TOWN - TowneBank Reports Second Quarter 2019 Earnings

July, 25 2019 08:30 AM Towne Bank

SUFFOLK, Va., July 25, 2019 (GLOBE NEWSWIRE) -- TowneBank (the “Company”) (NASDAQ: TOWN) today reported earnings for the quarter ended June 30, 2019 of $34.64 million, or $0.48 per diluted share, compared to $34.80 million, or $0.48 per diluted share, for the quarter ended June 30, 2018.

“Our second quarter performance was highlighted by record top-line revenues coupled with strong deposit growth. We also continued to strategically invest in recruiting, technology, enhanced services, and infrastructure to support future growth," said G. Robert Aston, Jr., Executive Chairman.

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

Total revenues were $144.54 million, an increase of $7.48 million, or 5.46%.
Loans held for investment increased $351.77 million, or 4.52%, from June 30, 2018, and $21.36 million, or 0.26%, from March 31, 2019, or 1.06% on an annualized basis.
Total deposits were $9.27 billion, an increase of $1.28 billion, or 15.99%, compared to prior year and $0.54 billion, or 6.15% from March 31, 2019, or 24.67% on an annualized basis. In comparison to June 30, 2018, total deposits increased 11.70% in our Hampton Roads region, 28.14% in our Richmond region, and 23.39% in our North Carolina region.
Noninterest bearing deposits increased by 13.60%, to $2.95 billion, representing 31.83% of total deposits. Compared to the linked quarter, noninterest bearing deposits increased 4.86%, or 19.49% on an annualized basis.
Annualized return on common shareholders' equity of 8.89% and annualized return on average tangible common shareholders' equity of 14.05% (non-GAAP).
Net interest margin for the quarter was 3.49% and taxable equivalent net interest margin was 3.52% (non-GAAP).
Effective tax rate of 20.47% in the quarter compared to 19.89% in the second quarter of 2018.

“In addition to recruiting Jack Clayton as President of Business Strategies for North Carolina in the first quarter of 2019, we continued to build our production teams in Raleigh, Greensboro, and Charlotte adding Private Bankers and Treasury expertise. We announced that Charity Volman has been appointed President of TowneBank’s newly formed Corporate Banking Group. Joining her team are Karen Priest, Laura Morgan, and Brian Woodell, who served with her at her former bank. In addition, Shane Stevens, was recently appointed Director of Merchant and Treasury Services. Each of these individuals brings a wealth of experience and talent to our HomeTowne Banking platform,” stated J. Morgan Davis, President and Chief Executive Officer.

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

Net interest income was $89.82 million compared to $86.82 million at June 30, 2018.
Taxable equivalent net interest margin (non-GAAP) was 3.52%, including accretion of 11 basis points, compared to 3.71%, including accretion of 23 basis points, for 2018.
Average loans held for investment, with an average yield of 5.08%, represented 78.27% of average earning assets at June 30, 2019 compared to an average yield of 4.97% and 79.99% of average earning assets in the second quarter of 2018.
Total cost of deposits increased to 0.99% from 0.60% at June 30, 2018.
Average interest-earning assets totaled $10.32 billion at June 30, 2019 compared to $9.44 billion at June 30, 2018, an increase of 9.26%.
Average interest-bearing liabilities totaled $6.95 billion, an increase of $0.55 billion from prior year.

Quarterly Provision for Loan Losses:

Recorded a provision for loan losses of $2.82 million compared to $3.06 million one year ago and $1.44 million in the linked quarter.
Net charge-offs were $1.60 million compared to $0.26 million one year prior. The ratio of net charge-offs to average loans on an annualized basis was 0.08% compared to 0.01% in the prior quarter and 0.01% in the second quarter of 2018. This increase was primarily attributable to the charge-off of one credit relationship.
The allowance for loan losses represented 0.67% of total loans compared to 0.66% at March 31, 2019 and 0.64% at June 30, 2018. Loan loss reserve as a percentage of total loans, excluding purchased loans, was 0.81% at June 30, 2019, and March 31, 2019, compared to 0.84% at June 30, 2018. The allowance for loan losses was 3.00 times nonperforming loans compared to 9.36 times at March 31, 2019 and 12.64 times at June 30, 2018.

Quarterly Noninterest Income Compared to the Second Quarter of 2018:

Total noninterest income was $54.72 million compared to $50.24 million in 2018, an increase of $4.48 million, or 8.92%. Residential mortgage banking income was relatively flat in the quarter, while insurance commissions and other title fees increased $2.13 million, real estate brokerage and property management income increased $1.93 million, and service charges on deposit accounts increased $0.22 million. Credit card merchant fees declined $0.78 million.
Credit card merchant fee income was roughly $0.90 million below normal seasonal levels in second quarter 2019 due to the impact of converting to a new processing platform that will allow us to provide additional services and capabilities.
Residential mortgage banking income was $18.57 million compared to $18.75 million in second quarter 2018. Loan volume in the current quarter was $821.13 million, with purchase activity comprising 84.97% of that volume. Loan volume in second quarter 2018 was $951.12 million, with purchase activity of 91.23%. Lower volumes led to the decline in revenue.
Total Insurance segment revenue increased 14.95% to $20.20 million in the second quarter due primarily to additional commission income from insurance agencies that were acquired in November 2018 and January 2019.
Property management fee revenue increased 45.89%, or $1.88 million, as compared to second quarter 2018 due to increases in reservation levels.

Quarterly Noninterest Expense Compared to the Second Quarter of 2018:

Total noninterest expense was $96.56 million compared to $89.22 million in 2018, an increase of $7.34 million, or 8.22%. This reflects increases of $3.94 million in salary and benefits expense, $1.29 million in professional fees, $0.86 million in occupancy expense, and $0.76 million in outside data processing expenses.
The increase in salary and benefits expense was attributable to the continued expansion of our functional support teams to enable us to enhance Company infrastructure and meet increased regulatory expectations related to exceeding $10 billion in assets, as well as keep pace with our growth and changing industry standards. Specific areas of focus include: information technology, risk and compliance, accounting, and internal audit.
In the wake of the May 2019 tragedy in Virginia Beach, Towne's contribution of $0.50 million to "VBStrong" was included in other expenses.
Noninterest expense included operational expenses of $1.60 million related to insurance agencies acquired subsequent to second quarter 2018.

Quarterly Income Taxes Compared to the Second Quarter of 2018:

Income tax expense was $8.92 million compared to $8.64 million one year prior. This represents an effective tax rate of 20.47% compared to 19.89% in the second quarter of 2018.

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

Total assets were $11.94 billion for the quarter ended June 30, 2019 compared to $11.16 billion at December 31, 2018 and $10.83 billion at June 30, 2018. This increase was driven primarily by growth in cash and cash equivalents, available for sale securities, and loans held for investment. Year-over-year, other assets increased $41.40 million due to the adoption of the leasing standard.
Loans held for investment increased $0.11 billion, or 1.35%, or 2.73% on an annualized basis, compared to year end 2018, and $0.35 billion, or 4.52% compared to June 30, 2018.
Total liabilities were $10.34 billion at June 30, 2019, an increase of $0.71 billion, or 7.39%, compared to December 31, 2018 and $0.98 billion, or 10.49%, compared to June 30, 2018. Total deposits increased $0.90 billion over December 31, 2018 and $1.28 billion over June 30, 2018. Total borrowings declined $0.26 billion from December 31, 2018 and $0.34 billion from June 30, 2018.

Investment Securities:

Total investment securities were $1.35 billion compared to $1.20 billion at March 31, 2019 and $1.16 billion at June 30, 2018. The weighted average duration of the portfolio at June 30, 2019 was 3.1 years. The carrying value of the available-for-sale portfolio included $19.66 million of net unrealized gains compared to $2.22 million at March 31, 2019 and $20.60 million in net unrealized losses at June 30, 2018. The increase in net unrealized gains was primarily due to interest rate fluctuations. The carrying value of the held-to-maturity portfolio does not reflect $1.58 million in net unrealized gains compared to $1.04 million in net unrealized gains at March 31, 2019 and $0.64 million in net unrealized gains at June 30, 2018.

Loans and Asset Quality:

Total loans held for investment were $8.13 billion at June 30, 2019 compared to $8.11 billion at March 31, 2019 and $7.77 billion at June 30, 2018.
Nonperforming assets were $34.23 million, or 0.29% of total assets, compared to $26.31 million, or 0.24%, at June 30, 2018. This increase was primarily driven by a single commercial relationship of approximately $10 million.
Nonperforming loans were 0.22% of period end loans.
Foreclosed property decreased to $14.52 million from $20.13 million at June 30, 2018.

Deposits and Borrowings:

Total deposits were $9.27 billion compared to $8.73 billion at March 31, 2019 and $7.99 billion at June 30, 2018.
Total loans to deposits were 87.68% compared to 92.83% at March 31, 2019 and 97.29% at June 30, 2018.
Non-interest bearing deposits were 31.83% of total deposits at June 30, 2019 compared to 32.23% at March 31, 2019 and 32.50% at June 30, 2018.
Total borrowings were $0.84 billion compared to $1.03 billion and $1.17 billion at March 31, 2019 and June 30, 2018, respectively.

Capital:

Common equity tier 1 capital ratio of 11.58%.
Tier 1 leverage capital ratio of 9.86%.
Tier 1 risk-based capital ratio of 11.62%.
Total risk-based capital ratio of 14.85%.
Book value was $21.95 compared to $21.40 at March 31, 2019 and $20.22 at June 30, 2018.
Tangible book value (non-GAAP)was $15.05 compared to $14.46 at March 31, 2019 and $13.50 at June 30, 2018.

Outlook:
Management reforecasts on a quarterly basis and anticipates:

Annualized loan growth to be in the low-to-mid single digits for the remainder of 2019.
Our quarterly noninterest expense run rate will range between $93 - $94 million for the remainder of 2019.

About TowneBank:
As one of the top community banks in Virginia and North Carolina, TowneBank operates 41 banking offices serving Chesapeake, Chesterfield County, Glen Allen, Hampton, James City County, Mechanicsville, Newport News, Norfolk, Portsmouth, Richmond, Suffolk, Virginia Beach, Williamsburg, and York County in Virginia, along with Raleigh, Cary, Charlotte, Greenville, Moyock, Grandy, Camden County, Southern Shores, Corolla and Nags Head in North Carolina. TowneBank also offers a full range of financial services through its controlled divisions and subsidiaries that include Towne Investment Group, Towne Wealth Management, Towne Insurance Agency, Towne Benefits, TowneBank Mortgage, TowneBank Commercial Mortgage, Berkshire Hathaway HomeServices Towne Realty, Towne 1031 Exchange, LLC, and Towne Vacations. Local decision-making is a hallmark of its hometown banking strategy that is delivered through the leadership of each group’s President and Board of Directors. With total assets of $11.94 billion as of June 30, 2019, TowneBank is one of the largest banks headquartered in Virginia.

Non-GAAP Financial Measures:
This press release contains financial information determined by methods other than in accordance with GAAP. The Company's management uses these non-GAAP financial measures in its analysis of the Company's performance. These measures typically adjust GAAP performance measures to exclude the effects of the amortization of intangibles and include the tax benefit associated with revenue items that are tax-exempt, as well as adjust income available to common shareholders for certain significant activities or transactions that are infrequent in nature. Management believes presentations of these non-GAAP financial measures provide useful supplemental information that is essential to a proper understanding of the operating results of the Company’s core businesses. These non-GAAP disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. Reconciliations of GAAP to non-GAAP disclosures are included as tables at the end of this release.

Forward-Looking Statements:
Certain statements contained in this release constitute forward-looking statements within the meaning of U.S. federal securities laws. These forward-looking statements speak only as of the date of this release, are based on current expectations, and involve a number of assumptions. These include statements regarding TowneBank’s future economic performance, financial condition, prospects, growth, strategies and expectations, and objectives of management, and are generally identified by the use of words such as “believe,” “expect,” “intend,” “anticipate,” “estimate,” or “project” or similar expressions. TowneBank intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and is including this statement for purposes of these safe harbor provisions. You should not place undue reliance on forward-looking statements, which are subject to assumptions that are subject to change. TowneBank’s ability to predict results, or the actual effect of future plans or strategies, is inherently uncertain. These forward-looking statements are subject to a number of factors and uncertainties that could cause actual results to differ from those indicated or implied in the forward-looking statements and such differences may be material. Factors which could have a material effect on the operations and future prospects of TowneBank include but are not limited to: changes in interest rates, general economic and business conditions; legislative/regulatory changes; the monetary and fiscal policies of the U.S. government, including policies of the U.S. Treasury and the Board of Governors of the Federal Reserve System; the quality and composition of TowneBank’s loan and securities portfolios; demand for loan products; deposit flows; competition; demand for financial services in TowneBank’s market area; implementation of new technologies and the ability to develop and maintain secure and reliable electronic systems; changes in the securities markets; changes in accounting principles, policies and guidelines; and other risk factors detailed from time to time in filings made by TowneBank with the Federal Deposit Insurance Corporation. TowneBank undertakes no obligation to update or clarify these forward-looking statements, whether as a result of new information, future events or otherwise.

Media contact:
G. Robert Aston, Jr., Executive Chairman, 757-638-6780
J. Morgan Davis, President and Chief Executive Officer, 757-673-1673

Investor contact:
William B. Littreal, Chief Financial Officer, 757-638-681

TOWNEBANK
Selected Financial Highlights (unaudited)
(dollars in thousands, except per share data)





Three Months Ended


June 30,

March 31,

December 31,

September 30,

June 30,

2019

2019

2018

2018

2018
Income and Performance Ratios:










Total Revenue
$
144,537


$
133,854


$
131,417


$
137,914


$
137,058


Net income
36,242


32,082


36,440


39,252


36,138


Net income attributable to TowneBank
34,638


31,409


35,990


38,293


34,804


Net income per common share - diluted
0.48


0.44


0.50


0.53


0.48


Book value per common share
21.95


21.40


21.05


20.54


20.22


Book value per common share - tangible ^(non-GAAP)
15.05


14.46


14.26


13.83


13.50


Return on average assets
1.20
%

1.14
%

1.28
%

1.40
%

1.32
%

Return on average assets - tangible ^(non-GAAP)
1.35
%

1.29
%

1.43
%

1.56
%

1.48
%

Return on average equity
8.83
%

8.24
%

9.44
%

10.21
%

9.55
%

Return on average equity - tangible ^(non-GAAP)
13.90
%

13.24
%

14.91
%

16.08
%

15.19
%

Return on average common equity
8.89
%

8.30
%

9.53
%

10.30
%

9.62
%

Return on average common equity - tangible ^(non-GAAP)
14.05
%

13.39
%

15.11
%

16.30
%

15.36
%

Noninterest income as a percentage of total revenue
37.86
%

34.65
%

32.12
%

35.69
%

36.65
%











Regulatory Capital Ratios (1):










Common equity tier 1
11.58
%

11.49
%

11.51
%

11.53
%

11.33
%

Tier 1
11.62
%

11.52
%

11.54
%

11.57
%

11.36
%

Total
14.85
%

14.79
%

14.83
%

14.90
%

14.71
%

Tier 1 leverage ratio
9.86
%

9.92
%

9.87
%

9.98
%

10.00
%











Asset Quality:










Allowance for loan losses to nonperforming loans

3.00
x


9.36
x


10.97
x


7.25
x


12.64
x

Allowance for loan losses to period end loans
0.67
%

0.66
%

0.65
%

0.64
%

0.64
%

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

0.81
%

0.82
%

0.82
%

0.84
%

Nonperforming loans to period end loans
0.22
%

0.07
%

0.06
%

0.09
%

0.05
%

Nonperforming assets to period end assets
0.29
%

0.22
%

0.22
%

0.25
%

0.24
%

Net charge-offs to average loans (annualized)
0.08
%

0.01
%

0.02
%

0.03
%

0.01
%












Nonperforming loans
$
18,202


$
5,696


$
4,749


$
6,926


$
3,919


Former bank premises
1,510


2,223


2,253


2,253


2,253


Foreclosed property
14,517


17,071


17,163


18,153


20,133


Total nonperforming assets
$
34,229


$
24,990


$
24,165


$
27,332


$
26,305


Loans past due 90 days and still accruing interest
$
415


$
117


$
394


$
153


$
22













Allowance for loan losses
$
54,527


$
53,303


$
52,094


$
50,236


$
49,535












Mortgage Banking:










Loans originated, mortgage
$
574,638


$
366,643


$
407,787


$
561,543


$
667,189


Loans originated, joint venture
246,491


146,884


192,280


249,956


283,933


Total loans originated
$
821,129


$
513,527


$
600,067


$
811,499


$
951,122


Number of loans originated
3,121


1,977


2,304


3,068


3,687


Number of originators
234


240


293


303


324


Purchase %
84.97
%

86.08
%

88.64
%

89.72
%

91.23
%

Loans sold
$
694,832


$
473,068


$
694,341


$
852,205


$
825,313


Gross realized gain on sales and fees as a % of loans originated
3.43
%

3.58
%

3.37
%

3.36
%

3.30
%











Other Ratios:










Net interest margin
3.49
%

3.54
%

3.53
%

3.62
%

3.69
%

Net interest margin-fully tax equivalent ^(nonGAAP)
3.52
%

3.57
%

3.55
%

3.64
%

3.71
%

Average earning assets/total average assets
89.46
%

89.50
%

89.91
%

89.69
%

89.61
%

Average loans/average deposits
91.60
%

95.83
%

95.32
%

97.55
%

97.79
%

Average noninterest deposits/total average deposits
31.63
%

31.39
%

31.90
%

32.61
%

32.28
%

Period end equity/period end total assets
13.45
%

13.53
%

13.78
%

13.49
%

13.63
%

Efficiency ratio
66.80
%

68.43
%

62.65
%

64.00
%

65.10
%












(1) Current reporting period regulatory capital ratios are preliminary

TOWNEBANK
Selected Data (unaudited)
(dollars in thousands)











Investment Securities






% Change

Q2

Q2

Q1

Q2 19 vs.

Q2 19 vs.
*Available-for-sale securities, at fair value*
2019

2018

2019

Q2 18

Q1 19
U.S. agency securities
$
261,960


$
426,118


$
260,152


(38.52
)%

0.69
%
U.S. Treasury notes
2,241


101,224


2,229


(97.79
)%

0.54
%
Municipal securities
167,466


55,465


107,278


201.93
%

56.10
%
Trust preferred and other corporate securities
43,799


30,718


35,003


42.58
%

25.13
%
Mortgage-backed securities issued by GSE
785,355


444,138


695,115


76.83
%

12.98
%
Total
$
1,260,821


$
1,057,663


$
1,099,777


19.21
%

14.64
%










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









Municipal securities
$
34,458


$
36,039


$
34,472


(4.39
)%

(0.04
)%
Trust preferred corporate securities
2,393


500


500


378.60
%

378.60
%
Mortgage-backed securities issued by GSE
13,723


17,415


14,715


(21.20
)%

(6.74
)%
Total
$
50,574


$
53,954


$
49,687


(6.26
)%

1.79
%




















Loans Held For Investment






% Change

Q2

Q2

Q1

Q2 19 vs.

Q2 19 vs.

2019

2018

2019

Q2 18

Q1 19
Real estate-construction and development
$
1,107,762


$
989,910


$
1,111,360


11.91
%

(0.32
)%
Commercial real estate - investment related properties
1,985,990


1,935,013


1,951,292


2.63
%

1.78
%
Commercial real estate - owner occupied
1,288,478


1,227,072


1,279,039


5.00
%

0.74
%
Real estate-multifamily
267,528


288,043


255,649


(7.12
)%

4.65
%
Real estate-residential 1-4 family
1,639,547


1,596,264


1,637,579


2.71
%

0.12
%
Commercial and industrial business
1,523,607


1,440,625


1,547,623


5.76
%

(1.55
)%
Consumer and other loans
313,817


298,029


322,828


5.30
%

(2.79
)%
Total
$
8,126,729


$
7,774,956


$
8,105,370


4.52
%

0.26
%




















Deposits






% Change

Q2

Q2

Q1

Q2 19 vs.

Q2 19 vs.

2019

2018

2019

Q2 18

Q1 19
Noninterest-bearing demand
$
2,950,615


$
2,597,320


$
2,813,857


13.60
%

4.86
%
Interest-bearing:









Demand and money market accounts
3,409,322


2,987,102


3,290,907


14.13
%

3.60
%
Savings
277,495


305,334


285,790


(9.12
)%

(2.90
)%
Certificates of deposits
2,631,386


2,101,455


2,341,134


25.22
%

12.40
%
Total
$
9,268,818


$
7,991,211


$
8,731,688


15.99
%

6.15
%




















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






September 30,

December 31,






2019

2019


Assets:








Investment Securities



$
(67
)

$
(65
)


Loans



1,467


1,447












Liabilities:








Deposits



51


47












Total estimated effect on net interest income



$
1,349


$
1,335



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

June 30, 2019

March 31, 2019

June 30, 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
$
8,075,054


$
102,366


5.08
%

$
8,030,994


$
100,146


5.06
%

$
7,552,983


$
93,548


4.97
%
Taxable investment securities
1,170,215


8,346


2.85
%

1,036,645


7,529


2.91
%

987,693


5,787


2.34
%
Tax-exempt investment securities
90,942


756


3.33
%

79,310


765


3.86
%

82,839


719


3.47
%
Total securities
1,261,157


9,102


2.89
%

1,115,955


8,294


2.97
%

1,070,532


6,506


2.43
%
Interest-bearing deposits
698,649


4,016


2.31
%

693,365


3,998


2.34
%

499,349


2,159


1.73
%
Loans held for sale
281,775


3,007


4.27
%

178,475


2,003


4.49
%

319,214


3,557


4.46
%
Total earning assets
10,316,635


118,491


4.61
%

10,018,789


114,441


4.63
%

9,442,078


105,770


4.49
%
Less: allowance for loan losses
(53,386
)





(52,844
)





(47,745
)




Total nonearning assets
1,269,029






1,228,808






1,142,514





Total assets
$
11,532,278






$
11,194,753






$
10,536,847





Liabilities and Equity:

















Interest-bearing deposits

















Demand and money market
$
3,312,313


$
7,025


0.85
%

$
3,174,157


$
6,240


0.80
%

$
2,945,897


$
3,602


0.49
%
Savings
281,221


929


1.33
%

285,499


1,027


1.46
%

306,937


941


1.23
%
Certificates of deposit
2,433,479


13,830


2.28
%

2,290,056


11,907


2.11
%

1,977,973


7,077


1.43
%
Total interest-bearing deposits
6,027,013


21,784


1.45
%

5,749,712


19,174


1.35
%

5,230,807


11,620


0.89
%
Borrowings
678,799


3,318


1.93
%

821,889


4,221


2.05
%

927,216


3,827


1.65
%
Subordinated debt, net
248,064


2,962


4.78
%

247,913


2,962


4.78
%

249,966


2,986


4.78
%
Total interest-bearing liabilities
6,953,876


28,064


1.62
%

6,819,514


26,357


1.57
%

6,407,989


18,433


1.15
%
Demand deposits
2,788,596






2,630,813






2,493,211





Other noninterest-bearing liabilities
215,951






198,527






173,832





Total liabilities
9,958,423






9,648,854






9,075,032





Shareholders’ equity
1,573,855






1,545,899






1,461,815





Total liabilities and equity
$
11,532,278






$
11,194,753






$
10,536,847





Net interest income (tax-equivalent basis)


$
90,427






$
88,084






$
87,337



Reconcilement of Non-GAAP Financial Measures
















Tax-equivalent basis adjustment


(608
)





(611
)





(514
)


Net interest income (GAAP)


$
89,819






$
87,473






$
86,823





















Interest rate spread (1)(3)




2.99
%





3.06
%





3.34
%
Interest expense as a percent of average earning assets



1.09
%





1.07
%





0.78
%
Net interest margin (tax equivalent basis) (2)(3)



3.52
%





3.57
%





3.71
%
Total cost of deposits




0.99
%





0.93
%





0.60
%

(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.
(3) Non-GAAP.

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


Six Months Ended

Six Months Ended

Six Months Ended June 30,

June 30, 2019

June 30, 2018

2019 Compared with 2018



Interest

Average



Interest

Average





Average

Income/

Yield/

Average

Income/

Yield/

Increase

Change due to

Balance

Expense

Rate

Balance

Expense

Rate

(Decrease)

Rate

Volume
Assets:

















Loans (net of unearned income and deferred costs), excluding nonaccrual loans
$
8,053,146


$
202,512


5.07
%

$
7,255,533


$
175,458


4.88
%

$
27,054


$
7,201


$
19,853

Taxable investment securities
1,103,799


15,875


2.88
%

945,229


10,811


2.29
%

5,064


3,066


1,998

Tax-exempt investment securities
85,158


1,522


3.57
%

77,964


1,408


3.61
%

114


(14
)

128

Total securities
1,188,957


17,397


2.93
%

1,023,193


12,219


2.39
%

5,178


3,052


2,126

Interest-bearing deposits
695,999


8,013


2.32
%

564,041


4,522


1.62
%

3,491


2,272


1,219

Loans held for sale
230,411


5,010


4.35
%

279,380


5,936


4.25
%

(926
)

136


(1,062
)
Total earning assets
10,168,513


232,932


4.62
%

9,122,147


198,135


4.38
%

34,797


12,661


22,136

Less: allowance for loan losses
(53,117
)





(46,976
)










Total nonearning assets
1,249,052






1,119,336











Total assets
$
11,364,448






$
10,194,507











Liabilities and Equity:

















Interest-bearing deposits

















Demand and money market
$
3,243,616


$
13,264


0.82
%

$
2,860,596


$
6,571


0.46
%

$
6,693


$
5,713


$
980

Savings
283,348


1,956


1.39
%

307,734


1,817


1.19
%

139


290


(151
)
Certificates of deposit
2,362,165


25,738


2.20
%

1,922,737


12,718


1.33
%

13,020


9,623


3,397

Total interest-bearing deposits
5,889,129


40,958


1.40
%

5,091,067


21,106


0.84
%

19,852


15,626


4,226

Borrowings
749,948


7,540


2.00
%

874,385


6,705


1.53
%

835


1,882


(1,047
)
Subordinated debt, net
247,989


5,923


4.78
%

254,560


6,143


4.83
%

(220
)

(63
)

(157
)
Total interest-bearing liabilities
6,887,066


54,421


1.59
%

6,220,012


33,954


1.10
%

20,467


17,445


3,022

Demand deposits
2,710,141






2,398,693











Other noninterest-bearing liabilities
207,287






167,108











Total liabilities
9,804,494






8,785,813











Shareholders’ equity
1,559,954






1,408,694











Total liabilities and equity
$
11,364,448






$
10,194,507











Net interest income (tax-equivalent basis)


$
178,511






$
164,181




$
14,330


$
(4,784
)

$
19,114

Reconcilement of Non-GAAP Financial Measures
















Tax-equivalent basis adjustment


(1,219
)





(1,013
)



(206
)




Net interest income (GAAP)


$
177,292






$
163,168




$
14,124























Interest rate spread (1)(3)




3.03
%





3.28
%






Interest expense as a percent of average earning assets




1.08
%





0.75
%






Net interest margin (tax equivalent basis) (2)(3)




3.54
%





3.63
%






Total cost of deposits




0.96
%





0.57
%
























(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.
(3) Non-GAAP.

TOWNEBANK
Consolidated Balance Sheets
(dollars in thousands, except share data)






June 30,

December 31,

2019

2018

(unaudited)

(audited)
ASSETS



Cash and due from banks
$
110,580


$
94,604

Interest-bearing deposits at Federal Reserve Bank
834,505


570,425

Interest-bearing deposits in financial institutions
21,527


21,667

Total Cash and Cash Equivalents
966,612


686,696

Securities available for sale, at fair value
1,260,821


1,095,339

Securities held to maturity, at amortized cost
50,574


50,598

Other equity securities
5,396


4,797

Federal Home Loan Bank stock
32,657


43,229

Total Securities
1,349,448


1,193,963

Mortgage loans held for sale
362,773


220,986

Loans, net of unearned income and deferred costs
8,126,729


8,018,233

Less: allowance for loan losses
(54,527
)

(52,094
)
Net Loans
8,072,202


7,966,139

Premises and equipment, net
230,177


211,796

Goodwill
442,881


433,658

Other intangible assets, net
58,391


58,752

Bank-owned life insurance policies
240,621


237,371

Other assets
219,375


153,669

TOTAL ASSETS
$
11,942,480


$
11,163,030





LIABILITIES AND EQUITY



Deposits:



Noninterest-bearing demand
$
2,950,615


$
2,622,761

Interest-bearing:



Demand and money market accounts
3,409,322


3,223,215

Savings
277,495


286,684

Certificates of deposit
2,631,386


2,237,762

Total Deposits
9,268,818


8,370,422

Advances from the Federal Home Loan Bank
532,004


799,315

Subordinated debt, net
248,160


247,861

Repurchase agreements and other borrowings
56,355


47,156

Total Borrowings
836,519


1,094,332

Other liabilities
230,691


159,856

TOTAL LIABILITIES
10,336,028


9,624,610

Preferred stock



Authorized and unissued shares - 2,000,000
—


—

Common stock, $1.667 par: 90,000,000 shares authorized



72,608,253 and 72,465,923 shares issued at



June 30, 2019 and December 31, 2018, respectively
121,038


120,801

Capital surplus
1,036,982


1,034,676

Retained earnings
420,600


379,239

Common stock issued to deferred compensation trust, at cost



807,939 and 769,200 shares at



June 30, 2019 and December 31, 2018, respectively
(15,160
)

(13,955
)
Deferred compensation trust
15,160


13,955

Accumulated other comprehensive loss
15,143


(9,190
)
TOTAL SHAREHOLDERS’ EQUITY
1,593,763


1,525,526

Noncontrolling interest
12,689


12,894

TOTAL EQUITY
1,606,452


1,538,420

TOTAL LIABILITIES AND EQUITY
$
11,942,480


$
11,163,030

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

















Three Months Ended

Six Months Ended

June 30,

June 30,

2019

2018

2019

2018
INTEREST INCOME:







Loans, including fees
$
101,874


$
93,150


$
201,569


$
174,682

Investment securities
8,987


6,390


17,121


11,982

Interest-bearing deposits in financial institutions and federal funds sold
4,015


2,159


8,013


4,522

Mortgage loans held for sale
3,007


3,557


5,010


5,936

Total interest income
117,883


105,256


231,713


197,122

INTEREST EXPENSE:







Deposits
21,784


11,620


40,958


21,106

Advances from the Federal Home Loan Bank
3,201


3,764


7,354


6,602

Subordinated debt, net
2,962


2,986


5,924


6,143

Repurchase agreements and other borrowings
117


63


185


103

Total interest expense
28,064


18,433


54,421


33,954

Net interest income
89,819


86,823


177,292


163,168









PROVISION FOR LOAN LOSSES
2,824


3,056


4,262


5,009

Net interest income after provision for loan losses
86,995


83,767


173,030


158,159

NONINTEREST INCOME:







Residential mortgage banking income, net
18,565


18,745


32,073


36,348

Insurance commissions and other title fees and income, net
17,213


15,087


32,795


28,459

Real estate brokerage and property management income, net
8,843


6,910


18,111


17,340

Service charges on deposit accounts
3,185


2,969


6,046


5,852

Credit card merchant fees, net
660


1,443


1,843


2,611

Bank owned life insurance
1,635


1,633


3,233


3,165

Other income
4,617


3,448


7,774


6,389

Net gain/(loss) on investment securities
—


—


(776
)

3

Total noninterest income
54,718


50,235


101,099


100,167

NONINTEREST EXPENSE:







Salaries and employee benefits
54,263


50,324


107,123


101,108

Occupancy expense
7,662


6,802


15,913


13,279

Furniture and equipment
3,578


3,546


6,949


7,244

Amortization - intangibles
3,113


2,996


6,305


5,591

Software expense
2,788


2,648


5,533


4,988

Outside data processing
3,616


2,859


6,782


4,980

Professional fees
3,707


2,415


6,386


4,387

Advertising and marketing
3,182


3,124


6,011


5,774

Other expenses
14,647


14,507


27,677


34,173

Total noninterest expense
96,556


89,221


188,679


181,524

Income before income tax expense and noncontrolling interest
45,157


44,781


85,450


76,802

Provision for income tax expense
8,915


8,643


17,126


14,720

Net income
$
36,242


$
36,138


$
68,324


$
62,082

Net income attributable to noncontrolling interest
(1,604
)

(1,334
)

(2,277
)

(2,572
)
Net income attributable to TowneBank
$
34,638


$
34,804


$
66,047


$
59,510

Per common share information







Basic earnings
$
0.48


$
0.48


$
0.92


$
0.84

Diluted earnings
$
0.48


$
0.48


$
0.92


$
0.84

Cash dividends declared
$
0.18


$
0.16


$
0.34


$
0.30

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












June 30,

March 31,

December 31,

September 30,

June 30,

2019

2019

2018

2018

2018

(unaudited)

(unaudited)

(audited)

(unaudited)

(unaudited)
ASSETS









Cash and due from banks
$
110,580


$
104,091


$
94,604


$
106,485


$
98,339

Interest-bearing deposits at Federal Reserve Bank
834,505


775,208


570,425


582,099


341,715

Interest-bearing deposits in financial institutions
21,527


21,001


21,667


20,910


17,749

Total Cash and Cash Equivalents
966,612


900,300


686,696


709,494


457,803

Securities available for sale, at fair value
1,260,821


1,099,777


1,095,339


1,051,773


1,057,663

Securities held to maturity, at amortized cost
50,574


49,687


50,598


52,002


53,954

Other equity securities
5,396


5,022


4,797


5,519


5,206

Federal Home Loan Bank stock
32,657


41,464


43,229


46,393


46,393

Total Securities
1,349,448


1,195,950


1,193,963


1,155,687


1,163,216

Mortgage loans held for sale
362,773


247,021


220,986


333,354


396,185

Loans, net of unearned income and deferred costs
8,126,729


8,105,370


8,018,233


7,881,692


7,774,956

Less: allowance for loan losses
(54,527
)

(53,303
)

(52,094
)

(50,236
)

(49,535
)
Net Loans
8,072,202


8,052,067


7,966,139


7,831,456


7,725,421

Premises and equipment, net
230,177


227,458


211,796


210,724


207,997

Goodwill
442,881


442,881


433,658


427,117


425,625

Other intangible assets, net
58,391


61,333


58,752


58,165


60,669

Bank-owned life insurance policies
240,621


238,977


237,371


235,348


233,682

Other assets
219,375


202,276


153,669


159,887


161,055

TOTAL ASSETS
$
11,942,480


$
11,568,263


$
11,163,030


$
11,121,232


$
10,831,653

LIABILITIES AND EQUITY









Deposits:









Noninterest-bearing demand
$
2,950,615


$
2,813,857


$
2,622,761


$
2,671,558


$
2,597,320

Interest-bearing:









Demand and money market accounts
3,409,322


3,290,907


3,223,215


3,096,317


3,017,767

Savings
277,495


285,790


286,684


298,368


305,334

Certificates of deposit
2,631,386


2,341,134


2,237,762


2,233,188


2,070,790

Total Deposits
9,268,818


8,731,688


8,370,422


8,299,431


7,991,211

Advances from the Federal Home Loan Bank
532,004


739,160


799,315


873,469


873,622

Subordinated debt, net
248,160


248,010


247,861


247,712


247,563

Repurchase agreements and other borrowings
56,355


44,775


47,156


45,591


50,981

Total Borrowings
836,519


1,031,945


1,094,332


1,166,772


1,172,166

Other liabilities
230,691


238,974


159,856


155,205


191,490

TOTAL LIABILITIES
10,336,028


10,002,607


9,624,610


9,621,408


9,354,867

Preferred stock









Authorized shares - 2,000,000
—


—


—


—


—











Common stock, $1.667 par value
121,038


121,047


120,801


120,613


120,615

Capital surplus
1,036,982


1,035,563


1,034,676


1,032,863


1,031,965

Retained earnings
420,600


399,030


379,239


354,842


328,125

Common stock issued to deferred compensation









trust, at cost
(15,160
)

(14,067
)

(13,955
)

(13,780
)

(13,500
)
Deferred compensation trust
15,160


14,067


13,955


13,780


13,500

Accumulated other comprehensive loss
15,143


(1,792
)

(9,190
)

(22,348
)

(17,944
)
TOTAL SHAREHOLDERS’ EQUITY
1,593,763


1,553,848


1,525,526


1,485,970


1,462,761

Noncontrolling interest
12,689


11,808


12,894


13,854


14,025

TOTAL EQUITY
1,606,452


1,565,656


1,538,420


1,499,824


1,476,786

TOTAL LIABILITIES AND EQUITY
$
11,942,480


$
11,568,263


$
11,163,030


$
11,121,232


$
10,831,653

TOWNEBANK

Consolidated Statements of Income - Five Quarter Trend (unaudited)

(dollars in thousands, except share data)






Three Months Ended

June 30,

March 31,

December 31,

September 30,

June 30,


2019

2019

2018

2018

2018

INTEREST INCOME:










Loans, including fees
$
101,874


$
99,695


$
99,446


$
97,215


$
93,150


Investment securities
8,987


8,134


8,126


7,019


6,390


Interest-bearing deposits in financial institutions and federal funds sold
4,015


3,998


3,559


2,148


2,159


Mortgage loans held for sale
3,007


2,003


3,176


4,012


3,557


Total interest income
117,883


113,830


114,307


110,394


105,256


INTEREST EXPENSE:










Deposits
21,784


19,174


17,495


14,540


11,620


Advances from the Federal Home Loan Bank
3,201


4,153


4,585


4,153


3,764


Subordinated debt
2,962


2,962


2,961


2,962


2,986


Repurchase agreements and other borrowings
117


68


58


42


63


Total interest expense
28,064


26,357


25,099


21,697


18,433


Net interest income
89,819


87,473


89,208


88,697


86,823













PROVISION FOR LOAN LOSSES
2,824


1,438


2,292


1,241


3,056


Net interest income after provision for loan losses
86,995


86,035


86,916


87,456


83,767


NONINTEREST INCOME:










Residential mortgage banking income, net
18,565


13,508


12,951


15,804


18,745


Insurance commissions and other title fees and income, net
17,213


15,582


13,212


14,493


15,087


Real estate brokerage and property management income, net
8,843


9,268


5,982


8,542


6,910


Service charges on deposit accounts
3,185


2,861


2,928


3,028


2,969


Credit card merchant fees, net
660


1,183


1,298


1,563


1,443


Bank owned life insurance
1,635


1,598


2,014


1,657


1,633


Other income
4,617


3,157


3,824


4,130


3,448


Net gain/(loss) on investment securities
—


(776
)

—


—


—


Total noninterest income
54,718


46,381


42,209


49,217


50,235


NONINTEREST EXPENSE:










Salaries and employee benefits
54,263


52,860


50,233


50,497


50,324


Occupancy expense
7,662


8,251


7,352


7,013


6,802


Furniture and equipment
3,578


3,371


3,587


3,646


3,546


Amortization - intangibles
3,113


3,192


3,123


2,996


2,996


Software expense
2,788


2,745


2,694


2,940


2,648


Outside data processing
3,616


3,166


2,466


2,917


2,859


Professional fees
3,707


2,679


2,028


1,908


2,415


Advertising and marketing
3,182


2,829


2,546


2,874


3,124


Other expenses
14,647


13,030


8,308


13,471


14,507


Total noninterest expense
96,556


92,123


82,337


88,262


89,221


Income before income tax expense and noncontrolling interest
45,157


40,293


46,788


48,411


44,781


Provision for income tax expense
8,915


8,211


10,348


9,159


8,643


Net income
36,242


32,082


36,440


39,252


36,138


Net income attributable to noncontrolling interest
(1,604
)

(673
)

(450
)

(959
)

(1,334
)

Net income attributable to TowneBank
$
34,638


$
31,409


$
35,990


$
38,293


$
34,804


Per common share information










Basic earnings
$
0.48


$
0.44


$
0.50


$
0.53


$
0.48


Diluted earnings
$
0.48


$
0.44


$
0.50


$
0.53


$
0.48


Basic weighted average shares outstanding
72,044,817


71,992,330


71,905,956


71,875,085


71,787,980


Diluted weighted average shares outstanding
72,145,600


$
72,099,558


72,043,369


72,044,355


71,949,590


Cash dividends declared
$
0.18


$
0.16


$
0.16


$
0.16


$
0.16

TOWNEBANK
Banking Segment Financial Information
(dollars in thousands)












Three Months Ended

Six Months Ended

Increase/(Decrease)

June 30,

March 31,

June 30,

2019 over 2018

2019

2018

2019

2019

2018

Amount

Percent
Revenue













Net interest income
$
88,442


$
83,686


$
86,400


$
174,842


$
157,729


$
17,113


10.85
%
Service charges on deposit













accounts
3,185


2,969


2,861


6,046


5,852


194


3.32
%
Credit card merchant fees
660


1,443


1,183


1,843


2,611


(768
)

(29.41
)%
Other income
5,273


4,062


3,927


9,200


8,017


1,183


14.76
%
Subtotal
9,118


8,474


7,971


17,089


16,480


609


3.70
%
Gain/(loss) on investment securities
—


—


(776
)

(776
)

3


(779
)

N/M

Total noninterest income
9,118


8,474


7,195


16,313


16,483


(170
)

(1.03
)%
Total revenue
97,560


92,160


93,595


191,155


174,212


16,943


9.73
%














Provision for loan losses
2,824


3,056


1,438


4,262


5,009


(747
)

(14.91
)%














Expenses













Salaries and employee benefits
32,353


27,840


31,087


63,440


58,042


5,398


9.30
%
Occupancy expense
5,007


4,274


5,244


10,251


8,291


1,960


23.64
%
Furniture and equipment
2,517


2,491


2,367


4,884


5,022


(138
)

(2.75
)%
Amortization of intangibles
1,315


1,530


1,366


2,681


2,751


(70
)

(2.54
)%
Other expenses
18,938


15,364


16,181


35,119


36,111


(992
)

(2.75
)%
Total expenses
60,130


51,499


56,245


116,375


110,217


6,158


5.59
%
Income before income tax, corporate allocation and noncontrolling interest
34,606


37,605


35,912


70,518


58,986


11,532


19.55
%
Corporate allocation
546


476


452


998


932


66


7.08
%
Income before income tax provision and noncontrolling interest
35,152


38,081


36,364


71,516


59,918


11,598


19.36
%
Provision for income tax expense
6,650


7,142


7,192


13,842


11,023


2,819


25.57
%
Net income
28,502


30,939


29,172


57,674


48,895


8,779


17.95
%
Noncontrolling interest
1


(6
)

2


3


(8
)

11


N/M

Net income attributable to TowneBank
$
28,503


$
30,933


$
29,174


$
57,677


$
48,887


$
8,790


17.98
%














Efficiency ratio
61.63
%

55.88
%

59.60
%

60.63
%

63.27
%

(2.64
)%

(4.17
)%

TOWNEBANK
Realty Segment Financial Information
(dollars in thousands)






Three Months Ended

Six Months Ended

Increase/(Decrease)

June 30,

March 31,

June 30,

2019 over 2018

2019

2018

2019

2019

2018

Amount

Percent
Revenue













Residential mortgage brokerage income, net
$
18,898


$
19,344


$
13,756


$
32,654


$
37,005


$
(4,351
)

(11.76
)%
Real estate brokerage income, net
2,873


2,818


1,561


4,434


4,517


(83
)

(1.84
)%
Title insurance and settlement fees
594


579


368


962


895


67


7.49
%
Property management fees, net
5,970


4,092


7,708


13,678


12,823


855


6.67
%
Income from unconsolidated subsidiary
162


100


94


256


194


62


31.96
%
Net interest and other income
1,677


3,342


1,372


3,049


5,887


(2,838
)

(48.21
)%
Total revenue
30,174


30,275


24,859


55,033


61,321


(6,288
)

(10.25
)%














Expenses













Salaries and employee benefits
13,309


15,403


12,895


26,204


29,280


(3,076
)

(10.51
)%
Occupancy expense
2,028


1,964


2,345


4,373


3,858


515


13.35
%
Furniture and equipment
803


835


768


1,571


1,816


(245
)

(13.49
)%
Amortization of intangible assets
695


672


725


1,420


1,343


77


5.73
%
Other expenses
7,234


8,158


6,241


13,475


14,452


(977
)

(6.76
)%
Total expenses
24,069


27,032


22,974


47,043


50,749


(3,706
)

(7.30
)%














Income before income tax, corporate allocation and noncontrolling interest
6,105


3,243


1,885


7,990


10,572


(2,582
)

(24.42
)%
Corporate allocation
(328
)

(293
)

(263
)

(591
)

(582
)

(9
)

1.55
%
Income before income tax provision and noncontrolling interest
5,777


2,950


1,622


7,399


9,990


(2,591
)

(25.94
)%
Provision for income tax expense
1,287


633


551


1,838


2,192


(354
)

(16.15
)%
Net income
4,490


2,317


1,071


5,561


7,798


(2,237
)

(28.69
)%
Noncontrolling interest
(1,248
)

(891
)

(252
)

(1,500
)

(1,512
)

12


(0.79
)%
Net income attributable to TowneBank
$
3,242


$
1,426


$
819


$
4,061


$
6,286


$
(2,225
)

(35.40
)%














Efficiency ratio
79.77
%

89.29
%

92.42
%

85.48
%

82.76
%

2.72
%

3.29
%

TOWNEBANK
Insurance Segment Financial Information
(dollars in thousands)
















Three Months Ended

Six Months Ended

Increase/(Decrease)

June 30,

March 31,

June 30,

2019 over 2018

2019

2018

2019

2019

2018

Amount

Percent
Commission and fee income













Property and casualty
$
13,067


$
11,059


$
11,873


$
24,940


$
20,416


$
4,524


22.16
%
Employee benefits
3,833


3,454


3,506


7,339


6,650


689


10.36
%
Travel insurance
1,169


1,389


1,289


2,458


3,157


(699
)

(22.14
)%
Specialized benefit services
163


171


170


333


340


(7
)

(2.06
)%
Total commissions and fees
18,232


16,073


16,838


35,070


30,563


4,507


14.75
%














Contingency and bonus revenue
1,893


1,433


1,585


3,479


2,566


913


35.58
%
Other income
79


71


75


154


141


13


9.22
%
Total revenue
20,204


17,577


18,498


38,703


33,270


5,433


16.33
%














Employee commission expense
3,401


2,953


3,098


6,500


5,468


1,032


18.87
%
Revenue, net of commission expense
16,803


14,624


15,400


32,203


27,802


4,401


15.83
%














Salaries and employee benefits
8,601


7,081


8,878


17,479


13,786


3,693


26.79
%
Occupancy expense
627


564


662


1,289


1,130


159


14.07
%
Furniture and equipment
258


220


236


494


406


88


21.67
%
Amortization of intangible assets
1,103


794


1,101


2,204


1,497


707


47.23
%
Other expenses
1,768


2,032


2,027


3,795


3,739


56


1.50
%
Total operating expenses
12,357


10,691


12,904


25,261


20,558


4,703


22.88
%
Income before income tax, corporate allocation and noncontrolling interest
4,446


3,933


2,496


6,942


7,244


(302
)

(4.17
)%
Corporate allocation
(218
)

(183
)

(189
)

(407
)

(350
)

(57
)

16.29
%
Income before income tax provision and noncontrolling interest
4,228


3,750


2,307


6,535


6,894


(359
)

(5.21
)%
Provision for income tax expense
978


868


468


1,446


1,505


(59
)

(3.92
)%
Net income
3,250


2,882


1,839


5,089


5,389


(300
)

(5.57
)%
Noncontrolling interest
(357
)

(437
)

(423
)

(780
)

(1,052
)

272


(25.86
)%
Net income attributable to TowneBank
$
2,893


$
2,445


$
1,416


$
4,309


$
4,337


$
(28
)

(0.65
)%














Provision for income taxes
978


868


468


1,446


1,505


(59
)

(3.92
)%
Depreciation, amortization and interest expense
1,309


1,007


1,333


2,642


1,913


729


38.11
%
EBITDA (non-GAAP)
$
5,180


$
4,320


$
3,217


$
8,397


$
7,755


$
642


8.28
%














Efficiency ratio
73.54
%

73.11
%

83.79
%

78.44
%

73.94
%

4.50
%

6.09
%

TOWNEBANK
Reconcilement of Non-GAAP Financial Measures
















Three Months Ended

Six Months Ended

June 30,

June 30,

March 31,

June 30,

June 30,

2019

2018

2019

2019

2018










Return on average assets (GAAP)
1.20
%

1.32
%

1.14
%

1.17
%

1.18
%
Impact of excluding average goodwill and other intangibles and amortization
0.15
%

0.16
%

0.15
%

0.15
%

0.14
%
Return on average tangible assets (non-GAAP)
1.35
%

1.48
%

1.29
%

1.32
%

1.32
%










Return on average equity (GAAP)
8.83
%

9.55
%

8.24
%

8.54
%

8.52
%
Impact of excluding average goodwill and other intangibles and amortization
5.07
%

5.64
%

5.00
%

5.03
%

4.95
%
Return on average tangible equity (non-GAAP)
13.90
%

15.19
%

13.24
%

13.57
%

13.47
%










Return on average common equity (GAAP)
8.89
%

9.62
%

8.30
%

8.60
%

8.59
%
Impact of excluding average goodwill and other intangibles and amortization
5.16
%

5.74
%

5.09
%

5.13
%

5.03
%
Return on average tangible common equity (non-GAAP)
14.05
%

15.36
%

13.39
%

13.73
%

13.62
%










Book value (GAAP)
$
21.95


$
20.22


$
21.40


$
21.95


$
20.22

Impact of excluding average goodwill and other intangibles and amortization
(6.90
)

(6.72
)

(6.94
)

(6.90
)

(6.72
)
Tangible book value (non-GAAP)
$
15.05


$
13.50


$
14.46


$
15.05


$
13.50

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


June 30,

March 31,

December 31,

September 30,

June 30,


2019

2019

2018

2018

2018
Net income (GAAP)

$
34,638


$
31,409


$
35,990


$
38,293


$
34,804












Acquisition-related expenses

20


411


(1,518
)

424


797

Income tax expense -tax reform legislation

—


—


696


—


—

Income tax expense (benefit) - other items

(3
)

(52
)

355


(44
)

(93
)
Income tax expense (benefit)

(3
)

(52
)

1,051


(44
)

(93
)
Total charges, net of taxes

17


359


(467
)

380


704

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

$
34,655


$
31,768


$
35,523


$
38,673


$
35,508

Weighted average diluted shares

72,145,600


72,099,558


72,043,369


72,044,355


71,949,590

Diluted EPS (GAAP)

$
0.48


$
0.44


$
0.50


$
0.53


$
0.48

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

$
0.48


$
0.44


$
0.49


$
0.54


$
0.49

Average assets

$
11,532,278


$
11,194,753


$
11,149,960


$
10,844,570


$
10,536,847

Average tangible equity

$
1,070,634


$
1,039,630


1,022,982


$
1,003,151


$
981,607

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

1.21
%

1.15
%

1.26
%

1.41
%

1.35
%
Return on average tangible equity, excluding certain items affecting comparability (non-GAAP)

13.90
%

13.38
%

14.73
%

16.23
%

15.48
%
Return on average common tangible equity, excluding certain items affecting comparability (non-GAAP)

14.06
%

13.53
%

14.93
%

16.45
%

15.66
%
Efficiency ratio, excluding certain items affecting comparability (non-GAAP)

66.79
%

68.12
%

63.81
%

63.69
%

64.52
%

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

Six months ended


June 30,

June 30,


2019

2018
Net income (GAAP)

$
66,047


$
59,510






Acquisition-related expenses

431


9,523

Total charges

431


9,523

Income tax expense (benefit) - other items

(55
)

(1,732
)
Income tax expense (benefit)

(55
)

(1,732
)
Total charges, net of taxes

376


7,791

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

$
66,423


$
67,301

Weighted average diluted shares

72,122,467


70,551,537

Diluted EPS (GAAP)

$
0.92


$
0.84

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

$
0.92


$
0.95

Average assets

$
11,364,448


$
10,194,507

Average tangible equity

$
1,055,218


$
957,021

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

1.18
%

1.33
%
Return on average tangible equity, excluding certain items affecting comparability (non-GAAP)

13.65
%

15.11
%
Return on average common tangible equity, excluding certain items affecting comparability (non-GAAP)

13.80
%

15.29
%
Efficiency ratio, excluding certain items affecting comparability (non-GAAP)

67.43
%

65.32
%

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

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