TOWN - TowneBank Reports First Quarter 2024 Earnings

SUFFOLK, Va., April 24, 2024 (GLOBE NEWSWIRE) -- TowneBank (the "Company" or "Towne") (NASDAQ: TOWN) today reported earnings for the quarter ended March 31, 2024 of $34.69 million, or $0.46 per diluted share, compared to $38.33 million, or $0.52 per diluted share, for the quarter ended March 31, 2023. Excluding acquisition-related items and the incremental FDIC special assessment, adjusted earnings (non-GAAP) for first quarter 2024 were $36.27 million, or $0.48 per diluted share, compared to $46.30 million, or $0.62 per diluted share, for first quarter 2023.

"TowneBank had a solid start to the year with our continued focus on maintaining healthy levels of capital and liquidity. While we continue to see migration to interest-bearing accounts, it was encouraging to generate overall annualized deposit growth of nearly 7% for the first quarter, demonstrating the durability of the TowneBank operating mode. Our ongoing growth strategy for our ancillary lines of business, including insurance and property management, continues to serve as a partial hedge to offset rising deposit costs," said G. Robert Aston, Jr., Executive Chairman.

Highlights for First Quarter 2024:

• Total revenues were $167.10 million, a decrease of $17.04 million, or 9.25%, compared to first quarter 2023. Net interest income declined $20.16 million, driven by higher rates on deposits and the continuation a migration from noninterest-bearing to interest-bearing deposits. The decrease was partially offset by an increase in noninterest income of $3.12 million.
• Total deposits were $14.13 billion, an increase of $527.94 million, or 3.88%, compared to first quarter 2023. Total deposits increased 1.68%, or $232.87 million, in comparison to December 31, 2023, 6.74% on an annualized basis.
• Noninterest-bearing deposits decreased 17.27%, to $4.19 billion, compared to first quarter 2023 and represented 29.69% of total deposits. Compared to the linked quarter, noninterest-bearing deposits decreased 3.42%.
• Loans held for investment were $11.45 billion, an increase of $278.56 million, or 2.49%, compared to March 31, 2023, and $123.32 million, or 1.09%, compared to December 31, 2023, 4.38% on an annualized basis.
• Annualized return on common shareholders' equity was 6.89% compared to 8.05% in first quarter 2023. Annualized return on average tangible common shareholders' equity (non-GAAP) was 9.98% compared to 11.83% in first quarter 2023.
• Net interest margin was 2.72% for the quarter and tax-equivalent net interest margin (non-GAAP) was 2.75%, including purchase accounting accretion of 4 basis points, compared to the prior year quarter net interest margin of 3.36% and tax-equivalent net interest margin (non-GAAP) of 3.39%, including purchase accounting accretion of 3 basis points.
• The effective tax rate was 17.31% in the quarter compared to 20.03% in first quarter 2023 and 8.46% in the linked quarter. The lower tax rate in the linked quarter was due to a decline in state tax expense in fourth quarter 2023, increases in tax-advantaged income investments, and deferred taxes related to the sale of Berkshire Hathaway HomeServices ("BHHS") Towne Realty.

"We reported strong asset quality metrics for the quarter and continued to focus on our strategy to align loan and deposit growth, which is reflective of our conservative approach to Main Street banking. Additionally, we were excited to close our first property management acquisition in Florida adding another market to our unique portfolio of property management companies," stated William I. Foster III, President and Chief Executive Officer.

Quarterly Net Interest Income:

• Net interest income was $103.22 million compared to $123.38 million for the quarter ended March 31, 2023. The decrease was driven by interest-bearing deposit growth, coupled with increased deposit costs, outpacing higher earning asset yields.
• On an average basis, loans held for investment, with a yield of 5.37%, represented 74.54% of earning assets at March 31, 2024 compared to a yield of 4.88% and 74.61% of earning assets in the first quarter of 2023.
• The cost of interest-bearing deposits was 3.24% for the quarter ended March 31, 2024, compared to 1.66% in 2023. Interest expense on deposits increased $44.45 million, or 131.00%, over the prior year quarter driven by the increase in rate.
• Our total cost of deposits increased to 2.26% from 1.02% for the quarter ended March 31, 2023 due to a combination of higher interest-bearing deposit costs and the decline in noninterest-bearing deposits.
• Average interest-earning assets totaled $15.27 billion at March 31, 2024 compared to $14.87 billion at March 31, 2023, an increase of 2.64%. The Company anticipates $550 million of cash flows from its securities portfolio to be available for reinvestment in the next two years.
• Average interest-bearing liabilities totaled $10.21 billion, an increase of $1.30 billion, or 14.60% from prior year. Average short term FHLB borrowings were $174.73 million during the quarter compared to $263.33 million one year prior.

Quarterly Provision for Credit Losses:

• The quarterly provision for credit losses was a benefit of $0.88 million compared to an expense of $11.67 million in the prior year quarter and $2.45 million in the linked quarter. Prior year quarter included $4.01 million in provision related to the acquisition of Farmers Bankshares, Inc. and its wholly owned subsidiary Farmers Bank ("Farmers").
• The allowance for credit losses on loans decreased $0.63 million in first quarter 2024, compared to the linked quarter. The decrease in the allowance was driven by continued strength in credit quality and modest improvements in the macroeconomic forecast scenarios utilized in our models, partially offset by modest loan growth.
• Net loan charge-offs were $520 thousand in the quarter compared to $3.87 million in the prior year quarter and $68 thousand in the linked quarter.
• The ratio of net charge-offs to average loans on an annualized basis was 0.02% in first quarter 2024, 0.14% in first quarter 2023, and zero percent in the linked quarter.
• The allowance for credit losses on loans represented 1.10% of total loans at March 31, 2024, 1.07% at March 31, 2023, and 1.12% at December 31, 2023. The allowance for credit losses on loans was 18.01 times nonperforming loans compared to 12.87 times at March 31, 2023 and 18.48 times at December 31, 2023.

Quarterly Noninterest Income:

• Total noninterest income was $63.88 million compared to $60.77 million in 2023, an increase of $3.12 million, or 5.13%.
• Residential mortgage banking income was $10.48 million compared to $9.37 million in first quarter 2023. Loan volume increased to $424.39 million in first quarter 2024 from $416.22 million in first quarter 2023. The number of loans originated was consistent with first quarter 2023, but higher per-loan average balances resulted in higher production volume. Residential purchase activity comprised 95.66% of production volume in the first quarter of 2024 compared to 94.99% in the prior year quarter.
• Gross margins on residential mortgage sales increased 23 basis points to 3.34% in the current quarter from 3.11% in first quarter 2023.
• Total net insurance commissions increased $2.72 million, or 11.90%, to $25.54 million in first quarter 2024 compared to 2023. This increase was attributable to increases in property and casualty commissions which were driven by organic growth and a full quarter of income in 2024 related to the 2023 Manry-Rawls, LLC acquisition.
• Property management fee revenue increased 7.97%, or $1.24 million, to $16.77 million in first quarter 2024 compared to 2023. Reservation income increased compared to the prior year due to an acquisition in March 2024 and a full quarter of revenue from an acquisition in March 2023.

Qua rterly Noninterest Expense:

• Total noninterest expense was $125.59 million compared to $124.40 million in 2023, an increase of $1.19 million, or 0.96%. Increases in salaries and employee benefits of $1.96 million, FDIC and other insurance of $2.75 million, and various expense line items, were partially offset by a decrease in acquisition expenses of $5.37 million.
• Salaries and benefits expense increases were driven by annual base salary adjustments effective third quarter 2023, acquisition-related increases in the number of employees, and higher health insurance costs. The increases were partially offset by a decline in incentive accruals and decreases in our Realty segment related to cost reductions in our mortgage business and the sale of BHHS Towne Realty in 2023.
• FDIC and other insurance increased due to a higher assessment rate and an additional expense accrual of $1.29 million before taxes, pursuant to the revised estimated FDIC special assessment.

Consolidated Balance Sheet Highlights:

• In first quarter 2024, management continued its focus on strategic balance sheet management with a concentration on controlled loan growth and maintaining liquidity.
• Total assets were $16.88 billion for the quarter ended March 31, 2024, a $49.20 million increase compared to $16.84 billion at December 31, 2023. Total assets increased $153.76 million, or 0.92%, from $16.73 billion at March 31, 2023.
• Loans held for investment increased $278.56 million, or 2.49%, compared to prior year and $123.32 million, or 1.09%, compared to the linked quarter, 4.38% on an annualized basis.
• Mortgage loans held for sale decreased $6.43 million, or 4.09%, compared to prior year but increased $0.74 million, or 0.49%, compared to the linked quarter.
• Total deposits increased $527.94 million, or 3.88%, compared to prior year, primarily in interest- bearing demand and time deposits. In the linked quarter comparison, total deposits increased $232.87 million, or 6.74% on an annualized basis.
• Noninterest-bearing deposits decreased $875.23 million or 17.27%, compared to prior year, and $148.57 million, or 3.42%, compared to the linked quarter.
• Total borrowings decreased $515.27 million, or 63.91%, compared to first quarter 2023 and $201.60 million, or 40.93%, compared to the linked quarter driven by declines in short-term FHLB advances.

Investment Securities:

• Total investment securities were $2.54 billion compared to $2.64 billion at December 31, 2023 and $2.67 billion at March 31, 2023. The weighted average duration of the portfolio at March 31, 2024 was 3.3 years. The carrying value of the available for sale debt securities portfolio included net unrealized losses of $170.84 million at March 31, 2024, compared to $162.12 million at December 31, 2023 and $165.71 million at March 31, 2023, with the changes related to market valuation adjustments due to changing interest rates.

Loans and Asset Quality:

• Total loans held for investment were $11.45 billion at March 31, 2024 compared to $11.33 billion at December 31, 2023 and $11.17 billion at March 31, 2023.
• Nonperforming assets were $7.77 million, or 0.05% of total assets, compared to $9.89 million, or 0.06%, at March 31, 2023.
• Nonperforming loans were 0.06% of period end loans at March 31, 2024, compared to 0.08% at March 31, 2023.
• Foreclosed property increased to $780 thousand from $564 thousand at March 31, 2023.

Deposits and Borrowings:

• Total deposits were $14.13 billion compared to $13.89 billion at December 31, 2023 and $13.60 billion at March 31, 2023.
• The ratio of period end loans held for investment to deposits was 81.07% compared to 81.54% at December 31, 2023 and 82.17% at March 31, 2023.
• Noninterest-bearing deposits were 29.69% of total deposits at March 31, 2024 compared to 31.26% at December 31, 2023 and 37.28% at March 31, 2023. Noninterest-bearing deposits declined $0.88 billion, or 17.27%, compared to March 31, 2023, primarily in commercial and escrow accounts.
• Total borrowings were $290.98 million compared to $492.58 million at December 31, 2023 and $806.25 million at March 31, 2023.

Capital:

• Common equity tier 1 capital ratio of 12.20% ⁽¹⁾ .
• Tier 1 leverage capital ratio of 10.15% ⁽¹⁾ .
• Tier 1 risk-based capital ratio of 12.32% ^{( 1 )} .
• Total risk-based capital ratio of 15.10% ^{(1) .}
• Book value per common share was $27.33 compared to $27.24 at December 31, 2023 and $26.40 at March 31, 2023.
• Tangible book value per common share (non-GAAP) was $20.31 compared to $20.28 at December 31, 2023 and $19.04 at March 31, 2023.

^{(1) Preliminary.}

About TowneBank:
Founded in 1999, TowneBank is a company built on relationships, offering a full range of banking and other financial services, with a focus of serving others and enriching lives. Dedicated to a culture of caring, Towne values all employees and members by embracing their diverse talents, perspectives, and experiences.

Now celebrating 25 years, TowneBank operates 50 banking offices throughout Hampton Roads and Central Virginia, as well as Northeastern and Central North Carolina – serving as a local leader in promoting the social, cultural, and economic growth in each community. Towne offers a competitive array of business and personal banking solutions, delivered with only the highest ethical standards. Experienced local bankers providing a higher level of expertise and personal attention with local decision-making are key to the TowneBank strategy. TowneBank has grown its capabilities beyond banking to provide expertise through its affiliated companies that include Towne Wealth Management, Towne Insurance Agency, Towne Benefits, TowneBank Mortgage, TowneBank Commercial Mortgage, Berkshire Hathaway HomeServices RW Towne Realty, Towne 1031 Exchange, LLC, and Towne Vacations. With total assets of $16.88 billion as of March 31, 2024, TowneBank is one of the largest banks headquartered in Virginia.

Non-GAAP Financial Measures:
This press release contains certain financial measures determined by methods other than in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Such non-GAAP financial measures include the following: fully tax-equivalent net interest margin, core operating earnings, core net income, tangible book value per common share, total risk-based capital ratio, tier one leverage ratio, tier one capital ratio, and the tangible common equity to tangible assets ratio. Management uses these non-GAAP financial measures to assess the performance of TowneBank’s core business and the strength of its capital position. Management believes that these non-GAAP financial measures provide meaningful additional information about TowneBank to assist investors in evaluating operating results, financial strength, and capitalization. The non-GAAP financial measures should be considered as additional views of the way our financial measures are affected by significant charges for credit costs and other factors. These non-GAAP financial measures should not be considered as a substitute for operating results determined in accordance with GAAP and may not be comparable to other similarly titled measures of other companies. The computations of the non-GAAP financial measures used in this presentation are referenced in a footnote or in the appendix to this presentation.

Forward-Looking Statements:
This press release contains certain forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not historical facts, but instead represent only the beliefs, expectations, or opinions of TowneBank and its management regarding future events, many of which, by their nature, are inherently uncertain. Forward-looking statements may be identified by the use of such words as: "believe," "expect," "anticipate," "intend," "plan,” "estimate," or words of similar meaning, or future or conditional terms, such as "will," "would," "should," "could," "may," "likely," "probably," or "possibly." These statements may address issues that involve significant risks, uncertainties, estimates, and assumptions made by management. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include among others, competitive pressures in the banking industry that may increase significantly; changes in the interest rate environment that may reduce margins and/or the volumes and values of loans made or held as well as the value of other financial assets held; an unforeseen outflow of cash or deposits or an inability to access the capital markets, which could jeopardize our overall liquidity or capitalization; changes in the creditworthiness of customers and the possible impairment of the collectability of loans; insufficiency of our allowance for credit losses due to market conditions, inflation, changing interest rates or other factors; adverse developments in the financial industry generally, such as the recent bank failures, responsive measures to mitigate and manage such developments, related supervisory and regulatory actions and costs, and related impacts on customer and client behavior; general economic conditions, either nationally or regionally, that may be less favorable than expected, resulting in, among other things, a deterioration in credit quality and/or a reduced demand for credit or other services; geopolitical instability, including wars, conflicts, civil unrest, and terrorist attacks and the potential impact, directly or indirectly, on our business; the effects of weather-related or natural disasters, which may negatively affect our operations and/or our loan portfolio and increase our cost of conducting business; public health events (such as the COVID-19 pandemic) and governmental and societal responses to them; changes in the legislative or regulatory environment, including changes in accounting standards and tax laws, that may adversely affect our business; costs or difficulties related to the integration of the businesses we have acquired may be greater than expected; expected cost savings associated with pending or recently completed acquisitions may not be fully realized or realized within the expected time frame; cybersecurity threats or attacks, the implementation of new technologies, and the ability to develop and maintain reliable electronic systems; our competitors may have greater financial resources and develop products that enable them to compete more successfully; changes in business conditions; changes in the securities market; and changes in our local economy with regard to our market area. Any forward-looking statements made by us or on our behalf speak only as of the date they are made or as of the date indicated, and we do not undertake any obligation to update forward-looking statements as a result of new information, future events, or otherwise. For additional information on factors that could materially influence forward-looking statements included in this report, see the "Risk Factors" in TowneBank’s Annual Report on Form 10-K for the year ended December 31, 2023, and related disclosures in other filings that have been, or will be, filed by TowneBank with the Federal Deposit Insurance Corporation.

Media contact:
G. Robert Aston, Jr., Executive Chairman, 757-638-6780
William I. Foster III, President and Chief Executive Officer, 757-417-6482

Investor contact:
William B. Littreal, Chief Financial Officer, 757-638-6813

^{(1) Yields and interest income are presented on a taxable-equivalent basis using the federal statutory tax rate of 21%.
(2) Interest spread is the average yield earned on earning assets less the average rate paid on interest-bearing liabilities. Fully tax equivalent.
(3) Net interest margin is net interest income expressed as a percentage of average earning assets. Fully tax equivalent.
(4) Non-GAAP.}