Press Release

TowneBank Reports Full Year and Fourth Quarter financial Results for 2019

20th Consecutive Year of Earnings Improvement

Company Release - 1/23/2020 8:30 AM ET

SUFFOLK, Va., Jan. 23, 2020 (GLOBE NEWSWIRE) -- TowneBank (the “Company”) (Nasdaq: TOWN) today reported financial results for the full year and the fourth quarter ended December 31, 2019.  For the year ended December 31, 2019, earnings were $138.78 million, or $1.92 per diluted share, compared to $133.79 million, or $1.88 per diluted share for the year ended December 31, 2018.  Earnings in the fourth quarter of 2019 were $35.08 million, or $0.49 per diluted share, compared to fourth quarter 2018 earnings of $35.99 million, or $0.50 per diluted share.

“In spite of downward pressure on interest rates our Company grew total revenues by 6% climbing to a record $564 million.  Our continued focus on attracting noninterest bearing deposits produced an increase of 13% or $328 million during the year and represents approximately 32% of our total deposits.  We are excited about the momentum we are building in North Carolina with our newest office in Greensboro recently opened and several new sites planned for the Charlotte market in 2020,” said G. Robert Aston, Jr., Executive Chairman.

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

  • Total revenues were $139.67 million, an increase of $8.25 million, or 6.28%.
  • Loans held for investment increased $401.06 million, or 5.00%, from December 31, 2018, and $236.46 million, or 2.89%, from September 30, 2019, or 11.46% on an annualized basis.
  • Total deposits were $9.27 billion, an increase of $0.90 billion, or 10.76%, compared to prior year but a decrease, due to expected runoff and seasonality, of $0.17 billion, or 1.77%, from September 30, 2019, or a decline of 7.02% on an annualized basis.
  • Noninterest bearing deposits increased by 12.52%, to $2.95 billion, representing 31.83% of total deposits.  Compared to the linked quarter, noninterest bearing deposits decreased 2.62%, or 10.38% on an annualized basis.
  • In the quarter comparison, annualized return on average common shareholders' equity was 8.51% and annualized return on average tangible common shareholders' equity was 13.12% (non-GAAP).  For the full 12 months, return on average common shareholders' equity was 8.75% and return on average tangible common shareholders' equity was 13.73% (non-GAAP).
  • Net interest margin of 3.33% and taxable equivalent net interest margin of 3.35% (non-GAAP).
  • Effective tax rate of 18.17% compared to 22.33% at December 31, 2018.

“We ended 2019 on a positive note with a strong loan growth across our footprint.  We are excited about the planned expansion in North Carolina and opportunities to add Banking, Wealth Management, Mortgage and Insurance talent in each of the markets we serve.  2020 will be an exciting year as we implement a state of the art banking platform to better serve the needs of our members,” said J. Morgan Davis, President and Chief Executive Officer.

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

  • Net interest income was $89.96 million compared to $89.21 million for the quarter ended December 31, 2018.
  • Taxable equivalent net interest margin was 3.35%, including accretion of 9 basis points, compared to 3.55%, including accretion of 12 basis points, for 2018.
  • Average loans held for investment, with an average yield of 4.81%, represented 77.25% of average earning assets in the fourth quarter of 2019 compared to an average yield of 5.00% and 79.04% of average earning assets in the fourth quarter of 2018.
  • Total cost of deposits increased to 0.92% from 0.83% at December 31, 2018.
  • Average interest-earning assets totaled $10.72 billion at December 31, 2019 compared to $10.02 billion at December 31, 2018, an increase of 6.96%.
  • Average interest-bearing liabilities totaled $7.06 billion, an increase of $0.23 billion from the prior year.
  • Total interest expense increased 5.65%, to $26.52 million in fourth quarter 2019 compared to $25.10 million in fourth quarter 2018, but decreased $2.02 million, or 7.07%, compared to the linked quarter.  The average cost of deposits declined in fourth quarter 2019 after peaking in the third quarter.

Quarterly Provision for Loan Losses:

  • Recorded a provision for loan losses of $3.60 million compared to $2.29 million one year ago and $1.51 million in the linked quarter, driven by strong fourth quarter 2019 growth.
  • Net charge-offs were $0.80 million compared to $0.43 million one year prior.  The ratio of net charge-offs to average loans on an annualized basis was 0.04% compared to 0.03% in the prior quarter and 0.02% for the fourth quarter of 2018.
  • The allowance for loan losses represented 0.69% of total loans compared to 0.68% at September 30, 2019 and 0.65% at December 31, 2018.  Loan loss reserve as a percentage of total loans, excluding purchased loans, remained unchanged at 0.81%, from September 30, 2019, and decreased from 0.82% at December 31, 2018.  The allowance for loan losses was 3.34 times nonperforming loans compared to 3.95 times at September 30, 2019 and 10.97 times at December 31, 2018.

Quarterly Noninterest Income Compared to the Fourth Quarter of 2018:

  • Total noninterest income was $49.71 million compared to $42.21 million in 2018, an increase of $7.50 million, or 17.78%.  Residential mortgage brokerage income increased $2.93 million, insurance commissions increased $1.79 million, and real estate brokerage and property management income increased $0.76 million.
  • Residential mortgage banking income was $15.88 million compared to $12.95 million in fourth quarter 2018.  Loan volume in the current quarter was $860.16 million, with purchase activity comprising 70.32%.  Loan volume in fourth quarter 2018 was $600.07 million, with purchase activity of 88.64%.  Loan volume in the linked quarter was $963.66 million with purchase activity of 68.83%.
  • Total Insurance segment revenue increased $3.96 million, or 24.88%, to $19.88 million in the fourth quarter of 2019.  Revenue generated by insurance agencies acquired in January 2019 and September 2019 totaled $1.40 million in the fourth quarter of 2019.
  • Property management fee revenue increased 10.21%, or $0.39 million, as compared to fourth quarter 2018 due to increases in reservation levels.
  • Bank owned life insurance and other noninterest income increased $2.62 million, or 44.84%, as compared to fourth quarter 2018 due to proceeds from life insurance policies and investment commission income.

Quarterly Noninterest Expense Compared to the Fourth Quarter of 2018:

  • Total noninterest expense was $92.34 million compared to $82.34 million, an increase of $10.00 million, or 12.14%.  This reflects increases of $5.78 million in salary and benefits expense, $0.96 million in professional fees expense, and $0.29 million in advertising and marketing expenses.
  • The Bank recorded small bank assessment credits from the FDIC of $1.66 million in the fourth quarter of 2019.
  • 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 in