Questions? +1 (202) 540-8337 Login
Trusted News Since 1995
A service for political professionals · Thursday, April 19, 2018 · 442,982,561 Articles · 3+ Million Readers

TowneBank Reports Full Year and Fourth Quarter Financial Results for 2017

SUFFOLK, Va., Jan. 25, 2018 (GLOBE NEWSWIRE) -- Hampton Roads based TowneBank (the “Bank” or “Company”) (NASDAQ:TOWN) today reported financial results for the full year and the fourth quarter ended December 31, 2017.  Earnings for the fourth quarter were $12.33 million, or $0.20 per diluted share, versus $19.0 million, or $0.31 per diluted share, in fourth quarter 2016.  Earnings in the fourth quarter of 2017 included an expense of $10.11 million related to the Tax Cuts and Jobs Act of 2017 and after-tax acquisition-related expenses of $0.43 million.  The impact from tax legislation on fourth quarter 2017 earnings was primarily attributable to revaluation of deferred tax assets at the lower statutory tax rate.

/EIN News/ -- Excluding merger-related expenses and adjustments related to tax reform, earnings for the quarter ended December 31, 2017 were $22.87 million (non-GAAP) compared to $18.55 million (non-GAAP) in 2016.  Fully diluted earnings per share, excluding merger-related expenses and adjustments related to tax reform, were $0.37 (non-GAAP) compared to $0.30 (non-GAAP) for 2016.

Earnings for the full year period were a record $87.66 million, as compared to the $67.25 million reported in 2016, representing a 30.35% increase.  Fully diluted earnings per share were $1.41 per share compared to $1.18 per share for 2016.

Excluding merger-related expenses, purchase accounting adjustments, and adjustments related to tax reform, earnings for the year ended December 31, 2017 were $97.18 million (non-GAAP) compared to $80.15 million (non-GAAP) in 2016.  Fully diluted earnings per share, excluding the above-mentioned items, were $1.56 (non-GAAP) compared to $1.41 (non-GAAP) for 2016.

The Bank’s quarterly dividend was increased to $0.14 per share beginning in the second quarter of 2017 resulting in total dividends of $0.55 per share for 2017, an increase of 7.8% over 2016.  On an annualized basis, the current annual dividend rate is $0.56 per share.

“We are pleased to report our 18th consecutive year of record annual earnings,” said G. Robert Aston, Jr., Chairman and Chief Executive Officer.  “With 20.09% revenue growth, representing an increase of $75.14 million, and a return on average assets of 1.05%, our financial performance has enabled us to reward our shareholders while building a strong pathway to the future.  Our closing on the affiliation with Paragon Bank is scheduled to occur on January 26, 2018 and will provide a substantial entry into the robust Raleigh and Charlotte, North Carolina markets where where Paragon recorded loan growth of over 20% last year.”

The following items affected comparability of our fourth quarter 2017 earnings (in thousands):

    Three Months Ended   Three Months Ended
    December 31, 2017   December 31, 2016
(dollars in thousands, except per share amounts)   Net Income   Diluted
Earnings
Per Share
  Net Income   Diluted
Earnings
Per Share
Net income (GAAP)   $ 12,333     $ 0.20     $ 18,996     $ 0.31  
After tax acquisition-related expenses   428     0.01     (443 )   (0.01 )
Income tax expense related to tax reform legislation   10,112     0.16          
Net income, excluding certain items affecting comparability (Non-GAAP)   $ 22,873     $ 0.37     $ 18,553     $ 0.30  
                 

2017 Performance Highlights

•  Total revenues were $449.24 million, an increase of $75.14 million, or 20.09% from 2016

  • Taxable equivalent net interest margin was 3.51%, including accretion of 15 basis points, compared to 3.44%, including accretion of 11 basis points, for 2016
  • Property management fee revenue increased $6.81 million or 53.73%
  • Residential mortgage banking income increased $17.06 million, or 29.02%
  • Insurance segment total revenue increased 10.44% to $60.20 million

•  Loans held for investment increased $139.74 million, or 2.41%, from December 31, 2016

•  Total deposits were $6.45 billion, an increase of $413.02 million, or 6.84%, from 2016

  • Noninterest bearing deposits increased by 10.79%, to $2.16 billion, representing 33.46% of total deposits
  • Total cost of deposits increased to 0.45% at December 31, 2017 from 0.40% at December 31, 2016

•  Issued $250.0 million of fixed to variable rate 10-year subordinated notes at a fixed rate of 4.50% for the first five years

  • Issuance resulted in a reduction of 7 basis points to net interest margin
  • Treated as Tier 2 capital for regulatory purposes at December 31, 2017

•  Asset quality showed continued strength

  • Nonperforming assets declined to $28.09 million, or 0.33% of total assets compared to $37.60 million, or 0.47%, at December 31, 2016
  • Nonperforming loans were 0.08% of period end loans
  • Foreclosed property decreased to $19.82 million

•  Strategic acquisitions

  • On April 11, 2017, the Company acquired Railey Mountain Lake Vacations, LLC, an independent resort property management company at Deep Creek Lake, Maryland
  • On April 27, 2017, the Company announced the signing of agreement to acquire Paragon Commercial Corporation (“Paragon”) and its wholly owned bank subsidiary, Paragon Commercial Bank, a Raleigh, North Carolina-based bank with three banking offices servicing Raleigh, Cary, and Charlotte, North Carolina.  The acquisition will close on January 26, 2018
  • On August 1, 2017, the Company acquired W.A. Moore & Company, an independent insurance agency in Greenville, North Carolina

•  The Bank remained well-capitalized

  • Common equity tier 1 capital ratio of 12.19%
  • Tier 1 leverage capital ratio of 10.17%
  • Tier 1 risk-based capital ratio of 12.23%
  • Total risk-based capital ratio of 16.48%

Fourth Quarter 2017 Earnings Compared to Fourth Quarter 2016

Net income for the fourth quarter was $12.33 million, or $0.20 per diluted share, versus $19.0 million, or $0.31 per diluted share, in 2016.  Excluding merger-related expenses and adjustments related to tax reform, earnings were $22.87 million (non-GAAP) compared to $18.55 million (non-GAAP) in 2016, reflecting growth in net interest income and noninterest income as compared to the prior year period.

Performance Highlights

•  Total revenues were $109.14 million, a $7.47 million, or 7.35%, increase from fourth quarter 2016

  • Taxable equivalent net interest margin was 3.41%, including accretion of 9 basis points, compared to 3.52%, including accretion of 11 basis points in fourth quarter 2016
  • Property management fee revenue increased $1.57 million, or 134.82%
  • Insurance segment total revenue increased $2.50 million to $14.18 million

Net Interest Income
Net interest income increased to $65.66 million, a $3.51 million, or 5.65%, increase from fourth quarter 2016.  The primary driver was the growth in average earning assets, which increased $604.12 million, or 8.48%, while tax-equivalent net interest margin decreased to 3.41% in the current quarter from 3.52% in fourth quarter 2016.  The subordinated note issuance in July 2017 resulted in additional interest expense of $2.88 million in fourth quarter 2017 and a temporary reduction of 15 basis points to net interest margin, as the Company continues the process of leveraging the proceeds into earning assets.  Accretion income added $1.47 million, or 9 basis points, to margin in the current quarter as compared to $2.34 million, or 15 basis points, in the fourth quarter of 2016.

Noninterest Income
Noninterest income, excluding gains or losses on investment securities, was $43.48 million for the fourth quarter of 2017, an increase of $3.96 million, or 10.02%, from the fourth quarter of 2016.  In our Realty segment, residential mortgage banking income decreased $0.83 million, or 4.54%, from the fourth quarter of 2016 primarily due to lower production volumes.  Mortgage production was $837.32 million in fourth quarter 2017, a decrease from fourth quarter 2016 production of $1.01 billion.  Insurance commissions and other title fees increased $2.29 million, or 23.33%, primarily due to an increase in contingent commission revenue combined with the acquisition of an insurance agency in August 2017.  Additionally, real estate brokerage and property management income increased $1.90 million, or 64.89%, from fourth quarter 2016 primarily due to our acquisition of a resort property management company in second quarter 2017.

Noninterest Expense
Noninterest expense increased by $0.83 million, or 1.13%, from the fourth quarter of 2016.  The predominant driver was an increase in noninterest expense of $2.30 million related to the Deep Creek and insurance agency acquisitions, mainly in salaries and benefits expense.  The decrease was partially offset by lower salaries and benefits expense primarily due to a decrease in profit sharing expense, which included a reversal of $0.65 million due to a change in estimate of previously accrued employee incentive compensation unearned for the full year.

Fourth Quarter 2017 Earnings Compared to Third Quarter 2017

Net income for the fourth quarter was $12.33 million, or $0.20 per diluted share, versus $27.15 million, or $0.44 per diluted share, in third quarter 2017.  Excluding merger-related expenses and adjustments related to tax reform, earnings were $22.87 million (non-GAAP) compared to $27.50 million (non-GAAP) in third quarter 2017, primarily reflecting the seasonality in our Realty segment.

Performance Highlights

•  Total revenues were $109.14 million compared to $115.34 million in the third quarter of 2017

  • Taxable equivalent net interest margin was 3.41%, including accretion of 9 basis points, compared to 3.43%, including accretion of 12 basis points, in the third quarter of 2017
  • Noninterest income decreased $5.94 million due to seasonality in our Insurance and Realty segments
  • Noninterest expense decreased $0.53 million, or 0.71%

•  Total loans held for investment increased $36.49 million, or 2.43% on an annualized basis, from September 30, 2017

Net Interest Income
On a linked quarter basis, net interest income decreased slightly by $0.26 million or 0.39%, in fourth quarter 2017 versus third quarter 2017, while tax-equivalent net interest margin was 3.41% versus 3.43% for the third quarter of 2017.  The decrease in net interest income was primarily due to higher time deposit costs and interest expense on the newly issued subordinated notes, combined with seasonally lower loans held for sale average balances.  The decrease was partially offset by higher interest income from loans and investment securities.  Accretion income added $1.47 million, or 9 basis points, to margin in the current quarter, as compared to $2.36 million, or 12 basis points, in the linked quarter.

Noninterest Income
In comparison to the third quarter of 2017, noninterest income decreased $5.94 million, or 12.02%.  Residential mortgage banking income decreased by $1.55 million, or 8.12%, from the third quarter of 2017 primarily due to a seasonal decrease in mortgage production of $110.34 million, from $947.66 million in third quarter 2017 to $837.32 million in fourth quarter 2017.  A decrease of $5.22 million in real estate brokerage and property management income from the linked quarter reflected the seasonal nature of those businesses.  Insurance commission income was flat as a seasonal decrease in insurance policy renewals was offset by an increase in contingent commission revenue.

Noninterest Expense
Noninterest expense decreased by $0.53 million, or 0.71%, from the third quarter of 2017.  The primary driver was a decrease in salaries and benefits expenses of $0.99 million, primarily due to a reduction in profit sharing expense, which was partially offset by an increase in expenses related to employee retirement plans.

Noninterest Income             % Change
  Q4   Q4   Q3   Q4 17 vs.   Q4 17 vs.
(dollars in thousands) 2017   2016   2017   Q4 16   Q3 17
Residential mortgage banking income, net $ 17,537     $ 18,096     $ 19,087     (3.09 )%   (8.12 )%
Insurance commissions and other title fees and income, net 12,115     9,823     12,116     23.33 %   (0.01 )%
Real estate brokerage and property management, net 4,823     2,925     10,042     64.89 %   (51.97 )%
Service charges on deposit accounts 2,809     2,535     2,670     10.81 %   5.21 %
Credit card merchant fees, net 1,204     1,135     1,388     6.08 %   (13.26 )%
Bank owned life insurance 1,941     2,377     1,425     (18.34 )%   36.21 %
Other income 3,048     2,621     2,688     16.29 %   13.39 %
Subtotal before gain on investment securities 43,477     39,512     49,416     10.03 %   (12.02 )%
Net gain on investment securities     6         N/M     N/M  
Total noninterest income $ 43,477     $ 39,518     $ 49,416     10.02 %   (12.02 )%


Noninterest Expense             % Change
  Q4   Q4   Q3   Q4 17 vs.    Q4 17 vs.
(dollars in thousands) 2017   2016   2017   Q4 16   Q3 17
Salaries and benefits $ 42,480     $ 43,071     $ 43,467     (1.37 )%   (2.27 )%
Occupancy expense 6,878     6,885     6,635     (0.10 )%   3.66 %
Furniture and equipment 3,456     3,378     3,710     2.31 %   (6.85 )%
Acquisition-related expenses 526     (707 )   466     (174.40 )%   12.88 %
Other expenses 20,320     20,207     19,908     0.56 %   2.07 %
Total noninterest expense $ 73,660     $ 72,834     $ 74,186     1.13 %   (0.71 )%
                   


Segment Results                
                $ Change
(in thousands)   Q4   Q4   Q3   Q4 17 vs.   Q4 17 vs.
Segment Net Income (Loss)   2017   2016   2017   Q4 16   Q3 17
Banking   $ 11,530     $ 17,931     $ 22,569     $ (6,401 )   $ (11,039 )
Realty   (224 )   673     3,445     (897 )   (3,669 )
Insurance   1,027     392     1,136     635     (109 )
Total net income   $ 12,333     $ 18,996     $ 27,150     $ (6,663 )   $ (14,817 )

Fourth Quarter 2017 Compared to Fourth Quarter 2016

Banking
Net income for the three months ended December 31, 2017 for the Banking segment was $11.53 million, decreasing $6.40 million, or 35.70%, from comparative 2016.  This reduction in net income was primarily due to a significant increase of $12.96 million in the provision for income tax expense, mostly due to the tax reform legislation.  Partially offsetting this increase was a rise in net interest income of $3.55 million due to an increase in earning assets and a slight increase in noninterest income of $0.53 million.  A reduction in the provision for loan losses of $0.93 million and a decrease in noninterest expenses of $1.53 million also partially offset the decrease in net income.

Realty
For the three months ended December 31, 2017, the Realty segment results decreased to a loss of $0.22 million from income of $0.67 million for fourth quarter 2016.  The reduction was driven by a decrease in residential mortgage banking income of $0.83 million, or 4.54%, an increase in total expenses of $1.13 million, and increase of $0.81 million in the provision for income tax expense.  The Deep Creek acquisition resulted in an increase in property management fees of $1.57 million and an increase in noninterest expense of $1.74 million.

Insurance
The Insurance segment had net income of $1.03 million for the three months ended December 31, 2017, an increase of $0.64 million compared to fourth quarter 2016.  The increase in net income was driven by higher property and casualty insurance commission income and contingency and bonus revenue.

Fourth Quarter 2017 Compared to Third Quarter 2017

Banking
Earnings decreased by $11.04 million, or 48.91% from the third quarter of 2017 as an increase in revenue was overcome by an increase in the provision for income tax expense of $10.51 million, primarily related to the tax reform legislation, and an increase in noninterest expense of $1.44 million.

Realty
Net income in the Realty segment decreased by $3.67 million from the linked quarter ended September 30, 2017, due to seasonal decreases in the Bank's mortgage, real estate brokerage, and resort property management businesses.  The seasonal decrease in revenue was partially offset by a decline in operating expenses during the current quarter.

Insurance
Net income decreased slightly by $0.11 million from the third quarter of 2017 due to an increase in operating expenses during the current quarter.  The increase was mostly offset by higher net revenues as an increase in contingent commission revenue was only partially offset by the seasonal decrease in fourth quarter policy renewals.

Balance Sheet

At December 31, 2017, total Bank assets reached $8.52 billion, an increase of $0.55 billion, or 6.88%, over December 31, 2016.

Loans

              % Change
  Q4   Q4   Q3   Q4 17 vs.   Q4 17 vs.
(dollars in thousands) 2017   2016   2017   Q4 16   Q3 17
Construction and land development $ 930,426     $ 826,027     $ 880,655     12.64 %   5.65 %
Commercial real estate - investment related properties 1,344,774     1,322,466     1,336,277     1.69 %   0.64 %
Commercial real estate - owner occupied 938,767     928,846     966,986     1.07 %   (2.92 )%
Multifamily real estate 198,720     222,791     185,323     (10.80 )%   7.23 %
1-4 family residential real estate 1,217,349     1,215,823     1,239,886     0.13 %   (1.82 )%
Commercial and industrial business loans 1,087,157     1,089,539     1,084,555     (0.22 )%   0.24 %
Consumer loans and other 229,772     201,729     216,797     13.90 %   5.98 %
Total $ 5,946,965     $ 5,807,221     $ 5,910,479     2.41 %   0.62 %

The Bank’s loan portfolio ended the period at $5.95 billion representing an increase of 2.41%, or $139.74 million, from December 31, 2016, and an increase of $36.49 million, or 0.62%, from September 30, 2017.

Deposits

              % Change
  Q4   Q4   Q3   Q4 17 vs.   Q4 17 vs.
(dollars in thousands) 2017   2016   2017   Q4 16   Q3 17
Noninterest-bearing demand $ 2,157,338     $ 1,947,312     $ 2,212,047     10.79 %   (2.47 )%
Interest-bearing:                  
Demand and money market accounts 2,225,211     2,263,894     2,253,746     (1.71 )%   (1.27 )%
Savings 315,889     319,611     320,028     (1.16 )%   (1.29 )%
Certificates of deposits 1,749,782     1,504,380     1,762,641     16.31 %   (0.73 )%
Total $ 6,448,220     $ 6,035,197     $ 6,548,462     6.84 %   (1.53 )%

The Bank experienced solid deposit growth with total deposits increasing to $6.45 billion, up $0.41 billion, or 6.84%, from December 31, 2016.  The Bank saw continued growth in noninterest-bearing demand deposits, which ended the year at $2.16 billion, a 10.79% increase from the prior year.  Noninterest-bearing deposits represented 33.46% of total deposits at December 31, 2017.

Capital Ratios

    Q4   Q4   Q3
    2017   2016   2017
Common Equity Tier 1   12.19 %   11.75 %   12.36 %
Tier 1   12.23 %   11.82 %   12.40 %
Total   16.48 %   12.44 %   16.71 %
Tier 1 Leverage Ratio   10.17 %   10.44 %   10.14 %
Note - Current quarter regulatory capital information is preliminary.            

The Bank’s total equity at December 31, 2017 rose to $1.14 billion, an increase of $55.95 million, or 5.15%, from December 31, 2016.  Total risk-based capital remained strong as common equity Tier 1, Tier 1 capital, total risk-based capital, and Tier 1 leverage capital ratios were 12.19%, 12.23%, 16.48%, 10.17%, respectively.  All ratios exceed the current regulatory standards for well capitalized status.

Asset Quality

                   
(in thousands) 12/31/2017   9/30/2017   6/30/2017   3/31/2017   12/31/2016
                   
Nonperforming loans $ 4,807     $ 8,768     $ 9,645     $ 11,538     $ 13,099  
Former bank premises 3,469     3,619     2,798     2,798     3,494  
Foreclosed property 19,818     21,504     23,249     21,473     21,011  
                   
Total nonperforming assets $ 28,094     $ 33,891     $ 35,692     $ 35,809     $ 37,604  
                   
Quarterly net loans charged off (recovered) $ 136     $ 429     $ 384     $ 1,347     $ 485  
                   
Year-to-date net loans charged off $ 2,296     $ 2,160     $ 1,731     $ 1,347     $ 1,715  


                Change
    Q4   Q4   Q3   Q4 2017 vs.   Q4 2017 vs.
(dollars in thousands)   2017   2016   2017   Q4 2016   Q3 2017
Total loans 90 days past due and still accruing   $ 103     $ 76     $ 74     $ 27     $ 29  
Total loans 30-89 days past due   $ 5,962     $ 10,459     $ 5,888     $ (4,497 )   $ 74  
Allowance for loan losses   $ 45,131     $ 42,001     $ 44,398     $ 3,130     $ 733  
Total performing TDRs   $ 24,832     $ 31,351     $ 22,280     $ (6,519 )   $ 2,552  
                     
Nonperforming loans to period end loans   0.08 %   0.23 %   0.15 %   (0.15 )   (0.07 )
Nonperforming assets to period end assets   0.33 %   0.47 %   0.39 %   (0.14 )   (0.06 )
Allowance for loan losses to period end loans   0.76 %   0.72 %   0.75 %   0.04     0.01  
Allowance for loan losses (originated) to originated period end loans   0.86 %   0.87 %   0.86 %   (0.01 )    
Net charge-offs (recoveries) to average loans (annualized)   0.01 %   0.03 %   0.03 %   (0.02 )   (0.02 )
Ratio of allowance for loan losses to nonperforming loans   9.39x
    3.21x
    5.06x
    6.18x
    4.33x  

Continued strength in credit quality contributed to the Bank's financial results as net charge-offs totaled $0.14 million in the fourth quarter of 2017 compared to $0.49 million in the fourth quarter of 2016 and $0.43 million in the linked quarter.  Total nonperforming assets were $28.09 million, or 0.33%, of Bank assets at December 31, 2017, as compared to $37.60 million, or 0.47%, at December 31, 2016, and $33.89 million, or 0.39%, at September 30, 2017.  The allowance for loan losses was $45.13 million, increased from $42.0 million at December 31, 2016 and $44.40 million at September 30, 2017.

About TowneBank:
As one of the top community banks in Virginia and North Carolina, TowneBank operates 37 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 Moyock, Grandy, Camden County, Southern Shores, Corolla and Nags Head in North Carolina.  Towne also offers a full range of financial services through its controlled divisions and subsidiaries that include Towne Investment Group, Towne Wealth Management, Towne Insurance Agency, Towne Benefits, TowneBank Mortgage, TowneBank Commercial Mortgage, Berkshire Hathaway HomeServices Towne Realty, Towne 1031 Exchange, LLC, and Towne Vacations.  Local decision-making is a hallmark of its hometown banking strategy that is delivered through the leadership of each group’s President and Board of Directors.  With total assets of $8.52 billion as of December 31, 2017, TowneBank is one of the largest banks headquartered in Virginia.

On April 27, 2017, TowneBank announced the signing of a definitive agreement to acquire Paragon Commercial Corporation (“Paragon”) and its wholly-owned bank subsidiary, Paragon Commercial Bank.  Founded in Raleigh, North Carolina in 1999, Paragon Commercial Bank provides banking services through highly responsive professionals, an extensive courier service, online and mobile technologies, free worldwide ATM access and a select number of strategically placed offices in Raleigh, Cary and Charlotte, North Carolina.  All customary regulatory and shareholder approvals have been obtained and the merger is scheduled to close in January 2018.  Based on financial data as of September 30, 2017, the combined company would have total assets of $10.4 billion, gross loans of $7.3 billion and total deposits of $7.8 billion.

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

Forward-Looking Statements:
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; TowneBank’s ability to complete and successfully integrate the business of Paragon Commercial Bank in the expected timeframe, if at all, and to achieve expected revenue synergies and cost savings from the merger; and other risk factors detailed from time to time in filings made by TowneBank with the Federal Deposit Insurance Corporation (the “FDIC”).  TowneBank undertakes no obligation to update or clarify these forward-looking statements, whether as a result of new information, future events or otherwise.


 
TOWNEBANK
Selected Financial Highlights (unaudited)
(dollars in thousands, except per share data)
 
            Increase/    % Increase/
Three Months Ended December 31, 2017   2016    (Decrease)    (Decrease)
               
Results of Operations:              
Net interest income $ 65,664     $ 62,151     $ 3,513     5.65 %
Noninterest income 43,477     39,518     3,959     10.02 %
Total Revenue 109,141     101,669     7,472     7.35 %
Acquisition-related expenses 526     (707 )   1,233     (174.40 )%
Noninterest expenses, excluding acquisition-related expenses 73,134     73,541     (407 )   (0.55 )%
Provision for loan losses 869     1,831     (962 )   (52.54 )%
Income before income tax and noncontrolling interest 34,612     27,004     7,608     28.17 %
Provision for income tax expense 21,325     7,160     14,165     197.84 %
Net income 13,287     19,844     (6,557 )   (33.04 )%
Net income attributable to noncontrolling interest (954 )   (848 )   (106 )   12.50 %
Net income attributable to TowneBank 12,333     18,996     (6,663 )   (35.08 )%
Net income available to common shareholders 12,333     18,996     (6,663 )   (35.08 )%
Net income per common share - basic 0.20     0.31     (0.11 )   (35.48 )%
Net income per common share - diluted 0.20     0.31     (0.11 )   (35.48 )%
Period End Data:              
Total assets $ 8,522,176     $ 7,973,915     $ 548,261     6.88 %
Total assets - tangible 8,213,358     7,671,149     542,209     7.07 %
Earning assets 7,706,747     7,157,391     549,356     7.68 %
Loans (net of unearned income) 5,946,965     5,807,221     139,744     2.41 %
Allowance for loan losses 45,131     42,001     3,130     7.45 %
Goodwill and other intangibles 308,819     302,766     6,053     2.00 %
Nonperforming assets 28,094     37,605     (9,511 )   (25.29 )%
Noninterest bearing deposits 2,157,338     1,947,312     210,026     10.79 %
Interest bearing deposits 4,290,882     4,087,885     202,997     4.97 %
Total deposits 6,448,220     6,035,197     413,023     6.84 %
Total equity 1,142,505     1,086,558     55,947     5.15 %
Total equity - tangible 833,686     783,792     49,894     6.37 %
Common equity 1,131,240     1,075,102     56,138     5.22 %
Common equity - tangible 822,421     772,337     50,084     6.48 %
Book value per common share 18.06     17.20     0.86     5.00 %
Book value per common share - tangible 13.13     12.36     0.77     6.23 %
Daily Average Balances:              
Total assets $ 8,579,705     $ 7,965,438     $ 614,267     7.71 %
Total assets - tangible 8,269,760     7,661,845     607,915     7.93 %
Earning assets 7,729,862     7,125,742     604,120     8.48 %
Loans (net of unearned income), excluding nonaccrual loans 5,920,302     5,705,832     214,470     3.76 %
Allowance for loan losses 44,704     41,188     3,516     8.54 %
Goodwill and other intangibles 309,946     303,593     6,353     2.09 %
Noninterest bearing deposits 2,162,271     1,961,902     200,369     10.21 %
Interest bearing deposits 4,336,175     4,137,806     198,369     4.79 %
Total deposits 6,498,446     6,099,708     398,738     6.54 %
Total equity 1,149,888     1,087,382     62,506     5.75 %
Total equity - tangible 839,942     783,789     56,153     7.16 %
Common equity 1,138,936     1,076,277     62,659     5.82 %
Common equity - tangible 828,991     772,683     56,308     7.29 %
Key Ratios:              
Return on average assets (1) 0.57 %   0.95 %   (0.38 )%   (40.00 )%
Return on average assets - tangible (1) 0.65 %   1.05 %   (0.40 )%   (38.10 )%
Return on average equity (1) 4.26 %   6.95 %   (2.69 )%   (38.71 )%
Return on average equity - tangible (1) 6.39 %   10.27 %   (3.88 )%   (37.78 )%
Return on average common equity (1) 4.30 %   7.02 %   (2.72 )%   (38.75 )%
Return on average common equity - tangible (1) 6.47 %   10.42 %   (3.95 )%   (37.91 )%
Net interest margin-fully tax equivalent (2) 3.41 %   3.52 %   (0.11 )%   (3.13 )%
Net interest margin 3.37 %   3.47 %   (0.10 )%   (2.88 )%
Average earning assets/total average assets 90.09 %   89.46 %   0.63 %   0.70 %
Average loans/average deposits 91.10 %   93.54 %   (2.44 )%   (2.61 )%
Average noninterest deposits/total average deposits 33.27 %   32.16 %   1.11 %   3.45 %
Allowance for loan losses/period end loans 0.76 %   0.72 %   0.04 %   5.56 %
Nonperforming assets to period end assets 0.33 %   0.47 %   (0.14 )%   (29.79 )%
Period end equity/period end total assets 13.41 %   13.63 %   (0.22 )%   (1.61 )%
Efficiency ratio 67.49 %   71.64 %   (4.15 )%   (5.79 )%
               
(1) Annualized
(2) Presented on a tax-equivalent basis
               


 
TOWNEBANK
Selected Financial Highlights (unaudited)
(dollars in thousands, except per share data)
 
          Increase/   % Increase/
Twelve Months Ended December 31, 2017   2016   (Decrease)   (Decrease)
               
Results of Operations:              
Net interest income $ 261,121     $ 218,876     $ 42,245     19.30 %
Noninterest income 188,121     155,222     32,899     21.19 %
Total Revenue 449,242     374,098     75,144     20.09 %
Acquisition-related expenses 2,268     19,111     (16,843 )   (88.13 )%
Noninterest expenses, excluding acquisition-related expenses 293,946     248,717     45,229     18.18 %
Provision for loan losses 5,426     5,357     69     1.29 %
Income before income tax and noncontrolling interest 147,602     100,913     46,689     46.27 %
Provision for income tax expense 54,813     28,698     26,115     91.00 %
Net income 92,789     72,215     20,574     28.49 %
Net income attributable to noncontrolling interest (5,126 )   (4,965 )   (161 )   3.24 %
Net income attributable to TowneBank 87,663     67,250     20,413     30.35 %
Net income available to common shareholders 87,663     67,250     20,413     30.35 %
Net income per common share - basic 1.41     1.18     0.23     19.49 %
Net income per common share - diluted 1.41     1.18     0.23     19.49 %
Period End Data:              
Total assets $ 8,522,176     $ 7,973,915     $ 548,261     6.88 %
Total assets - tangible 8,213,358     7,671,149     542,209     7.07 %
Earning assets 7,706,747     7,157,391     549,356     7.68 %
Loans (net of unearned income) 5,946,965     5,807,221     139,744     2.41 %
Allowance for loan losses 45,131     42,001     3,130     7.45 %
Goodwill and other intangibles 308,819     302,766     6,053     2.00 %
Nonperforming assets 28,094     37,605     (9,511 )   (25.29 )%
Noninterest bearing deposits 2,157,338     1,947,312     210,026     10.79 %
Interest bearing deposits 4,290,882     4,087,885     202,997     4.97 %
Total deposits 6,448,220     6,035,197     413,023     6.84 %
Total equity 1,142,505     1,086,558     55,947     5.15 %
Total equity - tangible 833,686     783,792     49,894     6.37 %
Common equity 1,131,240     1,075,102     56,138     5.22 %
Common equity - tangible 822,421     772,337     50,084     6.48 %
Book value per common share 18.06     17.20     0.86     5.00 %
Book value per common share - tangible 13.13     12.36     0.77     6.23 %
Daily Average Balances:              
Total assets $ 8,334,999     $ 7,205,236     $ 1,129,763     15.68 %
Total assets - tangible 8,027,381     6,958,267     1,069,114     15.36 %
Earning assets 7,517,473     6,442,385     1,075,088     16.69 %
Loans (net of unearned income), excluding nonaccrual loans 5,901,797     5,129,990     771,807     15.05 %
Allowance for loan losses 43,760     39,547     4,213     10.65 %
Goodwill and other intangibles 307,618     246,968     60,650     24.56 %
Noninterest bearing deposits 2,094,753     1,720,093     374,660     21.78 %
Interest bearing deposits 4,248,571     3,852,100     396,471     10.29 %
Total deposits 6,343,324     5,572,192     771,132     13.84 %
Total equity 1,123,588     963,775     159,813     16.58 %
Total equity - tangible 815,969     716,807     99,162     13.83 %
Common equity 1,112,499     953,669     158,830     16.65 %
Common equity - tangible 804,881     706,701     98,180     13.89 %
Key Ratios:              
Return on average assets 1.05 %   0.93 %   0.12 %   12.90 %
Return on average assets - tangible 1.15 %   1.02 %   0.13 %   12.75 %
Return on average equity 7.80 %   6.98 %   0.82 %   11.75 %
Return on average equity - tangible 11.35 %   9.93 %   1.42 %   14.30 %
Return on average common equity 7.88 %   7.05 %   0.83 %   11.77 %
Return on average common equity - tangible 11.51 %   10.07 %   1.44 %   14.30 %
Net interest margin-fully tax equivalent (1) 3.51 %   3.44 %   0.07 %   2.03 %
Net interest margin 3.47 %   3.40 %   0.07 %   2.06 %
Average earning assets/total average assets 90.19 %   89.46 %   0.73 %   0.82 %
Average loans/average deposits 93.04 %   92.06 %   0.98 %   1.06 %
Average noninterest deposits/total average deposits 33.02 %   30.87 %   2.15 %   6.96 %
Allowance for loan losses/period end loans 0.76 %   0.72 %   0.04 %   5.56 %
Nonperforming assets to period end assets 0.33 %   0.47 %   (0.14 )%   (29.79 )%
Period end equity/period end total assets 13.41 %   13.63 %   (0.22 )%   (1.61 )%
Efficiency ratio 65.94 %   71.59 %   (5.65 )%   (7.89 )%
               
(1) Presented on a tax-equivalent basis
               


 
TOWNEBANK
Selected Financial Highlights (unaudited)
(dollars in thousands, except per share data)
 
  December 31,   September 30,   Increase/    % Increase/
Three Months Ended 2017   2017   (Decrease)    (Decrease)
               
Results of Operations:              
Net interest income $ 65,664     $ 65,923     $ (259 )   (0.39 )%
Noninterest income 43,477     49,416     (5,939 )   (12.02 )%
Total Revenue 109,141     115,339     (6,198 )   (5.37 )%
Acquisition-related expenses 526     466     60     12.88 %
Noninterest expenses, excluding acquisition-related expenses 73,134     73,720     (586 )   (0.79 )%
Provision for loan losses 869     696     173     24.86 %
Income before income tax and noncontrolling interest 34,612     40,457     (5,845 )   (14.45 )%
Provision for income tax expense 21,325     11,862     9,463     79.78 %
Net income 13,287     28,595     (15,308 )   (53.53 )%
Net income attributable to noncontrolling interest (954 )   (1,445 )   491     (33.98 )%
Net income attributable to TowneBank 12,333     27,150     (14,817 )   (54.57 )%
Net income available to common shareholders 12,333     27,150     (14,817 )   (54.57 )%
Net income per common share - basic 0.20     0.44     (0.24 )   (54.55 )%
Net income per common share - diluted 0.20     0.44     (0.24 )   (54.55 )%
Period End Data:              
Total assets $ 8,522,176     $ 8,614,794     $ (92,618 )   (1.08 )%
Total assets - tangible 8,213,358     8,304,142     (90,784 )   (1.09 )%
Earning assets 7,706,747     7,785,167     (78,420 )   (1.01 )%
Loans (net of unearned income) 5,946,965     5,910,479     36,486     0.62 %
Allowance for loan losses 45,131     44,398     733     1.65 %
Goodwill and other intangibles 308,819     310,652     (1,833 )   (0.59 )%
Nonperforming assets 28,094     33,891     (5,797 )   (17.10 )%
Noninterest bearing deposits 2,157,338     2,212,047     (54,709 )   (2.47 )%
Interest bearing deposits 4,290,882     4,336,415     (45,533 )   (1.05 )%
Total deposits 6,448,220     6,548,462     (100,242 )   (1.53 )%
Total equity 1,142,505     1,140,852     1,653     0.14 %
Total equity - tangible 833,686     830,199     3,487     0.42 %
Common equity 1,131,240     1,129,588     1,652     0.15 %
Common equity - tangible 822,421     818,936     3,485     0.43 %
Book value per common share 18.06     18.04     0.02     0.11 %
Book value per common share - tangible 13.13     13.08     0.05     0.38 %
Daily Average Balances:              
Total assets $ 8,579,705     $ 8,570,019     $ 9,686     0.11 %
Total assets - tangible 8,269,760     8,259,587     10,173     0.12 %
Earning assets 7,729,862     7,710,245     19,617     0.25 %
Loans (net of unearned income), excluding nonaccrual loans 5,920,302     5,897,169     23,133     0.39 %
Allowance for loan losses 44,704     44,198     506     1.14 %
Goodwill and other intangibles 309,946     310,432     (486 )   (0.16 )%
Noninterest bearing deposits 2,162,271     2,173,920     (11,649 )   (0.54 )%
Interest bearing deposits 4,336,175     4,365,820     (29,645 )   (0.68 )%
Total deposits 6,498,403     6,539,740     (41,337 )   (0.63 )%
Total equity 1,149,888     1,135,218     14,670     1.29 %
Total equity - tangible 839,942     824,787     15,155     1.84 %
Common equity 1,138,936     1,124,173     14,763     1.31 %
Common equity - tangible 828,991     813,741     15,250     1.87 %
Key Ratios:              
Return on average assets (1) 0.57 %   1.26 %   (0.69 )%   (54.76 )%
Return on average assets - tangible (1) 0.65 %   1.37 %   (0.72 )%   (52.55 )%
Return on average equity (1) 4.26 %   9.49 %   (5.23 )%   (55.11 )%
Return on average equity - tangible (1) 6.39 %   13.67 %   (7.28 )%   (53.26 )%
Return on average common equity (1) 4.30 %   9.58 %   (5.28 )%   (55.11 )%
Return on average common equity - tangible (1) 6.47 %   13.86 %   (7.39 )%   (53.32 )%
Net interest margin-fully tax equivalent (2) 3.41 %   3.43 %   (0.02 )%   (0.58 )%
Net interest margin 3.37 %   3.39 %   (0.02 )%   (0.59 )%
Average earning assets/total average assets 90.09 %   89.97 %   0.12 %   0.13 %
Average loans/average deposits 91.10 %   90.17 %   0.93 %   1.03 %
Average noninterest deposits/total average deposits 33.27 %   33.24 %   0.03 %   0.09 %
Allowance for loan losses/period end loans 0.76 %   0.75 %   0.01 %   1.33 %
Nonperforming assets to period end assets 0.33 %   0.39 %   (0.06 )%   (15.38 )%
Period end equity/period end total assets 13.41 %   13.24 %   0.17 %   1.28 %
Efficiency ratio 67.49 %   64.32 %   3.17 %   4.93 %
               
(1) Annualized
(2) Presented on a tax-equivalent basis 
               


 
TOWNEBANK
Average Balances, Yields and Rate Paid (unaudited)
(dollars in thousands)
 
  Three Months Ended   Three Months Ended   Three Months Ended
  December 31, 2017   September 30, 2017   December 31, 2016
      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 $ 5,920,302     $ 70,044     4.69 %   $ 5,897,169     $ 69,679     4.69 %   $ 5,705,832     $ 66,061     4.61 %
Taxable investment securities 657,297     3,237     1.97 %   582,747     2,717     1.86 %   666,936     2,762     1.66 %
Tax-exempt investment securities 46,825     361     3.09 %   47,087     360     3.06 %   52,199     390     2.99 %
Interest-bearing deposits 812,741     2,662     1.30 %   870,480     2,745     1.25 %   352,418     487     0.55 %
Loans held for sale 292,697     2,874     3.93 %   312,762     3,081     3.94 %   348,357     3,028     3.48 %
Total earning assets 7,729,862     79,178     4.06 %   7,710,245     78,582     4.04 %   7,125,742     72,728     4.06 %
Less: allowance for loan losses (44,704 )           (44,198 )           (41,188 )        
                                   
Total nonearning assets 894,547             903,972             880,884          
                                   
Total assets $ 8,579,705             $ 8,570,019             $ 7,965,438          
                                   
Liabilities and Equity:                                  
Interest-bearing deposits                                  
Demand and money market $ 2,247,745     $ 2,091     0.37 %   $ 2,284,995     $ 2,107     0.37 %   $ 2,230,198     $ 1,742     0.31 %
Savings 320,218     870     1.08 %   320,891     862     1.07 %   316,211     728     0.92 %
Certificates of deposit 1,768,212     5,141     1.15 %   1,759,934     4,841     1.09 %   1,591,397     3,458     0.86 %
Total interest-bearing deposits 4,336,175     8,102     0.74 %   4,365,820     7,810     0.71 %   4,137,806     5,928     0.57 %
Borrowings 554,039     1,819     1.28 %   554,147     1,770     1.25 %   628,272     3,739     2.33 %
Subordinated debentures 247,152     2,880     4.66 %   204,146     2,368     4.64 %            
Total interest-bearing liabilities 5,137,366     12,801     0.99 %   5,124,113     11,948     0.93 %   4,766,078     9,667     0.81 %
Demand deposits 2,162,271             2,173,920             1,961,902          
Other noninterest-bearing liabilities 130,180             136,768             150,076          
Total liabilities 7,429,817             7,434,801             6,878,056          
                                   
Shareholders’ equity 1,149,888             1,135,218             1,087,382          
                                   
Total liabilities and equity $ 8,579,705             $ 8,570,019             $ 7,965,438          
                                   
Net interest income (tax-equivalent basis)     $ 66,377             $ 66,634             $ 63,061      
Reconcilement of Non-GAAP Financial Measures                                
Tax-equivalent basis adjustment     (713 )           (711 )           (910 )    
Net interest income (GAAP)     $ 65,664             $ 65,923             $ 62,151      
                                   
Interest rate spread (1)         3.07 %           3.11 %           3.25 %
Interest expense as a percent of average earning assets             0.66 %           0.61 %           0.54 %
Net interest margin (tax equivalent basis) (2)             3.41 %           3.43 %           3.52 %
Total cost of deposits         0.49 %           0.47 %           0.39 %
                                   
(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
Average Balances, Yields and Rate Paid (unaudited)
(dollars in thousands)
 
  Year Ended December 31,
  2017
  2016
  2015
      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 $ 5,901,797     $ 276,869     4.69 %   $ 5,129,990     $ 234,318     4.57 %   $ 4,239,887     $ 196,868     4.64 %
Taxable investment securities 616,141     11,597     1.88 %   695,082     11,254     1.62 %   786,737     11,849     1.51 %
Tax-exempt investment securities 48,228     1,467     3.04 %   52,689     1,601     3.04 %   61,489     1,952     3.17 %
Interest-bearing deposits 680,026     7,481     1.10 %   300,130     1,145     0.38 %   188,546     499     0.26 %
Mortgage loans held for sale 271,281     10,561     3.89 %   264,494     9,152     3.46 %   104,222     3,836     3.68 %
Total earning assets 7,517,473     307,975     4.10 %   6,442,385     257,470     4.00 %   5,380,881     215,004     4.00 %
Less: allowance for loan losses (43,760 )           (39,547 )           (37,194 )        
Total nonearning assets 861,286             802,398             695,731          
Total assets $ 8,334,999             $ 7,205,236             $ 6,039,418          
                                   
Liabilities and Equity:                                  
Interest-bearing deposits                                  
Demand and money market $ 2,260,378     $ 8,020     0.35 %   $ 2,012,061     $ 6,043     0.30 %   $ 1,689,185     $ 4,721     0.28 %
Savings 319,940     3,305     1.03 %   309,049     2,859     0.93 %   300,620     2,755     0.92 %
Certificates of deposit 1,668,253     17,467     1.05 %   1,530,990     13,414     0.88 %   1,334,728     11,390     0.85 %
Total interest-bearing deposits 4,248,571     28,792     0.68 %   3,852,100     22,316     0.58 %   3,324,533     18,866     0.57 %
FHLB advances and repurchase agreements 617,720     9,942     1.61 %   523,366     13,424     2.56 %   463,153     13,565     2.93 %
Subordinated capital debentures 113,752     5,249     4.61 %           %           %
Total interest-bearing liabilities 4,980,043     43,983     0.88 %   4,375,466     35,740     0.82 %   3,787,686     32,431     0.86 %
Noninterest-bearing liabilities                                  
Demand deposits 2,094,753             1,720,093             1,343,360          
Other noninterest-bearing liabilities 136,615             145,902             103,628          
Total liabilities 7,211,411             6,241,461             5,234,674          
Shareholders' equity 1,123,588             963,775             804,744          
Total liabilities and equity $ 8,334,999             $ 7,205,236             $ 6,039,418          
Net interest income (tax-equivalent basis)   $ 263,992             $ 221,730             $ 182,573      
Reconcilement of Non-GAAP Financial Measures                                
Tax-equivalent basis adjustment   (2,871 )           (2,854 )           (2,131 )    
Net interest income (GAAP)   $ 261,121             $ 218,876             $ 180,442      
Interest rate spread  (1)       3.22 %           3.17 %           3.14 %
Interest expense as a percent of average earning assets       0.59 %           0.55 %           0.60 %
Net interest margin (tax-equivalent basis) (2)       3.51 %           3.44 %           3.39 %
Total cost of deposits       0.45 %           0.40 %           0.40 %
                                   
                                   
(1) Interest spread is the average yield earned on earning assets less the average rate paid on interest-bearing liabilities.  Fully tax equivalent.
(2) Net interest margin is net interest income expressed as a percentage of average earning assets.  Fully tax equivalent.
 


 
TOWNEBANK
Consolidated Balance Sheets
(dollars in thousands, except share data)
 
   
  2017   2016
  (unaudited)   (audited)
ASSETS      
Cash and due from banks $ 500,408     $ 130,967  
Interest-bearing deposits in financial institutions 4,471     5,581  
Total Cash and Cash Equivalents 504,879     136,548  
Securities available for sale, at fair value 867,654     812,974  
Securities held to maturity, at amortized cost 61,304     66,490  
Federal Home Loan Bank stock, at amortized cost 29,595     35,937  
Total Securities 958,553     915,401  
Mortgage loans held for sale 313,256     314,046  
Loans, net of unearned income and deferred costs: 5,946,965     5,807,221  
Less: allowance for loan losses (45,131 )   (42,001 )
Net Loans 5,901,834     5,765,220  
Premises and equipment, net 194,900     198,568  
Goodwill 270,250     264,910  
Other intangible assets, net 38,568     37,856  
Bank-owned life insurance policies 195,775     189,499  
Other assets 144,161     151,867  
TOTAL ASSETS $ 8,522,176     $ 7,973,915  
       
LIABILITIES AND EQUITY      
Deposits:      
Noninterest-bearing demand $ 2,157,338     $ 1,947,312  
Interest-bearing:      
Demand and money market accounts 2,225,211     2,263,894  
Savings 315,889     319,611  
Certificates of deposit 1,749,782     1,504,380  
Total Deposits 6,448,220     6,035,197  
Advances from the Federal Home Loan Bank 526,923     687,511  
Subordinated debt, net 247,196      
Repurchase agreements and other borrowings 24,094     32,540  
Total Borrowings 798,213     720,051  
Other liabilities 133,238     132,109  
TOTAL LIABILITIES 7,379,671     6,887,357  
Preferred stock      
Authorized and unissued shares - 2,000,000      
Common stock, $1.667 par value      
Authorized shares - 90,000,000      
Issued and outstanding shares 62,629,001 in 2017 and 64,492,168 in 2016 104,403     104,174  
Capital surplus 749,801     745,411  
Retained earnings 282,729     229,503  
Common stock issued to deferred compensation trust, at cost 729,919 shares in 2017 and 692,431 shares in 2016 (12,524 )   (11,168 )
Deferred compensation trust 12,524     11,168  
Accumulated other comprehensive loss (5,693 )   (3,986 )
TOTAL SHAREHOLDERS’ EQUITY 1,131,240     1,075,102  
Noncontrolling interest 11,265     11,456  
TOTAL EQUITY 1,142,505     1,086,558  
TOTAL LIABILITIES AND EQUITY $ 8,522,176     $ 7,973,915  
               


 
TOWNEBANK
Consolidated Statements of Income
(dollars in thousands, except per share data)
     
               
  Three Months Ended   Twelve months ended
  December 31,   December 31,
  2017   2016   2017   2016
  (unaudited)   (unaudited)   (unaudited)   (audited)
INTEREST INCOME:              
Loans, including fees $ 69,332     $ 65,151     $ 273,999     $ 231,464  
Investment securities 3,598     3,152     13,064     12,855  
Interest-bearing deposits in financial institutions and federal funds sold 2,661     487     7,480     1,145  
Mortgage loans held for sale 2,874     3,028     10,561     9,152  
Total interest income 78,465     71,818     305,104     254,616  
INTEREST EXPENSE:              
Deposits 8,102     5,928     28,792     22,316  
Advances from the Federal Home Loan Bank 1,791     3,715     9,837     13,320  
Subordinated debt 2,880         5,249      
Repurchase agreements and other borrowings 28     24     105     104  
Total interest expense 12,801     9,667     43,983     35,740  
Net interest income 65,664     62,151     261,121     218,876  
               
PROVISION FOR LOAN LOSSES 869     1,831     5,426     5,357  
Net interest income after provision for loan losses 64,795     60,320     255,695     213,519  
NONINTEREST INCOME:              
Residential mortgage banking income, net 17,537     18,096     75,851     58,792  
Insurance commissions and other title fees and income, net 12,115     9,823     51,933     46,741  
Real estate brokerage and property management income, net 4,823     2,925     27,487     20,515  
Service charges on deposit accounts 2,809     2,535     10,594     9,547  
Credit card merchant fees, net 1,204     1,135     5,008     4,508  
Bank owned life insurance 1,941     2,377     6,262     5,992  
Other income 3,048     2,621     10,987     9,121  
Gain (loss) on investment securities     6     (1 )   6  
Total noninterest income 43,477     39,518     188,121     155,222  
NONINTEREST EXPENSE:              
Salaries and employee benefits 42,480     43,071     170,989     143,847  
Occupancy 6,878     6,885     26,855     23,717  
Furniture and equipment 3,456     3,378     14,072     11,315  
Other expenses 20,846     19,500     84,298     88,949  
Total noninterest expense 73,660     72,834     296,214     267,828  
Income before income tax expense & noncontrolling interest 34,612     27,004     147,602     100,913  
Provision for income tax expense 21,325     7,160     54,813     28,698  
Net income $ 13,287     $ 19,844     $ 92,789     $ 72,215  
Net income attributable to noncontrolling interest (954 )   (848 )   (5,126 )   (4,965 )
Net income attributable to TowneBank $ 12,333     $ 18,996     $ 87,663     $ 67,250  
               
Net income available to common shareholders $ 12,333     $ 18,996     $ 87,663     $ 67,250  
Per common share information              
Basic earnings $ 0.20     $ 0.31     $ 1.41     $ 1.18  
Diluted earnings $ 0.20     $ 0.31     $ 1.41     $ 1.18  
Cash dividends declared $ 0.14     $ 0.13     $ 0.55     $ 0.51  
                               


 
TOWNEBANK
Consolidated Statements of Comprehensive Income
(dollars in thousands)
     
               
  Three Months Ended   Twelve months ended
  December 31,   December 31,
  2017   2016   2017   2016
  (unaudited)   (unaudited)   (unaudited)   (audited)
               
Net income $ 13,287     $ 19,844     $ 92,789     $ 72,215  
               
Other comprehensive income (loss)              
               
Unrealized losses on securities              
Unrealized holding losses arising during the period (4,072 )   (8,294 )   (1,644 )   (2,000 )
Deferred tax benefit 1,426     2,903     575     700  
Realized gains (losses) reclassified into earnings     (6 )   1     (6 )
Deferred tax benefit     2         2  
Net unrealized losses (2,646 )   (5,395 )   (1,068 )   (1,304 )
               
Pension and postretirement benefit plans              
Prior service costs (1,027 )       (1,027 )    
Deferred tax benefit 359         359      
Actuarial gain (losses) (148 )       (400 )   323  
Deferred tax benefit (expense) 52         142     (113 )
Amortization of prior service costs 155     110     288     151  
Deferred tax expense (54 )   (39 )   (100 )   (53 )
Amortization of net actuarial (gain) loss 39     (2 )   156     7  
Deferred tax benefit (expense) (14 )   1     (56 )   (3 )
Change in retirement plans, net of tax (638 )   70     (638 )   312  
               
Other comprehensive loss, net of tax (3,284 )   (5,325 )   (1,706 )   (992 )
               
Comprehensive income $ 10,003     $ 14,519     $ 91,083     $ 71,223  
                               


 
TOWNEBANK
Consolidated Balance Sheets - Five Quarter Trend
(dollars in thousands, except share data)
 
                   
  December 31,   September 30,   June 30,   March 31,   December 31,
  2017   2017   2017   2017   2016
  (unaudited)   (unaudited)   (unaudited)   (unaudited)   (audited)
ASSETS                  
Cash and due from banks $ 500,408     $ 647,728     $ 468,455     $ 420,192     $ 130,967  
Interest-bearing deposits in financial institutions 4,471     5,055     5,071     5,335     5,581  
Total Cash and Cash Equivalents 504,879     652,783     473,526     425,527     136,548  
Securities available for sale, at fair value 867,654     831,483     700,354     720,667     812,974  
Securities held to maturity, at amortized cost 61,304     62,487     63,937     65,117     66,490  
Federal Home Loan Bank stock, at amortized cost 29,595     29,586     29,586     36,402     35,937  
Total Securities 958,553     923,556     793,877     822,186     915,401  
Mortgage loans held for sale 313,256     318,595     388,523     214,047     314,046  
Loans, net of unearned income and deferred costs: 5,946,965     5,910,479     5,949,061     5,913,080     5,807,221  
Less: allowance for loan losses (45,131 )   (44,398 )   (44,131 )   (43,195 )   (42,001 )
Net Loans 5,901,834     5,866,081     5,904,930     5,869,885     5,765,220  
Premises and equipment, net 194,900     196,975     199,926     198,664     198,568  
Goodwill 270,250     270,901     268,246     264,910     264,910  
Other intangible assets, net 38,568     39,751     40,066     37,052     37,856  
Bank-owned life insurance policies 195,775     193,823     192,339     190,917     189,499  
Other assets 144,161     152,329     165,609     151,598     151,867  
TOTAL ASSETS $ 8,522,176     $ 8,614,794     $ 8,427,042     $ 8,174,786     $ 7,973,915  
LIABILITIES AND EQUITY                  
Deposits:                  
Noninterest-bearing demand $ 2,157,338     $ 2,212,047     $ 2,219,406     $ 2,052,598     $ 1,947,312  
Interest-bearing:                  
Demand and money market accounts 2,225,211     2,253,746     2,292,978     2,270,025     2,263,894  
Savings 315,889     320,028     318,714     320,104     319,611  
Certificates of deposit 1,749,782     1,762,641     1,764,671     1,548,045     1,504,380  
Total Deposits 6,448,220     6,548,462     6,595,769     6,190,772     6,035,197  
Advances from the Federal Home Loan Bank 526,923     527,072     527,219     687,366     687,511  
Subordinated debt, net 247,196     247,128              
Repurchase agreements and other borrowings 24,094     23,195     28,571     35,318     32,540  
Total Borrowings 798,213     797,395     555,790     722,684     720,051  
Other liabilities 133,238     128,086     152,485     160,085     132,109  
TOTAL LIABILITIES 7,379,671     7,473,943     7,304,044     7,073,541     6,887,357  
Preferred stock                  
Authorized shares - 2,000,000                  
                   
Common stock, $1.667 par value 104,403     104,387     104,386     104,307     104,174  
Capital surplus 749,801     748,444     747,867     746,289     745,411  
Retained earnings 282,729     279,165     260,783     243,337     229,503  
Common stock issued to deferred compensation trust, at cost (12,524 )   (12,304 )   (11,492 )   (11,294 )   (11,168 )
Deferred compensation trust 12,524     12,304     11,492     11,294     11,168  
Accumulated other comprehensive income (loss) (5,693 )   (2,408 )   (2,355 )   (4,173 )   (3,986 )
TOTAL SHAREHOLDERS’ EQUITY 1,131,240     1,129,588     1,110,681     1,089,760     1,075,102  
Noncontrolling interest 11,265     11,263     12,317     11,485     11,456  
TOTAL EQUITY 1,142,505     1,140,851     1,122,998     1,101,245     1,086,558  
TOTAL LIABILITIES AND EQUITY $ 8,522,176     $ 8,614,794     $ 8,427,042     $ 8,174,786     $ 7,973,915  
                                       


 
TOWNEBANK
Consolidated Statements of Income - Five Quarter Trend (unaudited)
(dollars in thousands, except per share data)
           
           
  Three Months Ended
  December 31,   September 30,   June 30,   March 31,   December 31,
  2017   2017   2017   2017   2016
INTEREST INCOME:                  
Loans, including fees $ 69,332     $ 68,969     $ 71,443     $ 64,255     $ 65,151  
Investment securities 3,598     3,076     3,171     3,218     3,152  
Interest-bearing deposits in financial institutions and federal funds sold 2,661     2,745     1,188     887     487  
Mortgage loans held for sale 2,874     3,081     2,879     1,727     3,028  
Total Interest Income 78,465     77,871     78,681     70,087     71,818  
INTEREST EXPENSE:                  
Deposits 8,102     7,810     6,877     6,003     5,928  
Advances from the Federal Home Loan Bank 1,791     1,750     2,521     3,772     3,715  
Subordinated debt 2,880     2,368              
Repurchase agreements and other borrowings 28     20     30     31     24  
Total Interest Expense 12,801     11,948     9,428     9,806     9,667  
Net Interest Income 65,664     65,923     69,253     60,281     62,151  
                   
PROVISION FOR LOAN LOSSES 869     696     1,320     2,541     1,831  
Net Interest Income after Provision for Loan Losses 64,795     65,227     67,933     57,740     60,320  
NONINTEREST INCOME:                  
Residential mortgage banking income, net 17,537     19,087     21,594     17,632     18,096  
Insurance commissions and other title fees and income, net 12,115     12,116     12,902     14,800     9,823  
Real estate brokerage and property management income, net 4,823     10,042     7,629     4,993     2,925  
Service charges on deposit accounts 2,809     2,670     2,644     2,472     2,535  
Credit card merchant fees, net 1,204     1,388     1,298     1,118     1,135  
Bank owned life insurance 1,941     1,425     1,421     1,474     2,377  
Other income 3,048     2,688     2,856     2,397     2,621  
Net gain (loss) on investment securities         (1 )       6  
Total Noninterest Income 43,477     49,416     50,343     44,886     39,518  
NONINTEREST EXPENSE:                  
Salaries and employee benefits 42,480     43,467     44,834     40,208     43,071  
Occupancy expense 6,878     6,635     6,658     6,684     6,885  
Furniture and equipment 3,456     3,710     3,563     3,343     3,378  
Other expenses 20,846     20,374     23,064     20,013     19,500  
Total Noninterest Expense 73,660     74,186     78,119     70,248     72,834  
Income before income tax expense and noncontrolling interest 34,612     40,457     40,157     32,378     27,004  
Provision for income tax expense 21,325     11,862     12,240     9,386     7,160  
Net income 13,287     28,595     27,917     22,992     19,844  
Net income attributable to noncontrolling interest (954 )   (1,445 )   (1,704 )   (1,024 )   (848 )
Net income attributable to TowneBank $ 12,333     $ 27,150     $ 26,213     $ 21,968     $ 18,996  
Net income available to common shareholders $ 12,333     $ 27,150     $ 26,213     $ 21,968     $ 18,996  
Per common share information                  
Basic earnings $ 0.20     $ 0.44     $ 0.42     $ 0.35     $ 0.31  
Diluted earnings $ 0.20     $ 0.44     $ 0.42     $ 0.35     $ 0.31  
Basic weighted average shares outstanding 62,239,028     62,210,834     62,145,045     62,075,983     61,963,948  
Diluted weighted average shares outstanding 62,462,629     62,410,591     62,364,260     62,262,789     62,175,705  
Cash dividends declared $ 0.14     $ 0.14     $ 0.14     $ 0.13     $ 0.13  
                                       


 
TOWNEBANK
Banking Segment Financial Information
(dollars in thousands)
 
       
  Three Months Ended   Increase/(Decrease)
  December 31,   September 30,
2017
  December 31, 2017
December 31, 2016
  December 31, 2017
September 30, 2017
  2017   2016     Amount   Percent   Amount   Percent
Revenue                          
Net interest income $ 63,031     $ 59,482     $ 63,094     $ 3,549     5.97 %   $ (63 )   (0.10 )%
Noninterest income                          
Service charges on deposit accounts 2,809     2,535     2,670     274     10.81 %   139     5.21 %
Credit card merchant fees 1,204     1,135     1,388     69     6.08 %   (184 )   (13.26 )%
Other income 4,318     4,125     3,259     193     4.68 %   1,059     32.49 %
Subtotal 8,331     7,795     7,317     536     6.88 %   1,014     13.86 %
Gain on investment securities     6         N/M
    N/M     N/M
    N/M  
Total noninterest income 8,331     7,801     7,317     530     6.79 %   1,014     13.86 %
Total revenue 71,362     67,283     70,411     4,079     6.06 %   951     1.35 %
                           
Provision for loan losses 869     1,801     696     (932 )   (51.75 )%   173     24.86 %
                           
Expenses                          
Salaries and employee benefits 21,637     23,770     21,643     (2,133 )   (8.97 )%   (6 )   (0.03 )%
Occupancy expense 4,418     4,349     3,992     69     1.59 %   426     10.67 %
Furniture and equipment 2,326     2,374     2,434     (48 )   (2.02 )%   (108 )   (4.44 )%
Advertising and marketing 774     749     624     25     3.34 %   150     24.04 %
Charitable contributions 891     1,011     1,380     (120 )   (11.87 )%   (489 )   (35.43 )%
Outside processing 1,055     1,387     1,113     (332 )   (23.94 )%   (58 )   (5.21 )%
Foreclosed property expenses 296     609     186     (313 )   (51.40 )%   110     59.14 %
FDIC and other insurance 668     848     953     (180 )   (21.23 )%   (285 )   (29.91 )%
Professional fees 1,912     1,181     750     731     61.90 %   1,162     154.93 %
Telephone and postage 859     997     922     (138 )   (13.84 )%   (63 )   (6.83 )%
Other expenses 5,150     4,240     4,550     910     21.46 %   600     13.19 %
Total expenses 39,986     41,515     38,547     (1,529 )   (3.68 )%   1,439     3.73 %
Income before income tax, corporate allocation and noncontrolling interest 30,507     23,967     31,168     6,540     27.29 %   (661 )   (2.12 )%
Corporate allocation 533     519     400     14     2.70 %   133     33.25 %
Income before income tax provision and noncontrolling interest 31,040     24,486     31,568     6,554     26.77 %   (528 )   (1.67 )%
Provision for income tax expense (19,510 )   (6,546 )   (9,002 )   (12,964 )   198.04 %   (10,508 )   116.73 %
Net income 11,530     17,940     22,566     (6,410 )   (35.73 )%   (11,036 )   (48.91 )%
Noncontrolling interest     (9 )   3     9     (100.00 )%   (3 )   (100.00 )%
Net income attributable to TowneBank $ 11,530     $ 17,931     $ 22,569     $ (6,401 )   (35.70 )%   $ (11,039 )   (48.91 )%
                                                   


 
TOWNEBANK
Banking Segment Financial Information
(dollars in thousands)
               
       
  Year Ended   Increase/(Decrease)
  December 31,   2017 over 2016
  2017   2016   Amount   Percent
Revenue              
Net interest income $ 251,003     $ 211,112     $ 39,891     18.90 %
Noninterest income              
Service charges on deposit accounts 10,594     9,547     1,047     10.97 %
Credit card merchant fees 5,008     4,508     500     11.09 %
Other income 14,046     11,503     2,543     22.11 %
Subtotal 29,648     25,558     4,090     16.00 %
Gain (loss) on investment securities (1 )   6     (7 )   (116.67 )%
Total noninterest income 29,647     25,564     4,083     15.97 %
Total revenue 280,650     236,676     43,974     18.58 %
               
Provision for loan losses 5,426     5,326     100     1.88 %
               
Expenses              
Salaries and employee benefits 87,140     78,910     8,230     10.43 %
Occupancy expense 16,365     15,610     755     4.84 %
Furniture and equipment 9,406     8,445     961     11.38 %
Advertising and marketing 3,646     3,478     168     4.83 %
Charitable contributions 5,231     4,192     1,039     24.79 %
Outside processing 4,434     4,439     (5 )   (0.11 )%
Foreclosed property expenses 753     1,335     (582 )   (43.60 )%
FDIC and other insurance 3,739     4,243     (504 )   (11.88 )%
Professional fees 4,691     4,081     610     14.95 %
Telephone and postage 3,649     3,420     229     6.70 %
Other expenses 19,800     34,191     (14,391 )   (42.09 )%
Total expenses 158,854     162,344     (3,490 )   (2.15 )%
Income before income tax expense, corporate allocation and noncontrolling interest 116,370     69,006     47,364     68.64 %
Corporate allocation 1,828     1,573     255     16.21 %
Income before income tax provision 118,198     70,579     47,619     67.47 %
Provision for income tax expense (44,584 )   (18,923 )   (25,661 )   135.61 %
Net income 73,614     51,656     21,958     42.51 %
Noncontrolling interest 1     (28 )   29     (103.57 )%
Net income attributable to TowneBank $ 73,615     $ 51,628     $ 21,987     42.59 %
                             


 
TOWNEBANK
Realty Segment Financial Information
(dollars in thousands)
 
       
  Three Months Ended   December 31, 2017   December 31, 2017
  December 31,   September 30,   December 31, 2016 September 30, 2017
  2017   2016   2017   Amount   Percent   Amount   Percent
Revenue                          
Residential mortgage brokerage income, net $ 17,544     $ 18,378     $ 19,196     $ (834 )   (4.54 )%   $ (1,652 )   (8.61 )%
Real estate brokerage income, net 2,092     1,761     2,103     331     18.80 %   (11 )   (0.52 )%
Title insurance and settlement fees 431     422     509     9     2.13 %   (78 )   (15.32 )%
Property management fees, net 2,731     1,163     7,939     1,568     134.82 %   (5,208 )   (65.60 )%
Income from unconsolidated subsidiary 116     218     214     (102 )   (46.79 )%   (98 )   (45.79 )%
Net interest and other income 3,050     2,959     3,242     91     3.08 %   (192 )   (5.92 )%
Total revenue 25,964     24,901     33,203     1,063     4.27 %   (7,239 )   (21.80 )%
                           
Expenses                          
Salaries and employee benefits 14,291     13,551     15,421     740     5.46 %   (1,130 )   (7.33 )%
Occupancy expense 1,894     2,002     2,045     (108 )   (5.39 )%   (151 )   (7.38 )%
Furniture and equipment 960     807     1,036     153     18.96 %   (76 )   (7.34 )%
Amortization of intangible assets 571     565     718     6     1.06 %   (147 )   (20.47 )%
Other expenses 6,247     5,909     6,967     338     5.72 %   (720 )   (10.33 )%
Total expenses 23,963     22,834     26,187     1,129     4.94 %   (2,224 )   (8.49 )%
                           
Income before income tax, corporate allocation, and noncontrolling interest 2,001     2,067     7,016     (66 )   (3.19 )%   (5,015 )   (71.48 )%
Corporate allocation (370 )   (364 )   (267 )   (6 )   1.65 %   (103 )   38.58 %
Income before income tax provision and noncontrolling interest 1,631     1,703     6,749     (72 )   (4.23 )%   (5,118 )   (75.83 )%
Provision for income tax (1,160 )   (355 )   (2,115 )   (805 )   226.76 %   955     (45.15 )%
Net income 471     1,348     4,634     (877 )   (65.06 )%   (4,163 )   (89.84 )%
Noncontrolling interest (695 )   (675 )   (1,189 )   (20 )   2.96 %   494     (41.55 )%
Net income (loss) attributable to TowneBank $ (224 )   $ 673     $ 3,445     $ (897 )   (133.28 )%   $ (3,669 )   (106.50 )%
                                                   


 
TOWNEBANK
Realty Segment Financial Information
(dollars in thousands)
               
       
  Year Ended   Increase/(Decrease)
  December 31,   2017 over 2016
  2017   2016   Amount   Percent
Revenue              
Residential mortgage banking income, net $ 76,245     $ 59,870     $ 16,375     27.35 %
Real estate brokerage income, net 7,991     7,833     158     2.02 %
Title insurance and settlement fees 1,877     1,883     (6 )   (0.32 )%
Property management fees, net 19,496     12,682     6,814     53.73 %
Income from unconsolidated subsidiary 704     881     (177 )   (20.09 )%
Net interest and other income 11,724     8,854     2,870     32.41 %
Total revenue 118,037     92,003     26,034     28.30 %
               
Expenses              
Salaries and employee benefits $ 58,639     $ 41,706     $ 16,933     40.60 %
Occupancy expense 8,171     5,989     2,182     36.43 %
Furniture and equipment 3,865     2,113     1,752     82.92 %
Amortization of intangible assets 2,566     1,829     737     40.30 %
Other expenses 26,688     19,292     7,396     38.34 %
Total expenses 99,929     70,929     29,000     40.89 %
               
Income before income tax, corporate allocation, and noncontrolling interest 18,108     21,074     (2,966 )   (14.07 )%
Corporate allocation (1,210 )   (935 )   (275 )   29.41 %
Income before income tax provision and noncontrolling interest 16,898     20,139     (3,241 )   (16.09 )%
Provision for income tax (5,791 )   (6,184 )   393     (6.36 )%
Net income 11,107     13,955     (2,848 )   (20.41 )%
Noncontrolling interest (3,756 )   (3,669 )   (87 )   2.37 %
Net income attributable to TowneBank $ 7,351     $ 10,286     $ (2,935 )   (28.53 )%
                             


 
TOWNEBANK
Insurance Segment Financial Information
(dollars in thousands)
 
                   
      Increase/(Decrease)
  Three Months Ended   December 31, 2017   December 31, 2017
  December 31,   September 30,   December 31, 2016   September 30, 2017
  2017   2016   2017   Amount   Percent   Amount   Percent
Commission and fee income                          
Property and casualty $ 8,198     $ 7,614     $ 9,768     $ 584     7.67 %   $ (1,570 )   (16.07 )%
Employee benefits 3,164     2,930     3,132     234     7.99 %   32     1.02 %
Travel insurance 912     828     970     84     10.14 %   (58 )   (5.98 )%
Specialized benefit services 170     164     165     6     3.66 %   5     3.03 %
Total commissions and fees 12,444     11,536     14,035     908     7.87 %   (1,591 )   (11.34 )%
                           
Contingency and bonus revenue 1,654     67     180     1,587     N/M     1,474     818.89 %
Other income 80     71     67     9     12.68 %   13     19.40 %
Total revenue 14,178     11,674     14,282     2,504     21.45 %   (104 )   (0.73 )%
                           
Employee commission expense 2,362     2,221     2,557     141     6.35 %   (195 )   (7.63 )%
Revenue, net of commission expense 11,816     9,453     11,725     2,363     25.00 %   91     0.78 %
                           
Salaries and employee benefits $ 6,552     $ 5,749     $ 6,403     $ 803     13.97 %   $ 149     2.33 %
Occupancy expense 566     535     599     31     5.79 %   (33 )   (5.51 )%
Furniture and equipment 169     196