Press Release

TowneBank Reports Third Quarter 2019 Earnings

Company Release - 10/24/2019 8:30 AM ET

SUFFOLK, Va., Oct. 24, 2019 (GLOBE NEWSWIRE) -- TowneBank (the “Company”) (NASDAQ: TOWN) today reported earnings for the quarter ended September 30, 2019 of $37.66 million, or $0.52 per diluted share, compared to $38.29 million, or $0.53 per diluted share, for the quarter ended September 30, 2018.

“Our third quarter continued the trend of solid growth in top-line revenues which climbed to $145.88 million, or a 5.78% increase, over the same period in 2018 driven by strong performances in our noninterest income sources.  Noninterest bearing deposits increased 10.74% on an annualized basis during the quarter and represents 32.11% of our total deposits.  During the past year, we continued to increase our deposit market share and remain the market leader in the Hampton Roads, Virginia MSA while our leadership teams in Richmond and the North Carolina markets provided an outstanding deposit growth rate of 19.67% and 27.70%, respectively, compared to the quarter ended September 30, 2018," said G. Robert Aston, Jr., Executive Chairman.  “The year 2019 has been a year of significant investment in the future, as we have absorbed the expense related to enhancements in company infrastructure driven by changing industry standards and increased regulatory expectations due to crossing the $10 billion asset threshold.  Additionally, we have successfully recruited 27 new staff members on the production and revenue side of the bank, expanding Towne’s presence into Greensboro and Greenville, North Carolina as well as adding an eight person Corporate Banking team in the Hampton Roads market,” added Aston.

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

  • Total revenues were $145.88 million, an increase of $7.97 million, or 5.78%.
  • Loans held for investment increased $301.14 million, or 3.82%, from September 30, 2018, and $56.10 million, or 0.69%, from June 30, 2019, or 2.74% on an annualized basis.
  • Total deposits were $9.44 billion, an increase of $1.14 billion, or 13.72%, compared to prior year and $0.17 billion, or 1.83%, from June 30, 2019, or 7.24% on an annualized basis.  In comparison to September 30, 2018, total deposits increased 8.52% in our Hampton Roads region, 19.67% in our Richmond region, and 27.70% in our North Carolina region.
  • Noninterest bearing deposits increased by 13.44%, to $3.03 billion, representing 32.11% of total deposits.  Compared to the linked quarter, noninterest bearing deposits increased 2.71%, or 10.74% on an annualized basis.
  • Annualized return on common shareholders' equity was 9.29% and annualized return on average tangible common shareholders' equity was 14.36% (non-GAAP).
  • Net interest margin for the quarter was 3.41% and taxable equivalent net interest margin was 3.43% (non-GAAP).
  • Effective tax rate of 16.95% in the quarter compared to 19.30% in the third quarter of 2018.

“Continued diversity in our revenue composition has been a consistent objective of our Company for many years.  As pressures on net interest margin and required infrastructure investments continue to challenge our bottom line returns, it is important to keep our focus on growing top-line revenues.  We were pleased to announce the completion of a strategic insurance acquisition in Charlotte, North Carolina, which will serve to strengthen our product delivery in one of our key growth markets,” stated J. Morgan Davis, President and Chief Executive Officer.

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

  • Net interest income was $91.10 million compared to $88.70 million at September 30, 2018.
  • Taxable equivalent net interest margin (non-GAAP) was 3.43%, including accretion of 11 basis points, compared to 3.64%, including accretion of 18 basis points, for 2018.
  • Average loans held for investment, with an average yield of 5.02%, represented 76.35% of average earning assets at September 30, 2019 compared to an average yield of 4.95% and 80.45% of average earning assets in the third quarter of 2018.
  • Total cost of deposits increased to 1.01% from 0.72% at September 30, 2018.
  • Average interest-earning assets totaled $10.60 billion at September 30, 2019 compared to $9.73 billion at September 30, 2018, an increase of 9.03%.
  • Average interest-bearing liabilities totaled $7.03 billion, an increase of $0.46 billion from prior year.

Quarterly Provision for Loan Losses:

  • Recorded a provision for loan losses of $1.51 million compared to $1.24 million one year ago and $2.82 million in the linked quarter.
  • Net charge-offs were $0.61 million compared to $0.54 million one year prior.  The ratio of net charge-offs to average loans on an annualized basis was 0.03% compared to 0.08% in the prior quarter and 0.03% in the third quarter of 2018.
  • The allowance for loan losses represented 0.68% of total loans compared to 0.67% at June 30, 2019 and 0.64% at September 30, 2018.  Loan loss reserve as a percentage of total loans, excluding purchased loans, was 0.81% at September 30, 2019, and June 30, 2019, compared to 0.82% at September 30, 2018.  The allowance for loan losses was 3.95 times nonperforming loans compared to 3.00 times at June 30, 2019 and 7.25 times at September 30, 2018.

Quarterly Noninterest Income Compared to the Third Quarter of 2018:

  • Total noninterest income was $54.78 million compared to $49.22 million in 2018, an increase of $5.56 million, or 11.29%.  Residential mortgage banking income increased $3.05 million in the quarter, insurance commissions and other title fees increased $2.19 million, real estate brokerage and property management income increased $0.90 million, while service charges on deposit accounts decreased $0.78 million.
  • Residential mortgage banking income was $18.86 million compared to $15.80 million in third quarter 2018.  Loan volume in the current quarter was $963.66 million, with purchase activity comprising 68.83% of that volume.  Loan volume in third quarter 2018 was $811.50 million, with purchase activity of 89.72%. 
  • Total Insurance segment revenue increased 16.59% to $19.62 million in the third quarter due primarily to additional commission income from insurance agencies that were acquired in November 2018 and January 2019.  An additional insurance agency, Angel Insurance and Financial Services, Inc., was acquired, effective September 1, 2019.
  • Property management fee revenue increased 13.47%, or $0.78 million, as compared to third quarter 2018 due to increases in reservation levels.

Quarterly Noninterest Expense Compared to the Third Quarter of 2018:

  • Total noninterest expense was $97.29 million compared to $88.26 million in 2018, an increase of $9.03 million, or 10.23%.  This reflects increases of $5.29 million in salary and benefits expense, $1.66 million in professional fees, $0.94 million in occupancy expense, and $0.56 million in advertising and marketing expenses.
  • In addition to growth in production related expenses, changing industry standards and increased regulatory expectations related to exceeding $10 billion in assets, have resulted in enhancements to Company infrastructure, resulting in increased salary and benefits expense and professional fees. Areas of enhancement include: information technology, risk and compliance, accounting, and internal audit.
  • Noninterest expense included operational expenses of $1.86 million related to insurance agencies acquired subsequent to third quarter 2018.

Quarterly Income Taxes Compared to the Third Quarter of 2018:

  • Income tax expense was $7.68 million compared to $9.16 million one year prior.  This represents an effective tax rate of 16.95% compared to 19.30% in the third quarter of 2018.

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

  • Total assets were $12.02 billion for the quarter ended September 30, 2019, an increase of 7.69%, or 10.28% on an annualized basis, compared to $11.16 billion at December 31, 2018.  Total assets increased $0.90 billion, or 8.09%, from $11.12 billion at September 30, 2018.  This increase was driven primarily by growth in cash and cash equivalents, available for sale securities, and loans held for investment.  Year-over-year, other assets increased $49.66 million due to the adoption of the leasing standard.
  • Loans held for investment increased $0.16 billion, or 2.05%, or 2.74% on an annualized basis, compared to year end 2018, and $0.30 billion, or 3.82% compared to September 30, 2018.
  • Total liabilities were $10.38 billion at September 30, 2019, an increase of $758.15 million, or 7.88%, compared to December 31, 2018 and $761.35 million, or 7.91%, compared to September 30, 2018.
  • Total deposits increased $1.07 billion, or 12.75%, or 17.05% on an annualized basis, over December 31, 2018 and $1.14 billion, or 13.72%, over September 30, 2018.
  • Total borrowings declined $0.42 billion, or 38.49%, or 51.46% on an annualized basis from December 31, 2018 and $0.49 billion from September 30, 2018.

Investment Securities:

  • Total investment securities were $1.41 billion compared to $1.35 billion at June 30, 2019 and $1.16 billion at September 30, 2018.  The weighted average duration of the portfolio at September 30, 2019 was 3.6 years.  The carrying value of the available-for-sale portfolio included $26.07 million of net unrealized gains compared to $19.66 million at June 30, 2019 and $26.22 million in net unrealized losses at September 30, 2018.  The increase in net unrealized gains was primarily due to further declines in interest rates.  The carrying value of the held-to-maturity portfolio does not reflect $1.68 million in net unrealized gains compared to $1.58 million in net unrealized gains at June 30, 2019 and $0.17 million in net unrealized gains at September 30, 2018.

Loans and Asset Quality:

  • Total loans held for investment were $8.18 billion at September 30, 2019 compared to $8.13 billion at June 30, 2019 and $7.88 billion at September 30, 2018.
  • Nonperforming assets were $31.04 million, or 0.26% of total assets, compared to $27.33 million, or 0.25%, at September 30, 2018.
  • Nonperforming loans were 0.17% of period end loans.
  • Foreclosed property decreased to $15.52 million from $18.15 million at September 30, 2018.

Deposits and Borrowings:

  • Total deposits were $9.44 billion compared to $9.27 billion at June 30, 2019 and $8.30 billion at September 30, 2018.
  • Total loans to deposits were 86.70% compared to 87.68% at June 30, 2019 and 94.97% at September 30, 2018.
  • Non-interest bearing deposits were 32.11% of total deposits at September 30, 2019 compared to 31.83% at June 30, 2019 and 32.19% at September 30, 2018.
  • Total borrowings were $0.67 billion compared to $0.84 billion and $1.17 billion at June 30, 2019 and September 30, 2018, respectively.

Capital:

  • Common equity tier 1 capital ratio of 11.52%.
  • Tier 1 leverage capital ratio of 9.84%.
  • Tier 1 risk-based capital ratio of 11.55%.
  • Total risk-based capital ratio of 14.70%.
  • Book value was $22.38 compared to $21.95 at June 30, 2019 and $20.54 at September 30, 2018.
  • Tangible book value (non-GAAP)was $15.44 compared to $15.05 at June 30, 2019 and $13.83 at September 30, 2018.

Outlook:
Management reforecasts on a quarterly basis and anticipates:

  •  Annualized loan growth to be in the low-to-mid single digits for the remainder of 2019.
  • Our quarterly noninterest expense run rate will range between $94 - $96 million for 2019.

About TowneBank:
As one of the top community banks in Virginia and North Carolina, TowneBank operates 41 banking offices serving Chesapeake, Chesterfield County, Glen Allen, Hampton, James City County, Mechanicsville, Newport News, Norfolk, Portsmouth, Richmond, Suffolk, Virginia Beach, Williamsburg, and York County in Virginia, along with Raleigh, Cary, Charlotte, Greenville, Moyock, Grandy, Camden County, Southern Shores, Corolla and Nags Head in North Carolina.  TowneBank also offers a full range of financial services through its controlled divisions and subsidiaries that include Towne Investment Group, Towne Wealth Management, Towne Insurance Agency, Towne Benefits, TowneBank Mortgage, TowneBank Commercial Mortgage, Berkshire Hathaway HomeServices Towne Realty, Towne 1031 Exchange, LLC, and Towne Vacations.  Local decision-making is a hallmark of its hometown banking strategy that is delivered through the leadership of each group’s President and Board of Directors.  With total assets of $12.02 billion as of September 30, 2019, TowneBank is one of the largest banks headquartered in Virginia.

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

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

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

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

TOWNEBANK
Selected Financial Highlights (unaudited)
(dollars in thousands, except per share data)
 
 Three Months Ended
 September 30,
 June 30, 
 March 31,
 December 31,
 September 30,
 2019
 2019
 2019
 2018
 2018
Income and Performance Ratios:
 Total Revenue$145,879  $144,537  $133,854  $131,417  $137,914 
 Net income39,400  36,242  32,082  36,440  39,252 
 Net income attributable to TowneBank37,659  34,638  31,409  35,990  38,293 
 Net income per common share - diluted0.52  0.48  0.44  0.50  0.53 
 Book value per common share22.38  21.95  21.40  21.05  20.54 
 Book value per common share - tangible (non-GAAP)15.44  15.05  14.46  14.26  13.83 
 Return on average assets1.26% 1.20% 1.14% 1.28% 1.40%
 Return on average assets - tangible (non-GAAP)1.40% 1.35% 1.29% 1.43% 1.56%
 Return on average equity9.22% 8.83% 8.24% 9.44% 10.21%
 Return on average equity - tangible (non-GAAP)14.20% 13.90% 13.24% 14.91% 16.08%
 Return on average common equity9.29% 8.89% 8.30% 9.53% 10.30%
 Return on average common equity - tangible (non-GAAP)14.36% 14.05% 13.39% 15.11% 16.30%
 Noninterest income as a percentage of total revenue37.55% 37.86% 34.65% 32.12% 35.69%
           
Regulatory Capital Ratios (1):         
 Common equity tier 111.52% 11.58% 11.49% 11.51% 11.53%
 Tier 111.55% 11.62% 11.52% 11.54% 11.57%
 Total14.70% 14.85% 14.79% 14.83% 14.90%
 Tier 1 leverage ratio9.84% 9.86% 9.92% 9.87% 9.98%
           
Asset Quality: 
 Allowance for loan losses to nonperforming loans3.95x 3.00x 9.36x 10.97x 7.25x
 Allowance for loan losses to period end loans0.68% 0.67% 0.66% 0.65% 0.64%
 Allowance for loan losses to period end loans excluding purchased loans0.81% 0.81% 0.81% 0.82% 0.82%
 Nonperforming loans to period end loans0.17% 0.22% 0.07% 0.06% 0.09%
 Nonperforming assets to period end assets0.26% 0.29% 0.22% 0.22% 0.25%
 Net charge-offs to average loans (annualized)0.03% 0.08% 0.01% 0.02% 0.03%
           
 Nonperforming loans$14,016  $18,202  $5,696  $4,749  $6,926 
 Former bank premises1,510  1,510  2,223  2,253  2,253 
 Foreclosed property15,517  14,517  17,071  17,163  18,153 
 Total nonperforming assets$31,043  $34,229  $24,990  $24,165  $27,332 
 Loans past due 90 days and still accruing interest$636  $415  $117  $394  $153 
           
 Allowance for loan losses$55,428  $54,527  $53,303  $52,094  $50,236 
           
Mortgage Banking:         
 Loans originated, mortgage$703,922  $574,638  $366,643  $407,787  $561,543 
 Loans originated, joint venture259,742  246,491  146,884  192,280  249,956 
 Total loans originated$963,664  $821,129  $513,527  $600,067  $811,499 
 Number of loans originated3,360  3,121  1,977  2,304  3,068 
 Number of originators225  229  240  293  303 
 Purchase %68.83% 84.97% 86.08% 88.64% 89.72%
 Loans sold$925,058  $694,832  $473,068  $694,341  $852,205 
 Gross realized gain on sales and fees as a % of loans originated3.45% 3.43% 3.58% 3.37% 3.36%
           
Other Ratios:         
 Net interest margin3.41% 3.49% 3.54% 3.53% 3.62%
 Net interest margin-fully tax equivalent (nonGAAP)3.43% 3.52% 3.57% 3.55% 3.64%
 Average earning assets/total average assets89.53% 89.46% 89.50% 89.91% 89.69%
 Average loans/average deposits87.63% 91.60% 95.83% 95.32% 97.55%
 Average noninterest deposits/total average deposits31.82% 31.63% 31.39% 31.90% 32.61%
 Period end equity/period end total assets13.63% 13.45% 13.53% 13.78% 13.49%
 Efficiency ratio66.66% 66.80% 68.43% 62.65% 64.00%
           
 (1) Current reporting period regulatory capital ratios are preliminary      


TOWNEBANK
Selected Data (unaudited)
(dollars in thousands)
 
          
Investment Securities      % Change
 Q3 Q3 Q2 Q3 19 vs. Q3 19 vs.
Available-for-sale securities, at fair value2019 2018 2019 Q3 18 Q2 19
U.S. agency securities$152,581  $388,904  $261,960  (60.77)% (41.75)%
U.S. Treasury notes999  1,245  2,241  (19.76)% (55.42)%
Municipal securities173,519  72,818  167,466  138.29 % 3.61 %
Trust preferred and other corporate securities52,006  30,648  43,799  69.69 % 18.74 %
Mortgage-backed securities issued by GSE and GNMA958,290  558,158  785,355  71.69 % 22.02 %
Total$1,337,395  $1,051,773  $1,260,821  27.16 % 6.07 %
          
Held-to-maturity securities, at amortized cost         
Municipal securities$29,166  $35,007  $34,458  (16.69)% (15.36)%
Trust preferred corporate securities2,381  500  2,393  376.20 % (0.50)%
Mortgage-backed securities issued by GSE and GNMA12,947  16,495  13,723  (21.51)% (5.65)%
Total$44,494  $52,002  $50,574  (14.44)% (12.02)%
          
          
Loans Held For Investment      % Change
 Q3 Q3 Q2 Q3 19 vs. Q3 19 vs.
 2019 2018 2019 Q3 18 Q2 19
Real estate - construction and development$1,142,225  $1,016,120  $1,107,762  12.41 % 3.11 %
Commercial real estate - investment related properties2,070,317  1,957,297  1,985,990  5.77 % 4.25 %
Commercial real estate - owner occupied1,286,137  1,259,368  1,288,478  2.13 % (0.18)%
Real estate - multifamily219,901  284,423  267,528  (22.69)% (17.80)%
Real estate - residential 1-4 family1,621,175  1,608,517  1,639,547  0.79 % (1.12)%
Commercial and industrial business1,527,515  1,447,794  1,523,607  5.51 % 0.26 %
Consumer and other loans315,559  308,173  313,817  2.40 % 0.56 %
Total$8,182,829  $7,881,692  $8,126,729  3.82 % 0.69 %
          
          
Deposits      % Change
 Q3 Q3 Q2 Q3 19 vs. Q3 19 vs.
 2019 2018 2019 Q3 18 Q2 19
Noninterest-bearing demand$3,030,505  $2,671,558  $2,950,615  13.44 % 2.71 %
Interest-bearing:         
Demand and money market accounts3,534,252  3,096,317  3,409,322  14.14 % 3.66 %
Savings280,552  298,368  277,495  (5.97)% 1.10 %
Certificates of deposits2,592,705  2,233,188  2,631,386  16.10 % (1.47)%
Total$9,438,014  $8,299,431  $9,268,818  13.72 % 1.83 %
          


The following table sets forth an estimate of the expected effects of the aggregate acquisition accounting adjustments on pre-tax net interest income for the periods shown:
  Discount Accretion (Premium Amortization)
  For the three months ended 
  December 31,
  2019
Assets: $(74)
Investment Securities 1,403 
Loans  
   
Liabilities:  
Deposits 47 
Total estimated effect on net interest income $1,282 
   
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.


TOWNEBANK 
Average Balances, Yields and Rate Paid (unaudited) 
(dollars in thousands) 
 
 Three Months Ended
 Three Months Ended
 Three Months Ended
 September 30, 2019
 June 30, 2019
 September 30, 2018
 Average
Balance
 Interest
Income/
Expense
 Average
Yield/
Rate
 Average
Balance
 Interest
Income/
Expense
 Average
Yield/
Rate
 Average
Balance
 Interest
Income/
Expense
 Average
Yield/
Rate
Assets:                                
Loans (net of unearned income
  and deferred costs), excluding 
  nonaccrual loans
$8,096,908  $102,495  5.02% $8,075,054  $102,366  5.08% $7,825,065  $97,705  4.95%
Taxable investment securities1,266,447  9,087  2.87% 1,170,215  8,346  2.85% 1,022,051  6,402  2.51%
Tax-exempt investment securities121,738  997  3.28% 90,942  756  3.33% 82,235  766  3.73%
Total securities1,388,185  10,084  2.91% 1,261,157  9,102  2.89% 1,104,286  7,168  2.60%
Interest-bearing deposits711,030  3,745  2.09% 698,649  4,016  2.31% 450,455  2,148  1.89%
Loans held for sale408,377  3,956  3.87% 281,775  3,007  4.27% 346,806  4,012  4.63%
Total earning assets10,604,500  120,280  4.50% 10,316,635  118,491  4.61% 9,726,612  111,033  4.53%
Less: allowance for loan losses(54,858)     (53,386)     (50,144)    
Total nonearning assets1,295,640      1,269,029      1,168,102     
Total assets$11,845,282      $11,532,278      $10,844,570     
Liabilities and Equity:                 
Interest-bearing deposits                 
Demand and money market$3,379,888  $7,223  0.85% $3,312,313  $7,025  0.85% $2,957,037  $4,217  0.57%
Savings278,048  702  1.00% 281,221  929  1.33% 301,311  984  1.30%
Certificates of deposit2,641,681  15,627  2.35% 2,433,479  13,830  2.28% 2,147,338  9,339  1.73%
Total interest-bearing deposits6,299,617  23,552  1.48% 6,027,013  21,784  1.45% 5,405,686  14,540  1.07%
Borrowings486,644  2,020  1.62% 678,799  3,318  1.93% 920,380  4,195  1.78%
Subordinated debt, net248,210  2,962  4.77% 248,064  2,962  4.78% 247,615  2,962  4.78%
Total interest-bearing liabilities7,034,471  28,534  1.61% 6,953,876  28,064  1.62% 6,573,681  21,697  1.31%
Demand deposits2,940,370      2,788,596      2,615,946     
Other noninterest-bearing liabilities250,371      215,951      166,575     
Total liabilities10,225,212      9,958,423      9,356,202     
Shareholders’ equity1,620,070      1,573,855      1,488,368     
Total liabilities and equity$11,845,282      $11,532,278      $10,844,570     
Net interest income (tax-equivalent basis)  $91,746      $90,427      $89,336   
Reconcilement of Non-GAAP Financial Measures                
Tax-equivalent basis adjustment  (643)     (608)     (639)  
Net interest income (GAAP)  $91,103      $89,819      $88,697   
                  
Interest rate spread (1)(3)    2.89%     2.99%     3.22%
Interest expense as a percent of average earning assets   1.07%     1.09%     0.89%
Net interest margin (tax equivalent basis) (2)(3)   3.43%     3.52%     3.64%
Total cost of deposits    1.01%     0.99%     0.72%
                  

(1) Interest spread is the average yield earned on earning assets less the average rate paid on interest-bearing liabilities.  Fully tax equivalent.
(2) Net interest margin is net interest income expressed as a percentage of average earning assets.  Fully tax equivalent.
(3) Non-GAAP.

TOWNEBANK
Average Balances, Yields and Rate Paid (unaudited) 
(dollars in thousands) 
 
 Nine Months Ended
September 30, 2019
 Nine Months Ended
September 30, 2018
 Nine Months Ended September 30,
2019 Compared with 2018
 Average Interest 
Income/
 Average
Yield/
 Average Interest 
Income/
 Average
Yield/
 Increase Change due to 
 Balance Expense Rate
 Balance Expense Rate
 (Decrease) Rate Volume
Assets:                                 
Loans (net of unearned income
  and deferred costs), excluding 
  nonaccrual loans
$8,067,894  $305,007  5.05% $7,447,463  $273,162  4.90% $31,845  $8,578  $23,267 
Taxable investment securities1,158,611  24,962  2.87% 971,117  17,214  2.36% 7,748  4,086  3,662 
Tax-exempt investment securities97,485  2,519  3.45% 79,404  2,174  3.65% 345  (128) 473 
Total securities1,256,096  27,481  2.92% 1,050,521  19,388  2.46% 8,093  3,958  4,135 
Interest-bearing deposits700,840  11,758  2.24% 521,361  6,670  1.71% 5,088  2,416  2,672 
Loans held for sale290,384  8,966  4.12% 302,102  9,948  4.39% (982) (605) (377)
Total earning assets10,315,214  353,212  4.58% 9,321,447  309,168  4.43% 44,044  14,347  29,697 
Less: allowance for loan losses(53,703)     (48,044)          
Total nonearning assets1,264,976      1,140,173           
Total assets$11,526,487      $10,413,576           
Liabilities and Equity:                 
Interest-bearing deposits                 
Demand and money market$3,289,539  $20,488  0.83% $2,893,096  $10,788  0.50% $9,700  $8,053  $1,647 
Savings281,562  2,658  1.26% 305,570  2,802  1.23% (144) 81  (225)
Certificates of deposit2,456,360  41,364  2.25% 1,998,427  22,057  1.48% 19,307  13,447  5,860 
Total interest-bearing deposits6,027,461  64,510  1.43% 5,197,093  35,647  0.92% 28,863  21,581  7,282 
Borrowings661,216  9,559  1.91% 889,885  10,899  1.62% (1,340) 1,757  (3,097)
Subordinated debt, net248,064  8,885  4.78% 252,220  9,105  4.81% (220) (71) (149)
Total interest-bearing liabilities6,936,741  82,954  1.60% 6,339,198  55,651  1.17% 27,303  23,267  4,036 
Demand deposits2,787,727      2,471,906           
Other noninterest-bearing
  liabilities
221,806      166,928           
Total liabilities9,946,274      8,978,032           
Shareholders’ equity1,580,213      1,435,544           
Total liabilities and equity$11,526,487      $10,413,576           
Net interest income (tax-equivalent basis)  $270,258      $253,517    $16,741  $(8,920) $25,661 
Reconcilement of Non-GAAP Financial Measures                
Tax-equivalent basis adjustment  (1,862)     (1,652)   (210)    
Net interest income (GAAP)  $268,396      $251,865    $16,531     
                  
Interest rate spread (1)(3)    2.98%     3.26%      
Interest expense as a percent of average earning assets    1.08%     0.80%      
Net interest margin (tax equivalent basis) (2)(3)    3.50%     3.64%      
Total cost of deposits    0.98%     0.62%      
                  

(1) Interest spread is the average yield earned on earning assets less the average rate paid on interest-bearing liabilities.  Fully tax equivalent.
(2) Net interest margin is net interest income expressed as a percentage of average earning assets.  Fully tax equivalent.
(3) Non-GAAP.

TOWNEBANK
Consolidated Balance Sheets
(dollars in thousands, except share data)
  
 September 30, December 31,
 2019 2018
 (unaudited) (audited)
ASSETS
   
Cash and due from banks$124,439  $94,604 
Interest-bearing deposits at Federal Reserve Bank675,288  570,425 
Interest-bearing deposits in financial institutions21,663  21,667 
Total Cash and Cash Equivalents821,390  686,696 
Securities available for sale, at fair value1,337,395  1,095,339 
Securities held to maturity, at amortized cost44,494  50,598 
Other equity securities5,697  4,797 
Federal Home Loan Bank stock26,282  43,229 
Total Securities1,413,868  1,193,963 
Mortgage loans held for sale456,719  220,986 
Loans, net of unearned income and deferred costs8,182,829  8,018,233 
Less: allowance for loan losses(55,428) (52,094)
Net Loans8,127,401  7,966,139 
Premises and equipment, net231,060  211,796 
Goodwill446,423  433,658 
Other intangible assets, net57,404  58,752 
Bank-owned life insurance policies241,652  237,371 
Other assets225,374  153,669 
TOTAL ASSETS$12,021,291  $11,163,030 
    
LIABILITIES AND EQUITY   
Deposits:   
Noninterest-bearing demand$3,030,505  $2,622,761 
Interest-bearing:   
Demand and money market accounts3,534,252  3,223,215 
Savings280,552  286,684 
Certificates of deposit2,592,705  2,237,762 
Total Deposits9,438,014  8,370,422 
Advances from the Federal Home Loan Bank381,846  799,315 
Subordinated debt, net248,309  247,861 
Repurchase agreements and other borrowings42,971  47,156 
Total Borrowings673,126  1,094,332 
Other liabilities271,617  159,856 
TOTAL LIABILITIES10,382,757  9,624,610 
Preferred stock   
Authorized and unissued shares - 2,000,000   
Common stock, $1.667 par: 150,000,000 shares authorized   
72,633,517 and 72,465,923 shares issued at   
September 30, 2019 and December 31, 2018, respectively121,080  120,801 
Capital surplus1,039,156  1,034,676 
Retained earnings445,186  379,239 
Common stock issued to deferred compensation trust, at cost   
811,340 and 769,200 shares at   
September 30, 2019 and December 31, 2018, respectively(15,317) (13,955)
Deferred compensation trust15,317  13,955 
Accumulated other comprehensive income (loss)19,958  (9,190)
TOTAL SHAREHOLDERS’ EQUITY1,625,380  1,525,526 
Noncontrolling interest13,154  12,894 
TOTAL EQUITY1,638,534  1,538,420 
TOTAL LIABILITIES AND EQUITY$12,021,291  $11,163,030 


TOWNEBANK
Consolidated Statements of Income (unaudited)
(dollars in thousands, except per share data)
        
 Three Months Ended Nine Months Ended
  September 30,   September 30,
 2019
 2018
 2019
 2018
INTEREST INCOME:               
Loans, including fees$102,047  $97,215  $303,616  $271,897 
Investment securities9,889  7,019  27,010  19,001 
Interest-bearing deposits in financial institutions and federal funds sold3,745  2,148  11,758  6,670 
Mortgage loans held for sale3,956  4,012  8,966  9,948 
Total interest income119,637  110,394  351,350  307,516 
INTEREST EXPENSE: