Press Release

TowneBank Reports Full Year and Fourth Quarter Financial Results for 2018

19th Consecutive Year of Earnings Improvement

Company Release - 1/24/2019 7:30 AM ET

SUFFOLK, Va., Jan. 24, 2019 (GLOBE NEWSWIRE) -- TowneBank (the “Company”) (Nasdaq: TOWN) today reported financial results for the full year and the fourth quarter ended December 31, 2018.  For the year ended December 31, 2018, earnings were $133.79 million, or $1.88 per diluted share, compared to $87.66 million, or $1.41 per diluted share for the year ended December 31, 2017.  “2018 was a great year for TowneBank, highlighted by a strong operating performance, continued number one deposit market share in Hampton Roads, and a successful merger with Paragon Commercial Corporation.  At $133.79 million, annual net income increased 52.62% over 2017, credit quality remained strong and our annual return on average assets was 1.26%,” said G. Robert Aston, Jr., Executive Chairman.

Earnings in fourth quarter 2017 included an expense of $10.11 million related to the enactment of the Tax Cuts and Jobs Act of 2017 (“Tax Reform”) and fourth quarter 2018 included an expense of $0.70 million due to the finalization of the provisional component of the impact of Tax Reform.  Excluding acquisition-related expenses and adjustments related to tax reform, earnings for the year ended December 31, 2018 were $141.50 million (non-GAAP), or $1.98 (non-GAAP) per diluted share, compared to $97.18 million (non-GAAP), or $1.56 (non-GAAP) per diluted share for the year ended December 31, 2017.

Earnings for the fourth quarter were $35.99 million, or $0.50 per diluted share, versus $12.33 million, or $0.20 per diluted share,  for the quarter ended December 31, 2017.  Excluding acquisition-related expenses and adjustments related to tax reform, earnings for the quarter ended December 31, 2018 were $35.52 million (non-GAAP), or $0.49 (non-GAAP) per diluted share, compared to $22.87 million (non-GAAP), or $0.37 (non-GAAP) per diluted share for the quarter ended December 31, 2017.

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

  • Total revenues were $131.42 million, an increase of $22.28 million, or 20.41%.
  • Loans held for investment increased $2.07 billion, or 34.83%, from December 31, 2017, and $0.14 billion, or 1.73%, from September 30, 2018, or 6.87% on an annualized basis.  Excluding loans acquired in the Paragon merger of $1.43 billion, loans increased $638.77 million, or 10.74% from December 31, 2017.
  • Total deposits were $8.37 billion, an increase of $1.92 billion, or 29.81%.
  • Noninterest bearing deposits increased by 21.57%, to $2.62 billion, representing 31.33% of total deposits.
  • Annualized return on common shareholders' equity of 9.53% and annualized return on average tangible common shareholders' equity of 15.11% (non-GAAP).
  • Net interest margin of 3.53% and taxable equivalent net interest margin of 3.55% (non-GAAP).
  • Effective tax rate of 22.33% benefiting from the lower federal rate related to Tax Reform, partially offset by the finalization of the provisional component of the Tax Reform impact.

“Our team worked hard in 2018 as is evident by our stellar performance.  Throughout the year we focused our efforts on cultivating the benefits achieved through our successful Paragon merger and organic growth.  These efforts resulted in annual loan growth of 10.74%, balanced across legacy and new markets, excluding loans acquired in the Paragon merger.  We have also been working diligently to identify market opportunities in North Carolina where we can share our unique brand of Hometown Banking,” said J. Morgan Davis, President and Chief Executive Officer.

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

  • Net interest income was $89.21 million compared to $65.66 million for the quarter ended December 31, 2017.
  • Taxable equivalent net interest margin was 3.55%, including accretion of 12 basis points, compared to 3.41%, including accretion of 9 basis points, for 2017.
  • Total cost of deposits increased to 0.83% from 0.49% at December 31, 2017.
  • Average interest-earning assets totaled $10.02 billion at December 31, 2018 compared to $7.73 billion at December 31, 2017, an increase of 29.69%.
  • Average loans held for investment represented 79.04% of average earning assets in the fourth quarter of 2018 compared to 76.59% in the fourth quarter of 2017.
  • Average interest-bearing liabilities totaled $6.83 billion, an increase of $1.69 billion from the prior year.

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 (in thousands):

  Discount Accretion (Premium Amortization)
  For the three months ended
  March 31, June 30, September 30, December 31,
  2019 2019 2019 2019
Assets:       
Investment Securities $(72) $(72) $(70) $(70)
Loans 1,730  2,040  1,482  1,469 
         
Liabilities:        
Deposits 60  54  51  47 
         
Total estimated effect on net interest income $1,598  $1,914  $1,361  $1,352 
         
         
Note:  This information is intended for informational purposes only and is not necessarily indicative of future results.
    Actual results may differ due to factors such as changes in estimated prepayment speeds or projected credit loss rates.

Quarterly Provision for Loan Losses:

  • Recorded a provision for loan losses of $2.29 million compared to $0.87 million one year ago and $1.24 million in the prior quarter.
  • Net charge-offs were $0.43 million compared to $0.14 million one year prior.  The ratio of net charge-offs to average loans on an annualized basis was 0.02% compared to 0.03% in the prior quarter and 0.01% for the fourth quarter of 2017.
  • The allowance for loan losses represented 0.65% of total loans compared to 0.64% at September 30, 2018 and 0.76% at December 31, 2017.  Loan loss reserve as a percentage of total loans, excluding purchased loans, remained unchanged at 0.82%, from September 30, 2018, and decreased from 0.86% at December 31, 2017.  The allowance for loan losses was 10.97 times nonperforming loans compared to 7.25 times at September 30, 2018 and 9.39 times at December 31, 2017.

Quarterly Noninterest Income Compared to the Fourth Quarter of 2017:

  • Total noninterest income was $42.21 million compared to $43.48 million in 2017.  Increases of $1.16 million in real estate brokerage and property management income and $1.10 million in insurance commissions were offset by a decrease in residential mortgage brokerage income of $4.59 million.
  • Property management fee revenue increased 39.08%, or $1.07 million, primarily related to a change in the timing of revenue recognition due to the adoption of new accounting guidance on revenue recognition.  The change in accounting guidance resulted in an increase of property management fee income for the fourth quarter of approximately $0.84 million.
  • Insurance segment total revenue increased $1.75 million or 12.31% to $15.92 million in the fourth quarter.  The increase is primarily attributable to revenue generated by insurance agencies acquired in the second and fourth quarters of 2018, in addition to a rise in revenue from benefit insurance.
  • Residential mortgage banking income was $12.95 million compared to $17.54 million in fourth quarter 2017.  Loan volume in the current quarter was $600.07 million, with purchases comprising $531.87 million and refinancing activity accounting for $68.20 million.  Loan volume in fourth quarter 2017 was $797.74 million, with purchase activity of $657.28 million and refinancing activity of $140.46 million.  Lower volumes and continued pressure on gain on sale margin led to the decline in revenue.

Quarterly Noninterest Expense Compared to the Fourth Quarter of 2017:

  • Total noninterest expense was $82.34 million compared to $73.66 million, an increase of $8.68 million, or 11.78%.  This reflects increases of $8.27 million in salary and benefits expense, $1.29 million in intangible amortization expense, and $0.89 million in outside processing expenses.
  • Noninterest expense included operational expenses of entities acquired subsequent to fourth quarter 2017 of $8.75 million, primarily in our Banking and Insurance segments.  Excluding acquired entity expenses, noninterest expense was $73.59 million for the quarter ended December 31, 2018, or a decrease of 0.09% compared to 2017.

Quarterly Income Taxes Compared to the Fourth Quarter of 2017:

  • Income tax expense was $10.35 million compared to $21.33 million, one year prior.  This represents an effective tax rate of 22.33% compared to 33.31% in the fourth quarter of 2017.
  • The decrease in the effective tax rate from the prior year is due to Tax Reform, signed into law on December 22, 2017.  The reduction from 35% to 21% of the U.S. federal corporate tax rate was among the key changes to U.S. tax law, effective January 1, 2018.  Included in income tax expense in fourth quarter 2017 was $10.11 million related to the revaluation of deferred tax assets due to Tax Reform, and a final adjustment in fourth quarter 2018 to the Tax Reform provision of $0.70 million.

Investment Securities:

  • Total investment securities were $1.19 billion compared to $1.16 billion at September 30, 2018 and $0.96 billion at December 31, 2017.  The weighted average duration of the portfolio at December 31, 2018 was 3.0 years.  The carrying value of the available-for-sale portfolio included $11.91 million of net unrealized losses compared to $26.22 million at September 30, 2018 and $6.43 million in net unrealized losses at December 31, 2017.  The change in net unrealized losses was primarily due to interest rate fluctuations.  The carrying value of the held-to-maturity portfolio does not reflect $0.67 million in net unrealized gains compared to $0.17 million in net unrealized gains at September 30, 2018 and $1.58 million in net unrealized gains at December 31, 2017.

Loans:

  • Total loans held for investment were $8.02 billion at December 31, 2018 compared to $7.88 billion at September 30, 2018 and $5.95 billion at December 31, 2017.
       % Change
         Annualized
 Q4 Q4 Q3 Q4 18 vs. Q4 18 vs.
(dollars in thousands)2018 2017 2018 Q4 17 Q3 18
Construction and land development$1,067,239  $930,426  $1,016,120  14.70% 19.96%
Commercial real estate - investment related properties1,978,592  1,344,774  1,957,297  47.13% 4.32%
Commercial real estate - owner occupied1,262,748  938,767  1,259,368  34.51% 1.06%
Multifamily real estate260,987  198,720  284,423  31.33% (32.69)%
1-4 family residential real estate1,626,896  1,217,349  1,608,517  33.64% 4.53%
Commercial and industrial business loans1,510,364  1,087,157  1,447,794  38.93% 17.15%
Consumer loans and other311,407  229,772  308,173  35.53% 4.16%
Total$8,018,233  $5,946,965  $7,881,692  34.83% 6.87%

Asset Quality:

  • Nonperforming assets declined to $24.17 million, or 0.22% of total assets, compared to $28.09 million, or 0.33% of total assets, at December 31, 2017.
  • Nonperforming loans were 0.06% of period end loans.
  • Foreclosed property decreased to $17.16 million from $19.82 million at December 31, 2017.

Deposits and Borrowings:

  • Total deposits were $8.37 billion compared to $8.30 billion at September 30, 2018 and $6.45 billion at December 31, 2017.  The increase in deposits includes $1.25 billion acquired in the Paragon merger.
  • Total loans to total deposits were 95.79% compared to 94.97% at September 30, 2018 and 92.23% at December 31, 2017.
  • Non-interest bearing deposits were 31.33% of total deposits at December 31, 2018 compared to 32.19% at September 30, 2018 and 33.46% at December 31, 2017.  Non-interest bearing deposits were affected by seasonality in the fourth quarter.
  • Total borrowings were $1.09 billion compared to $1.17 billion and $0.80 billion at September 30, 2018 and December 31, 2017, respectively.
       % Change
         Annualized
 Q4 Q4 Q3 Q4 18 vs. Q4 18 vs.
(dollars in thousands)2018 2017 2018 Q4 17 Q3 18
Noninterest-bearing demand$2,622,761  $2,157,338  $2,671,558  21.57% (7.25)%
Interest-bearing:         
Demand and money market accounts3,223,215  2,225,211  3,096,317  44.85% 16.26%
Savings286,684  315,889  298,368  (9.25)% (15.54)%
Certificates of deposits2,237,762  1,749,782  2,233,188  27.89% 0.81%
Total$8,370,422  $6,448,220  $8,299,431  29.81% 3.39%

Capital:

  • Common equity tier 1 capital ratio of 11.64%.
  • Tier 1 leverage capital ratio of 9.87%.
  • Tier 1 risk-based capital ratio of 11.67%.
  • Total risk-based capital ratio of 15.00%.
  • Book value was $21.05 compared to $20.54 at September 30, 2018 and $18.06 at December 31, 2017.
  • Tangible book value was $14.26 compared to $13.83 at September 30, 2018 and $13.13 at December 31, 2017.

Annual Meeting of Shareholders:
TowneBank announced that its 2019 Annual Meeting of Shareholders would be held at 11:30 a.m. on Wednesday, May 22, 2019 at the Virginia Beach Convention Center, 1000 19th Street in Virginia Beach, Virginia.

About TowneBank:
As one of the top community banks in Virginia and North Carolina, TowneBank operates 40 banking offices serving Chesapeake, Chesterfield County, Glen Allen, Hampton, James City County, Mechanicsville, Newport News, Norfolk, Portsmouth, Richmond, Suffolk, Virginia Beach, Williamsburg, and York County in Virginia, along with Raleigh, Cary, Charlotte, Moyock, Grandy, Camden County, Southern Shores, Corolla and Nags Head in North Carolina.  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 $11.16 billion as of December 31, 2018, TowneBank is one of the largest banks headquartered in Virginia.

Non-GAAP Financial Measures:
This press release contains financial information determined by methods other than in accordance with accounting principles generally accepted in the United States of America ("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 areas; 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 FDIC. TowneBank undertakes no obligation to update or clarify these forward-looking statements, whether as a result of new information, future events or otherwise.

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

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

TOWNEBANK
Selected Financial Highlights (unaudited)
(dollars in thousands, except per share data)
   
  Three Months Ended
  December 31, September 30, June 30, March 31, December 31,
 2018 2018 2018 2018 2017
Income and Performance Ratios:         
 Total Revenue$131,417  $137,915  $137,058  $126,276  $109,141 
 Net income36,440  39,252  36,138  25,943  13,287 
 Net income attributable to TowneBank35,990  38,293  34,804  24,705  12,333 
 Net income per common share - diluted0.50  0.53  0.48  0.36  0.20 
 Book value per common share21.05  20.54  20.22  19.90  18.06 
 Tangible book value per share (non-GAAP)14.26  13.83  13.50  13.34  13.13 
 Return on average assets1.28% 1.40% 1.32% 1.02% 0.57%
 Return on average assets - tangible (non-GAAP)1.43% 1.56% 1.48% 1.15% 0.65%
 Return on average equity9.44% 10.21% 9.55% 7.39% 4.26%
 Return on average equity - tangible (non-GAAP)14.91% 16.08% 15.19% 11.64% 6.39%
 Return on average common equity9.53% 10.30% 9.62% 7.45% 4.30%
 Return on average common equity - tangible (non-GAAP)15.11% 16.30% 15.36% 11.77% 6.47%
 Noninterest income as a percentage of total revenue32.12% 35.69% 36.65% 39.54% 39.84%
           
Regulatory Capital Ratios (1):         
 Common equity tier 111.64% 11.53% 11.33% 11.65% 12.19%
 Tier 111.67% 11.57% 11.36% 11.68% 12.23%
 Total15.00% 14.90% 14.71% 15.27% 16.48%
 Tier 1 leverage ratio9.87% 9.98% 10.00% 9.97% 10.17%
           
Asset Quality:         
 Allowance for loan losses to nonperforming loans10.97x 7.25x 12.64x 10.40x 9.39x
 Allowance for loan losses to period end loans0.65% 0.64% 0.64% 0.63% 0.76%
 Allowance for loan losses to period end loans excluding purchased loans0.82% 0.82% 0.84% 0.86% 0.86%
 Nonperforming loans to period end loans0.06% 0.09% 0.05% 0.06% 0.08%
 Nonperforming assets to period end assets0.22% 0.25% 0.24% 0.27% 0.33%
 Net charge-offs to average loans (annualized)0.02% 0.03% 0.01% 0.02% 0.01%
           
 Nonperforming loans$4,749  $6,926  $3,919  $4,495  $4,807 
 Former bank premises2,253  2,253  2,253  2,253  3,469 
 Foreclosed property17,163  18,153  20,133  21,731  19,818 
 Total nonperforming assets$24,165  $27,332  $26,305  $28,479  $28,094 
 Loans past due 90 days and still accruing interest$394  $153  $22  $199  $103 
           
 Allowance for loan losses$52,094  $50,236  $49,535  $46,735  $45,131 
           
Mortgage Banking:         
 Loans originated, mortgage$531,871  $561,543  $667,189  $478,039  $585,567 
 Loans originated, joint venture68,196  249,956  284,337  185,306  212,173 
 Total loans originated$600,067  $811,499  $951,526  $663,345  $797,740 
 Number of loans originated2,472  3,068  3,687  2,603  3,061 
 Average number of originators314  329  336  330  302 
 Purchase %88.89% 90.00% 91.50% 81.80% 83.10%
 Loans sold$695,521  $853,981  $827,575  $679,167  $806,323 
 Realized gain on sales and fees as a % of loans sold3.18% 3.18% 3.11% 3.38% 3.45%
           
Other Ratios:         
 Net interest margin3.53% 3.62% 3.69% 3.51% 3.37%
 Net interest margin-fully tax equivalent (non-GAAP)3.55% 3.64% 3.71% 3.54% 3.41%
 Average earning assets/total average assets89.91% 89.69% 89.61% 89.45% 90.09%
 Average loans/average deposits95.32% 97.55% 97.79% 95.89% 91.10%
 Average noninterest deposits/total average deposits31.90% 32.61% 32.28% 31.75% 33.27%
 Period end equity/period end total assets13.78% 13.49% 13.63% 13.65% 13.41%
 Efficiency ratio62.65% 64.00% 65.10% 73.10% 67.49%
           
 (1) Current reporting period regulatory capital ratios are preliminary.      


TOWNEBANK
Average Balances, Yields and Rate Paid (unaudited)
(dollars in thousands)
 
 Three Months Ended Three Months Ended Three Months Ended
 December 31, 2018 September 30, 2018 December 31, 2017
   Interest Average   Interest Average   Interest Average
 Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
 Balance Expense Rate Balance Expense Rate Balance Expense Rate
Assets:                 
Loans (net of unearned income
  and deferred costs), excluding 
  nonaccrual loans
$7,923,978  $99,895  5.00% $7,825,065  $97,704  4.95% $5,920,302  $70,019  4.69%
Taxable investment securities1,101,892  7,515  2.73% 1,022,051  6,403  2.51% 644,875  3,237  2.01%
Tax-exempt investment securities80,656  747  3.70% 82,235  766  3.73% 46,825  386  3.30%
Interest-bearing deposits652,131  3,559  2.17% 450,455  2,149  1.89% 825,164  2,661  1.28%
Loans held for sale266,058  3,176  4.77% 346,806  4,012  4.63% 292,697  2,874  3.93%
Total earning assets10,024,715  114,892  4.55% 9,726,612  111,034  4.53% 7,729,863  79,177  4.06%
  Less: allowance for loan losses(50,792)     (50,144)     (44,704)    
                  
Total nonearning assets1,176,037      1,168,102      894,547     
                  
  Total assets$11,149,960      $10,844,570      $8,579,706     
                  
Liabilities and Equity:                 
Interest-bearing deposits                 
  Demand and money market$3,122,973  $5,670  0.72% $2,957,038  $4,217  0.57% $2,247,745  $2,091  0.37%
  Savings293,135  1,022  1.38% 301,311  984  1.30% 320,218  870  1.08%
  Certificates of deposit2,245,039  10,803  1.91% 2,147,337  9,339  1.73% 1,768,212  5,141  1.15%
Total interest-bearing deposits5,661,147  17,495  1.23% 5,405,686  14,540  1.07% 4,336,175  8,102  0.74%
Borrowings920,389  4,643  1.97% 920,380  4,195  1.78% 554,039  1,819  1.28%
Subordinated debentures247,769  2,961  4.78% 247,615  2,962  4.78% 247,152  2,880  4.66%
Total interest-bearing liabilities6,829,305  25,099  1.46% 6,573,681  21,697  1.31% 5,137,366  12,801  0.99%
Noninterest bearing demand deposits2,651,495      2,615,946      2,162,271     
Other noninterest-bearing liabilities157,238      166,575      130,181     
  Total liabilities9,638,038      9,356,202      7,429,818     
                  
Shareholders’ equity1,511,922      1,488,368      1,149,888     
                  
  Total liabilities and equity$11,149,960      $10,844,570      $8,579,706     
                  
Net interest income (tax-equivalent basis)  $89,793      $89,337      $66,376   
Reconcilement of Non-GAAP Financial Measures                
  Tax-equivalent basis adjustment  (585)     (640)     (712)  
Net interest income (GAAP)  $89,208      $88,697      $65,664   
                  
Interest rate spread (1)    3.09%     3.22%     3.07%
Interest expense as a percent of average earning assets   0.99%     0.88%     0.66%
Net interest margin (tax equivalent basis) (2)   3.55%     3.64%     3.41%
Total cost of deposits    0.83%     0.72%     0.49%
                  
(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,
 2018  2017  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
$7,567,570  $373,057  4.93% $5,901,797  $276,746  4.69% $5,129,990  $234,318  4.57%
Taxable investment securities1,004,080  24,729  2.46% 600,080  11,597  1.93% 695,082  11,254  1.62%
Tax-exempt investment securities79,720  2,920  3.66% 48,228  1,582  3.28% 52,689  1,601  3.04%
Interest-bearing deposits560,368  10,229  1.83% 696,507  7,480  1.07% 300,130  1,145  0.38%
Mortgage loans held for sale293,017  13,124  4.48% 271,281  10,561  3.89% 264,494  9,152  3.46%
      Total earning assets9,504,755  424,059  4.46% 7,517,893  307,966  4.10% 6,442,385  257,470  4.00%
    Less: allowance for loan losses(48,737)     (43,760)     (39,547)    
     Total nonearning assets1,143,167      860,866      802,398     
  Total assets$10,599,185      $8,334,999      $7,205,236     
                  
Liabilities and Equity:                 
Interest-bearing deposits                 
  Demand and money market$2,951,038  $16,458  0.56% $2,260,378  $8,020  0.35% $2,012,061  $6,043  0.30%
  Savings302,435  3,824  1.26% 319,940  3,305  1.03% 309,049  2,859  0.93%
  Certificates of deposit2,060,587  32,859  1.59% 1,668,252  17,467  1.05% 1,530,990  13,414  0.88%
Total interest-bearing deposits5,314,060  53,141  1.00% 4,248,570  28,792  0.68% 3,852,100  22,316  0.58%
FHLB advances and repurchase
  agreements
897,574  15,542  1.71% 617,720  9,942  1.61% 523,366  13,424  2.56%
Subordinated capital debentures251,097  12,067  4.81% 113,752  5,249  4.61%     %
Total interest-bearing liabilities6,462,731  80,750  1.25% 4,980,042  43,983  0.88% 4,375,466  35,740  0.82%
Noninterest-bearing liabilities                 
Noninterest bearing demand deposits2,517,173      2,094,753      1,720,093     
Other noninterest-bearing liabilities164,486      136,616      145,902     
      Total liabilities9,144,390      7,211,411      6,241,461     
Shareholders' equity1,454,795      1,123,588      963,775     
  Total liabilities and equity$10,599,185      $8,334,999      $7,205,236     
Net interest income (tax-equivalent basis) $343,309      $263,983      $221,730   
Reconcilement of Non-GAAP Financial Measures                
Tax-equivalent basis adjustment (2,236)     (2,862)     (2,854)  
Net interest income (GAAP) $341,073      $261,121      $218,876   
Interest rate spread  (1)   3.21%     3.22%     3.18%
Interest expense as a percent of average earning assets   0.85%     0.59%     0.55%
Net interest margin (tax-equivalent basis) (2)   3.61%     3.51%     3.44%
Total cost of deposits   0.68%     0.45%     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)
 
  
 2018 2017
 (unaudited) (audited)
ASSETS   
Cash and due from banks$665,029  $504,095 
Interest-bearing deposits in financial institutions21,667  17,094 
       Total Cash and Cash Equivalents686,696  521,189 
Securities available for sale, at fair value1,095,339  866,138 
Securities held to maturity, at amortized cost50,598  61,304 
Other equity securities4,797  1,516 
Federal Home Loan Bank stock, at amortized cost43,229  29,595 
        Total Securities1,193,963  958,553 
Mortgage loans held for sale220,986  313,256 
Loans, net of unearned income and deferred costs:   
Real estate-residential 1-4 family1,626,896  1,217,349 
Real estate-commercial3,241,340  2,283,541 
Real estate-construction and development1,067,239  930,426 
Real estate-multi-family260,987  198,720 
Commercial and industrial business1,510,364  1,087,157 
Consumer and other loans311,407  229,772 
Loans, net of unearned income and deferred costs8,018,233  5,946,965 
  Less: allowance for loan losses(52,094) (45,131)
        Net Loans7,966,139  5,901,834 
Premises and equipment, net211,796  194,900 
Goodwill433,658  270,250 
Other intangible assets, net58,752  38,568 
Bank-owned life insurance policies237,371  195,775 
Other assets153,669  127,851 
TOTAL ASSETS$11,163,030  $8,522,176 
    
LIABILITIES AND EQUITY   
Deposits:   
Noninterest-bearing demand$2,622,761  $2,157,338 
Interest-bearing:   
     Demand and money market accounts3,223,215  2,225,211 
     Savings286,684  315,889 
     Certificates of deposit2,237,762  1,749,782 
        Total Deposits8,370,422  6,448,220 
Advances from the Federal Home Loan Bank799,315  526,923 
Subordinated debt, net247,861  247,196 
Repurchase agreements and other borrowings47,156  24,850 
        Total Borrowings1,094,332  798,969 
Other liabilities159,856  132,482 
TOTAL LIABILITIES9,624,610  7,379,671 
Preferred stock   
Authorized and unissued shares - 2,000,000   
Common stock, $1.667 par: Authorized shares - 120,000,000   
Issued and outstanding shares 72,465,923 in 2018   
  and 62,629,001 in 2017120,801  104,403 
Capital surplus1,034,676  749,800 
Retained earnings379,239  282,729 
Common stock issued to deferred compensation trust, at cost   
769,200 shares in 2018 and 729,919 shares in 2017(13,955) (12,524)
Deferred compensation trust13,955  12,524 
Accumulated other comprehensive loss(9,190) (5,692)
TOTAL SHAREHOLDERS’ EQUITY1,525,526  1,131,240 
Noncontrolling interest12,894  11,265 
TOTAL EQUITY1,538,420  1,142,505 
TOTAL LIABILITIES AND EQUITY$11,163,030  $8,522,176 


TOWNEBANK
Consolidated Statements of Income
(dollars in thousands, except per share data)
   
        
 Three Months Ended Twelve Months Ended
 December 31, December 31,
 2018 2017 2018 2017
 (unaudited) (unaudited) (unaudited) (audited)
INTEREST INCOME:       
Loans, including fees$99,446  $69,332  $371,343  $273,999 
Investment securities8,126  3,598  27,127  13,064 
Interest-bearing deposits in financial institutions and
  federal funds sold
3,559  2,661  10,229  7,480 
Mortgage loans held for sale3,176  2,874  13,124  10,561 
        Total interest income114,307  78,465  421,823  305,104 
INTEREST EXPENSE:       
Deposits17,495  8,102  53,141  28,792 
Advances from the Federal Home Loan Bank4,585  1,791  15,340  9,837 
Subordinated debt, net2,961  2,880  12,067  5,249 
Repurchase agreements and other borrowings58  28  202  105 
        Total interest expense25,099  12,801  80,750  43,983 
Net interest income89,208  65,664  341,073  261,121 
        
PROVISION FOR LOAN LOSSES2,292  869  8,541  5,426 
        Net interest income after provision for loan losses86,916  64,795  332,532  255,695 
NONINTEREST INCOME:       
Residential mortgage banking income, net12,951  17,537  65,104  75,851 
Insurance commissions and other title fees and income, net13,212  12,115  56,164  51,933 
Real estate brokerage and property management income, net5,982  4,823  31,863  27,487 
Service charges on deposit accounts2,928  2,809  11,808  10,594 
Credit card merchant fees, net1,298  1,204  5,472  5,008 
Bank owned life insurance2,014  1,941  6,836  6,262 
Other income3,824  3,048  14,343  10,987 
Gain (loss) on investment securities    3  (1)
        Total noninterest income42,209  43,477  191,593  188,121 
NONINTEREST EXPENSE:       
Salaries and employee benefits50,233  41,965  201,838  169,449 
Occupancy7,352  6,878  27,644  26,855 
Furniture and equipment3,587  3,456  14,477  14,072 
Other expenses21,165  21,361  108,165  85,838 
        Total noninterest expense82,337  73,660  352,124  296,214 
Income before income tax expense & noncontrolling interest46,788  34,612  172,001  147,602 
Provision for income tax expense10,348  21,325  34,227  54,813 
Net income$36,440  $13,287  $137,774  $92,789 
Net income attributable to noncontrolling interest(450) (954) (3,981) (5,126)
Net income attributable to TowneBank$35,990  $12,333  $133,793  $87,663 
        
Per common share information