%
Total operating expenses
12,904


9,867


11,484


3,037


30.78
%
Income before income tax, corporate allocation and noncontrolling interest
2,496


3,312


1,438


(816
)

(24.64
)%
Corporate allocation
(189
)

(167
)

(128
)

(22
)

13.17
%
Income before income tax provision and noncontrolling interest
2,307


3,145


1,310


(838
)

(26.65
)%
Provision for income tax expense
468


637


182


(169
)

(26.53
)%
Net income
1,839


2,508


1,128


(669
)

(26.67
)%
Noncontrolling interest
(423
)

(614
)

(324
)

191


(31.11
)%
Net income attributable to TowneBank
$
1,416


$
1,894


$
804


$
(478
)

(25.24
)%










Provision for income taxes
468


637


182


(169
)

(26.53
)%
Depreciation, amortization and interest expense
1,333


906


1,152


427


47.13
%
EBITDA
$
3,217


$
3,437


$
2,138


$
(220
)

(6.40
)%










Efficiency ratio
83.79
%

74.87
%

88.87
%

8.92
%

11.91
%

TOWNEBANK
Reconcilement of Non-GAAP Financial Measures








Three Months Ended

March 31,

March 31,

December 31,

2019

2018

2018






Return on average assets (GAAP)
1.14
%

1.02
%

1.28
%
Impact of excluding average goodwill and other intangibles and amortization
0.15
%

0.13
%

0.15
%
Return on average tangible assets (non-GAAP)
1.29
%

1.15
%

1.43
%






Return on average equity (GAAP)
8.24
%

7.39
%

9.44
%
Impact of excluding average goodwill and other intangibles and amortization
5.00
%

4.25
%

5.47
%
Return on average tangible equity (non-GAAP)
13.24
%

11.64
%

14.91
%






Return on average common equity (GAAP)
8.30
%

7.45
%

9.53
%
Impact of excluding average goodwill and other intangibles and amortization
5.09
%

4.32
%

5.58
%
Return on average tangible common equity (non-GAAP)
13.39
%

11.77
%

15.11
%






Book value (GAAP)
$
21.40


$
19.90


$
21.05

Impact of excluding average goodwill and other intangibles and amortization
(6.94
)

(6.56
)

(6.79
)
Tangible book value (non-GAAP)
$
14.46


$
13.34


$
14.26

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

2018

2018

2018

2018











Net income (GAAP)

$
31,409


$
35,990


$
38,293


$
34,804


$
24,705












Acquisition-related expenses

411


(1,518
)

424


797


8,726

Income tax expense -tax reform legislation

—


696


—


—


—

Income tax expense (benefit) - other items

(52
)

355


(44
)

(93
)

(1,639
)
Income tax expense (benefit)

(52
)

1,051


(44
)

(93
)

(1,639
)
Total charges, net of taxes

359


(467
)

380


704


7,087

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

$
31,768


$
35,523


$
38,673


$
35,508


$
31,792












Weighted average diluted shares

72,099,558


72,043,369


72,044,355


71,949,590


69,156,809












Diluted EPS (GAAP)

$
0.44


$
0.50


$
0.53


$
0.48


$
0.36

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

$
0.44


$
0.49


$
0.54


$
0.49


$
0.46












Average assets

$
11,194,753


$
11,149,960


$
10,844,570


$
10,536,847


$
9,848,364

Average tangible equity

$
1,039,630


$
1,022,982


$
1,003,151


$
981,607


$
932,161












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

1.15
%

1.26
%

1.41
%

1.35
%

1.31
%
Return on average tangible equity, excluding certain items affecting comparability (non-GAAP)

13.38
%

14.73
%

16.23
%

15.48
%

14.72
%
Return on average common tangible equity, excluding certain items affecting comparability (non-GAAP)

13.53
%

14.93
%

16.45
%

15.66
%

14.89
%
Efficiency ratio, excluding certain items affecting comparability (non-GAAP)

68.12
%

63.81
%

63.69
%

64.52
%

66.19
%

Company Name:	Towne Bank
Stock Symbol:	TOWN
Market:	NASDAQ
Website:	townebank.com

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