Press Release

TowneBank Reports First Quarter 2020 Earnings

Company Release - 4/27/2020 8:30 AM ET

SUFFOLK, Va., April 27, 2020 (GLOBE NEWSWIRE) -- TowneBank (the “Company”) (NASDAQ: TOWN) today reported earnings for the quarter ended March 31, 2020 of $26.38 million, or $0.36 per diluted share, compared to $31.41 million, or $0.44 per diluted share, for the quarter ended March 31, 2019.

“Our Company began 2020 on strong footing with loan demand exceeding expectations.  However, traditional performance measures such as growth and profitability were temporarily superseded by challenges that are unprecedented in the history of this country.  Our slogan of “Serving Others and Enriching Lives” emerged center stage as we engaged our members, communities and colleagues to understand how we can help them navigate the current environment.  Through our participation in the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), we assisted our members with nearly 5,000 loans totaling $1 billion while also providing safe access to our banking offices and providing work at home solutions for a large number of Towne teammates.  Our strong liquidity and capital positions enabled us to help our members manage through these difficult times,” said G. Robert Aston, Jr., Executive Chairman.

Highlights for the First Quarter of 2020 Compared to the First Quarter of 2019:

  • Total revenues were $137.70 million, an increase of $3.84 million, or 2.87%.
  • Loans held for investment increased $678.83 million, or 8.38%, from March 31, 2019, and $364.91 million, or 4.33%, from December 31, 2019, or 17.43% on an annualized basis.
  • Total deposits were $9.31 billion, an increase of $0.58 billion, or 6.60%, compared to prior year and $0.04 billion, or 0.40%, from December 31, 2019, or 1.61% on an annualized basis.
  • Noninterest bearing deposits increased by 8.77%, to $3.06 billion, representing 32.88% of total deposits.  Compared to the linked quarter, noninterest bearing deposits increased 3.70%, or 14.89% on an annualized basis.
  • Annualized return on common shareholders' equity was 6.42% and annualized return on average tangible common shareholders' equity was 10.01% (non-GAAP).
  • Net interest margin for the quarter was 3.35% and taxable equivalent net interest margin was 3.37% (non-GAAP).
  • Effective tax rate of 19.00% in the quarter compared to 20.72% in the first quarter of 2019.

“Now more than ever it is important to know Your Banker; not your Bank.  Our style of Hometown Banking was redefined when social distancing and quarantines became daily buzz-words in our vocabulary, workplace and social activities.  Under challenging conditions our colleagues are providing uninterrupted services and offering solutions to help businesses and households.  We appreciate the trust and confidence of the communities we serve and our stakeholders,” stated J. Morgan Davis, President and Chief Executive Officer.

Quarterly Net Interest Income Compared to the First Quarter of 2019:

  • Net interest income was $89.50 million compared to $87.47 million at March 31, 2019.
  • Taxable equivalent net interest margin (non-GAAP) was 3.37%, including accretion of 13 basis points, compared to 3.57%, including accretion of 11 basis points, for 2019.
  • Average loans held for investment, with an average yield of 4.73%, represented 79.60% of average earning assets at March 31, 2020 compared to an average yield of 5.06% and 80.16% of average earning assets in the first quarter of 2019.
  • Total cost of deposits decreased to 0.83% from 0.93% at March 31, 2019.
  • Average interest-earning assets totaled $10.74 billion at March 31, 2020 compared to $10.02 billion at March 31, 2019, an increase of 7.22%.
  • Average interest-bearing liabilities totaled $7.16 billion, an increase of $0.34 billion from prior year.

Quarterly Provision for Credit Losses:

  • Effective January 1, 2020, we adopted the current expected credit loss (CECL) accounting standard, which requires an allowance for loans and unfunded commitments, as well as credit losses for debt securities.  The cumulative effect adjustment from the change in accounting policies resulted in an increase in our allowance of $3.01 million for loans and unfunded commitments and $0.23 million for debt securities, with a corresponding decrease in retained earnings (pre-tax).
  • Recorded a quarterly provision for credit losses for on-balance sheet loans of $5.76 million compared to $1.44 million one year ago and $3.60 million in the linked quarter.  This increase is primarily attributable to forecasted credit weaknesses due to deteriorating economic conditions driven by the current COVID-19 pandemic.  Expected loss estimates consider the impacts of decreased economic activity and higher unemployment and the mitigating benefits of government stimulus and industry wide loan modification efforts.
  • Net loan charge-offs were $0.56 million compared to $0.23 million one year prior.  The ratio of net loan charge-offs to average loans on an annualized basis was 0.03% compared to 0.04% in the linked quarter and 0.01% in the first quarter of 2019.
  • Recorded a provision for credit losses on off-balance sheet commitments of $1.10 million.
  • Recorded a provision for credit losses on debt securities of $0.16 million.
  • The on-balance sheet allowance for loan losses represented 0.73% of total loans compared to 0.69% at December 31, 2019 and 0.66% at March 31, 2019.  The allowance for on-balance sheet loan losses was 3.85 times nonperforming loans compared to 3.34 times at December 31, 2019 and 9.36 times at March 31, 2019.

Quarterly Noninterest Income Compared to the First Quarter of 2019:

  • Total noninterest income was $48.20 million compared to $46.38 million in 2019, an increase of $1.82 million, or 3.92%.  Insurance commissions and other title fees increased $1.31 million in the quarter, while residential mortgage banking income decreased $6.09 million, real estate brokerage and property management income decreased $2.33 million, and service charges on deposit accounts decreased $0.42 million.  Also included in noninterest income are net gains on investment securities of $5.00 million as compared to net losses of $0.78 million in the prior year.
  • Residential mortgage banking recorded income of $7.42 million compared to $13.51 million in first quarter 2019.  Loan volume in the current quarter was $923.20 million, with purchase activity comprising 61.31% of that volume.  Loan volume in first quarter 2019 was $513.53 million, with purchase activity of 86.08%. The notable increase in income from loan production between periods, was partially offset by net losses on derivative instruments of $10.89 million for the quarter.
  • Total Insurance segment revenue increased 9.42% to $20.24 million in the first quarter due to organic growth and additional income from a third quarter 2019 agency acquisition.
  • Property management fee revenue decreased 34.19%, or $2.64 million, as compared to first quarter 2019 due to decreases in reservation levels driven by current travel restrictions related to COVID-19.
  • Bank owned life insurance and other noninterest income increased $3.58 million, or 75.23%, as compared to first quarter 2019 due to proceeds from life insurance policies and investment commission income.

Quarterly Noninterest Expense Compared to the First Quarter of 2019:

  • Total noninterest expense was $96.89 million compared to $92.12 million in 2019, an increase of $4.77 million, or 5.17%.  This reflects increases of $3.01 million in salary and benefits expense, $0.76 million in advertising and marketing, $0.75 million in software expense, $0.39 million in professional fees, $0.27 million in furniture and equipment expense, and a decline in occupancy expense of $0.75 million.
  • Market expansion and infrastructure enhancements, that occurred after first quarter 2019, have resulted in generally higher levels of salary and benefits expense, software expense, and professional fees.  Advertising and marketing increased due to focused advertising in our new North Carolina markets.  The decline in occupancy expense is attributable to one time expenses related to the adoption of the new leasing standard in first quarter 2019.

Quarterly Income Taxes Compared to the First Quarter of 2019:

  • Income tax expense was $6.19 million compared to $8.21 million one year prior.  This represents an effective tax rate of 19.00% compared to 20.72% in the first quarter of 2019.

Consolidated Balance Sheet Highlights:

  • Total assets were $12.62 billion for the quarter ended March 31, 2020, an increase of 5.66%, or 22.51% on an annualized basis, compared to $11.95 billion at December 31, 2019.  Total assets increased $1.06 billion, or 9.12%, from $11.57 billion at March 31, 2019.  The linked quarter increase was driven primarily by growth in cash and cash equivalents and loans held for investment.
  • Loans held for investment increased $0.36 billion, or 4.33%, or 17.43% on an annualized basis, compared to year end 2019.
  • Mortgage loans held for sale increased $33.91 million, or 8.09%, over December 31, 2019.
  • Total deposits increased $37.08 million, or 0.40%, or 1.61% on an annualized basis, over December 31, 2019.
  • Total borrowings increased $0.62 billion, or 80.17%, from December 31, 2019.  This increase was primarily attributable to the Company taking actions to shore up liquidity sources in response to the current economic environment.

Investment Securities:

  • Total investment securities were $1.35 billion compared to $1.52 billion at December 31, 2019 and $1.20 billion at March 31, 2019.  The weighted average duration of the portfolio at March 31, 2020 was 4.31 years.  The Company established credit loss reserves related to the HTM and AFS debt securities portfolios of $0.39 million during the quarter.  The carrying value of the AFS debt securities portfolio included $20.70 million in net unrealized gains compared to $19.73 million at December 31, 2019.  During the first quarter of 2020, we sold $211.70 million in AFS debt securities at a gain of $5.00 million, in order to take advantage of interest rate fluctuations in the market in response to concerns over COVID-19.

Loans and Asset Quality:

  • Total loans held for investment were $8.78 billion at March 31, 2020 compared to $8.42 billion at December 31, 2019 and $8.11 billion at March 31, 2019.
  • Nonperforming assets were $29.75 million, or 0.24% of total assets, compared to $24.99 million, or 0.22%, at March 31, 2019.
  • Nonperforming loans were 0.19% of period end loans.
  • Foreclosed property decreased to $13.05 million from $17.07 million at March 31, 2019.  The Company sold the remainder of its former bank premises during the first quarter of 2020 for a reduction of $2.22 million compared to March 31, 2019.
  • Expected loss estimates are subject to change based on continuing review of models and assumptions, portfolio performance, changes in forecasted macroeconomic conditions and loan mix which could result in material additions to the reserve in future periods.

Deposits and Borrowings:

  • Total deposits were $9.31 billion compared to $9.27 billion at December 31, 2019 and $8.73 billion at March 31, 2019.
  • Total loans to deposits were 94.37% compared to 90.81% at December 31, 2019 and 92.83% at March 31, 2019.
  • Non-interest bearing deposits were 32.88% of total deposits at March 31, 2020 compared to 31.83% at December 31, 2019 and 32.23% at March 31, 2019.
  • Total borrowings were $1.39 billion compared to $0.77 billion and $1.03 billion at December 31, 2019 and March 31, 2019, respectively.

Capital:

  • Common equity tier 1 capital ratio of 10.98%.
  • Tier 1 leverage capital ratio of 10.11%.
  • Tier 1 risk-based capital ratio of 11.10%.
  • Total risk-based capital ratio of 14.07%.
  • Book value was $22.77 compared to $22.58 at December 31, 2019 and $21.40 at March 31, 2019.
  • Tangible book value (non-GAAP) was $15.91 compared to $15.69 at December 31, 2019 and $14.46 at March 31, 2019.

About TowneBank:
As one of the top community banks in Virginia and North Carolina, TowneBank operates 42 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, Greensboro, Greenville, Moyock, Grandy, Camden County, Southern Shores, Corolla, Duck 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 $12.62 billion as of March 31, 2020, 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: the impacts of the ongoing coronavirus (COVID-19) pandemic, 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
  March 31, December 31, September 30, June 30, March 31,
 2020 2019 2019 2019 2019
Income and Performance Ratios:         
 Total Revenue$137,696  $139,671  $145,879  $144,537  $133,854 
 Net income27,605  35,948  39,400  36,242  32,082 
 Net income attributable to TowneBank26,384  35,075  37,659  34,638  31,409 
 Net income per common share - diluted0.36  0.49  0.52  0.48  0.44 
 Book value per common share22.77  22.58  22.38  21.95  21.4 
 Book value per common share - tangible (non-GAAP)15.91  15.69  15.44  15.05  14.46 
 Return on average assets0.88% 1.16% 1.26% 1.2% 1.14%
 Return on average assets - tangible (non-GAAP)1% 1.3% 1.4% 1.35% 1.29%
 Return on average equity6.37% 8.44% 9.22% 8.83% 8.24%
 Return on average equity - tangible (non-GAAP)9.91% 12.97% 14.2% 13.9% 13.24%
 Return on average common equity6.42% 8.51% 9.29% 8.89% 8.3%
 Return on average common equity - tangible (non-GAAP)10.01% 13.12% 14.36% 14.05% 13.39%
 Noninterest income as a percentage of total revenue35% 35.59% 37.55% 37.86% 34.65%
           
Regulatory Capital Ratios (1):         
 Common equity tier 110.98% 11.46% 11.52% 11.58% 11.49%
 Tier 111.1% 11.49% 11.55% 11.62% 11.52%
 Total14.07% 14.58% 14.7% 14.85% 14.79%
 Tier 1 leverage ratio10.11% 9.95% 9.84% 9.86% 9.92%
           
Asset Quality:         
 Allowance for credit losses on loans to nonperforming loans3.85x 3.34x 3.95x 3.00x 9.36x
 Allowance for credit losses on loans to period end loans0.73% 0.69% 0.68% 0.67% 0.66%
 Nonperforming loans to period end loans0.19% 0.21% 0.17% 0.22% 0.07%
 Nonperforming assets to period end assets0.24% 0.27% 0.26% 0.29% 0.22%
 Net charge-offs to average loans (annualized)0.03% 0.04% 0.03% 0.08% 0.01%
           
 Nonperforming loans$16,700  $17,437  $14,016  $18,202  $5,696 
 Former bank premises  1,521  1,510  1,510  2,223 
 Foreclosed property13,053  13,839  15,517  14,517  17,071 
 Total nonperforming assets$29,753  $32,797  $31,043  $34,229  $24,990 
 Loans past due 90 days and still accruing interest$91  $309  $636  $415  $117 
           
 Allowance for credit losses on loans$64,372  $58,234  $55,428  $54,527  $53,303 
           
Mortgage Banking:         
 Loans originated, mortgage$718,681  $628,279  $703,922  $574,638  $366,643 
 Loans originated, joint venture204,522  231,879  259,742  246,491  146,884 
 Total loans originated$923,203  $860,158  $963,664  $821,129  $513,527 
 Number of loans originated3,025  2,984  3,360  3,121  1,977 
 Number of originators221  217  225  229  240 
 Purchase %61.31% 70.32% 68.83% 84.97% 86.08%
 Loans sold$809,834  $879,910  $925,058  $694,832  $473,068 
 Gross realized gain on sales and fees as a % of loans originated1.8% 3.38% 3.45% 3.43% 3.58%
           
Other Ratios:         
 Net interest margin3.35% 3.33% 3.41% 3.49% 3.54%
 Net interest margin-fully tax equivalent (non-GAAP)3.37% 3.35% 3.43% 3.52% 3.57%
 Average earning assets/total average assets89.15% 89.57% 89.53% 89.46% 89.5%
 Average loans/average deposits92.99% 88.41% 87.63% 91.6% 95.83%
 Average noninterest deposits/total average deposits32.21% 32.14% 31.82% 31.63% 31.39%
 Period end equity/period end total assets13.19% 13.84% 13.63% 13.45% 13.53%
 Efficiency ratio73.02% 66.11% 66.66% 66.8% 68.43%
           
 (1) Current reporting period regulatory capital ratios are preliminary 


 
TOWNEBANK
Selected Data (unaudited)
(dollars in thousands)
 
Investment Securities      % Change
 Q1 Q1 Q4 Q1 20 vs. Q1 20 vs.
Available-for-sale securities, at fair value2020 2019 2019 Q1 19 Q4 19
U.S. agency securities$121,857  $260,152  $129,038  (53.16)% (5.57)%
U.S.Treasury notes1,014  2,229  1,000  (54.51)% 1.40%
Municipal securities266,489  107,278  223,106  148.41% 19.45%
Trust preferred and other corporate securities59,606  35,003  53,367  70.29% 11.69%
Mortgage-backed securities issued by GSE and GNMA799,713  695,115  1,034,797  15.05% (22.72)%
Allowance for credit losses(259) n/a n/a n/a n/a
Total$1,248,420  $1,099,777  $1,441,308  13.52% (13.38)%
          
Gross unrealized gains (losses) reflected in financial statements      
Total gross unrealized gains$30,545  $6,736  $23,950  353.46% 27.54%
Total gross unrealized losses(9,848) (8,955) (4,215) 9.97% 133.64%
Net unrealized gains (losses) and other adjustments on AFS securities$20,697  $(2,219) $19,735     
          
Held-to-maturity securities, at amortized cost         
Municipal securities$28,852  $34,472  $29,167  (16.30)% (1.08)%
Trust preferred corporate securities2,357  500  2,369  371.40% (0.51)%
Mortgage-backed securities issued by GSE and GNMA11,222  14,715  12,152  (23.74)% (7.65)%
Less: Allowance for credit losses(133) n/a n/a n/a n/a
Total$42,298  $49,687  $43,688  (14.87)% (3.18)%
          
Gross unrealized gains (losses) not reflected in financial statements        
Total gross unrealized gains$964  $1,445  $1,520  (33.29)% (36.58)%
Total gross unrealized losses  (410) (37) (100.00)% (100.00)%
Net unrealized gains (losses) in HTM securities$964  $1,035  $1,483     
          
Loans Held For Investment      % Change
 Q1 Q1 Q4 Q1 20 vs. Q1 20 vs.
 2020 2019 2019 Q1 19 Q4 19
Real estate - construction and development$1,060,834  $1,111,360  $1,120,533  (4.55)% (5.33)%
Commercial real estate - non owner occupied2,305,971  1,951,292  2,183,232  18.18% 5.62%
Commercial real estate - owner occupied1,398,216  1,279,039  1,329,144  9.32% 5.20%
Real estate - multifamily283,514  255,649  243,041  10.90% 16.65%
Real estate - residential 1-4 family and HELOC1,693,562  1,637,579  1,653,084  3.42% 2.45%
Commercial and industrial business1,636,244  1,547,623  1,574,275  5.73% 3.94%
Consumer and other loans405,854  322,828  315,979  25.72% 28.44%
Total$8,784,195  $8,105,370  $8,419,288  8.38% 4.33%
          
Deposits      % Change
 Q1 Q1 Q4 Q1 20 vs. Q1 20 vs.
 2020 2019 2019 Q1 19 Q4 19
Noninterest-bearing demand$3,060,515  $2,813,857  $2,951,225  8.77% 3.70%
Interest-bearing:         
Demand and money market accounts3,573,926  3,290,907  3,586,364  8.60% (0.35)%
Savings280,807  285,790  276,205  (1.74)% 1.67%
Certificates of deposits2,392,744  2,341,134  2,457,123  2.20% (2.62)%
Total$9,307,992  $8,731,688  $9,270,917  6.60% 0.40%


 
TOWNEBANK
Average Balances, Yields and Rate Paid (unaudited)
(dollars in thousands)
 
 Three Months Ended Three Months Ended Three Months Ended
 March 31, 2020 December 31, 2019 March 31, 2019
   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$8,550,216  $100,566  4.73% $8,283,388  $100,504  4.81% $8,030,994  $100,146  5.06%
  and deferred costs), excluding
  nonaccrual loans
Taxable investment securities1,356,411  9,211  2.72% 1,331,175  9,179  2.76% 1,036,645  7,529  2.91%
Tax-exempt investment securities128,204  861  2.69% 118,298  908  3.07% 79,310  765  3.86%
Total securities1,484,615  10,072  2.71% 1,449,473  10,087  2.78% 1,115,955  8,294  2.97%
Interest-bearing deposits373,984  1,102  1.19% 519,737  2,067  1.58% 693,365  3,998  2.34%
Loans held for sale333,070  2,988  3.59% 469,725  4,413  3.76% 178,475  2,003  4.49%
Total earning assets10,741,885  114,728  4.3% 10,722,323  117,071  4.33% 10,018,789  114,441  4.63%
Less: allowance for credit losses(55,331)     (56,766)     (52,844)    
Total nonearning assets1,362,769      1,305,036      1,228,808     
Total assets$12,049,323      $11,970,593      $11,194,753     
Liabilities and Equity:                 
Interest-bearing deposits                 
Demand and money market$3,521,707  $5,319  0.61% $3,533,912  $6,421  0.72% $3,174,157  $6,240  0.8%
Savings276,947  593  0.86% 278,910  638  0.91% 285,499  1,027  1.46%
Certificates of deposit2,434,098  13,150  2.17% 2,544,845  14,685  2.29% 2,290,056  11,907  2.11%
Total interest-bearing deposits6,232,752  19,062  1.23% 6,357,667  21,744  1.36% 5,749,712  19,174  1.35%
Borrowings679,745  2,581  1.5% 454,621  1,810  1.56% 821,889  4,221  2.05%
Subordinated debt, net248,510  2,962  4.77% 248,361  2,962  4.77% 247,913  2,962  4.78%
Total interest-bearing liabilities7,161,007  24,605  1.38% 7,060,649  26,516  1.49% 6,819,514  26,357  1.57%
Demand deposits2,962,110      3,011,688      2,630,813     
Other noninterest-bearing liabilities260,500      250,327      198,527     
Total liabilities10,383,617      10,322,664      9,648,854     
Shareholders’ equity1,665,706      1,647,929      1,545,899     
Total liabilities and equity$12,049,323      $11,970,593      $11,194,753     
Net interest income (tax-equivalent basis)  $90,123      $90,555      $88,084   
Reconcilement of Non-GAAP Financial Measures                
Tax-equivalent basis adjustment  (627)     (596)     (611)  
Net interest income (GAAP)  $89,496      $89,959      $87,473   
                  
Interest rate spread (1)(3)    2.92%     2.84%     3.06%
Interest expense as a percent of average earning assets   0.92%     0.98%     1.07%
Net interest margin (tax equivalent basis) (2)(3)   3.37%     3.35%     3.57%
Total cost of deposits    0.83%     0.92%     0.93%


(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)
  
   
 March 31, December 31,
 2020 2019
 (unaudited) (audited)
ASSETS   
Cash and due from banks$108,929  $97,593 
Interest-bearing deposits at FRB - Richmond753,643  322,505 
Interest-bearing deposits in financial institutions23,564  22,518 
Total Cash and Cash Equivalents886,136  442,616 
Securities available for sale, at fair value (amortized cost $1,227,982, allowance for credit losses of $259) (1)1,248,420  1,441,308 
Securities held to maturity, at amortized cost (fair value $43,395 )(1)42,431  43,688 
Less: allowance for credit losses(133)  
Securities held to maturity, net of allowance for credit losses42,298  43,688 
Other equity securities6,462  6,462 
FHLB stock52,042  30,094 
Total Securities1,349,222  1,521,552 
Mortgage loans held for sale453,143  419,233 
Loans, net of unearned income and deferred costs8,784,195  8,419,288 
Less: allowance for credit losses(64,372) (58,234)
Net Loans8,719,823  8,361,054 
Premises and equipment, net236,735  231,806 
Goodwill446,725  446,816 
Other intangible assets, net51,448  54,399 
BOLI240,924  243,062 
Other assets239,670  227,125 
TOTAL ASSETS$12,623,826  $11,947,663 
    
LIABILITIES AND EQUITY   
Deposits:   
Noninterest-bearing demand$3,060,515  $2,951,225 
Interest-bearing:   
Demand and money market accounts3,573,926  3,586,364 
Savings280,807  276,205 
Certificates of deposit2,392,744  2,457,123 
Total Deposits9,307,992  9,270,917 
Advances from the FHLB971,527  471,687 
Subordinated debt, net248,607  248,458 
Repurchase agreements and other borrowings171,762  52,391 
Total Borrowings1,391,896  772,536 
Other liabilities258,306  250,516 
TOTAL LIABILITIES10,958,194  10,293,969 
Preferred stock   
Authorized and unissued shares - 2,000,000   
Common stock, $1.667 par: 150,000,000 shares authorized   
72,619,938 and 72,469,682 shares issued at   
March 31, 2020 and December 31, 2019, respectively121,057  121,107 
Capital surplus1,041,870  1,041,160 
Retained earnings477,972  467,186 
Common stock issued to deferred compensation trust, at cost   
811,419 and 818,578 shares at   
March 31, 2020 and December 31, 2019, respectively(15,562) (15,555)
Deferred compensation trust15,562  15,555 
Accumulated other comprehensive income (loss)12,301  11,302 
TOTAL SHAREHOLDERS’ EQUITY1,653,200  1,640,755 
Noncontrolling interest12,432  12,939 
TOTAL EQUITY1,665,632  1,653,694 
TOTAL LIABILITIES AND EQUITY$12,623,826  $11,947,663 
(1) For 2020, disclosures are presented in compliance with ASC 326.


 
TOWNEBANK
Consolidated Statements of Income (unaudited)
(dollars in thousands, except per share data)
    
    
 Three Months Ended
 March 31,
 2020 2019
INTEREST INCOME:   
Loans, including fees$100,062  $99,695 
Investment securities9,949  8,134 
Interest-bearing deposits in financial institutions and federal funds sold1,102  3,998 
Mortgage loans held for sale2,988  2,003 
Total interest income114,101  113,830 
INTEREST EXPENSE:   
Deposits19,062  19,174 
Advances from the FHLB2,492  4,153 
Subordinated debt, net2,962  2,962 
Repurchase agreements and other borrowings89  68 
Total interest expense24,605  26,357 
Net interest income89,496  87,473 
    
PROVISION FOR CREDIT LOSSES7,016  1,438 
Net interest income after provision for credit losses82,480  86,035 
NONINTEREST INCOME:   
Residential mortgage banking income, net7,416  13,508 
Insurance commissions and other title fees and income, net16,893  15,582 
Real estate brokerage and property management income, net6,938  9,268 
Service charges on deposit accounts2,440  2,861 
Credit card merchant fees, net1,179  1,183 
BOLI3,105  1,598 
Other income5,227  3,157 
Net gain/(loss) on investment securities5,002  (776)
Total noninterest income48,200  46,381 
NONINTEREST EXPENSE:   
Salaries and employee benefits55,867  52,860 
Occupancy expense7,502  8,251 
Furniture and equipment3,640  3,371 
Amortization - intangibles2,950  3,192 
Software expense3,492  2,745 
Data processing2,791  3,166 
Professional fees3,067  2,679 
Advertising and marketing3,584  2,829 
Other expenses13,995  13,030 
Total noninterest expense96,888  92,123 
Income before income tax expense and noncontrolling interest33,792  40,293 
Provision for income tax expense6,187  8,211 
Net income$27,605  $32,082 
Net income attributable to noncontrolling interest(1,221) (673)
Net income attributable to TowneBank$26,384  $31,409 
Per common share information   
Basic earnings$0.37  $0.44 
Diluted earnings$0.36  $0.44 
Cash dividends declared$0.18  $0.16 


 
TOWNEBANK
Consolidated Balance Sheets - Five Quarter Trend
(dollars in thousands, except share data)
 
          
 March 31, December 31, September 30, June 30, March 31,
 2020 2019 2019 2019 2019
 (unaudited) (audited) (unaudited) (unaudited) (unaudited)
ASSETS         
Cash and due from banks$108,929  $97,593  $124,439  $110,580  $104,091 
Interest-bearing deposits at FRB - Richmond753,643  322,505  675,288  834,505  775,208 
Interest-bearing deposits in financial institutions23,564  22,518  21,663  21,527  21,001 
Total Cash and Cash Equivalents886,136  442,616  821,390  966,612  900,300 
Securities available for sale, at fair value (amortized cost $1,227,982, allowance for credit losses of $259) (1)1,248,420  1,441,308  1,337,395  1,260,821  1,099,777 
Securities held to maturity, at amortized cost (fair value $43,395 )(1)42,431  43,688  44,494  50,574  49,687 
Less: allowance for credit losses(133)        
Securities held to maturity, net of allowance for credit losses42,298  43,688  44,494  50,574  49,687 
Other equity securities6,462  6,462  5,697  5,396  5,022 
FHLB stock52,042  30,094  26,282  32,657  41,464 
Total Securities1,349,222  1,521,552  1,413,868  1,349,448  1,195,950 
Mortgage loans held for sale453,143  419,233  456,719  362,773  247,021 
Loans, net of unearned income and deferred costs8,784,195  8,419,288  8,182,829  8,126,729  8,105,370 
Less: allowance for credit losses(64,372) (58,234) (55,428) (54,527) (53,303)
Net Loans8,719,823  8,361,054  8,127,401  8,072,202  8,052,067 
Premises and equipment, net236,735  231,806  231,060  230,177  227,458 
Goodwill446,725  446,816  446,423  442,881  442,881 
Other intangible assets, net51,448  54,399  57,404  58,391  61,333 
BOLI240,924  243,062  241,652  240,621  238,977 
Other assets239,670  227,125  225,374  219,375  202,276 
TOTAL ASSETS$12,623,826  $11,947,663  $12,021,291  $11,942,480  $11,568,263 
LIABILITIES AND EQUITY         
Deposits:         
Noninterest-bearing demand$3,060,515  $2,951,225  $3,030,505  $2,950,615  $2,813,857 
Interest-bearing:         
Demand and money market accounts3,573,926  3,586,364  3,534,252  3,409,322  3,290,907 
Savings280,807  276,205  280,552  277,495  285,790 
Certificates of deposit2,392,744  2,457,123  2,592,705  2,631,386  2,341,134 
Total Deposits9,307,992  9,270,917  9,438,014  9,268,818  8,731,688 
Advances from the FHLB971,527  471,687  381,846  532,004  739,160 
Subordinated debt, net248,607  248,458  248,309  248,160  248,010 
Repurchase agreements and other borrowings171,762  52,391  42,971  56,355  44,775 
Total Borrowings1,391,896  772,536  673,126  836,519  1,031,945 
Other liabilities258,306  250,516  271,617  230,691  238,974 
TOTAL LIABILITIES10,958,194  10,293,969  10,382,757  10,336,028  10,002,607 
Preferred stock         
Authorized shares - 2,000,000         
Common stock, $1.667 par value121,057  121,107  121,080  121,038  121,047 
Capital surplus1,041,870  1,041,160  1,039,156  1,036,982  1,035,563 
Retained earnings477,972  467,186  445,186  420,600  399,030 
Common stock issued to deferred compensation         
trust, at cost(15,562) (15,555) (15,317) (15,160) (14,067)
Deferred compensation trust15,562  15,555  15,317  15,160  14,067 
Accumulated other comprehensive income (loss)12,301  11,302  19,958  15,143  (1,792)
TOTAL SHAREHOLDERS’ EQUITY1,653,200  1,640,755  1,625,380  1,593,763  1,553,848 
Noncontrolling interest12,432  12,939  13,154  12,689  11,808 
TOTAL EQUITY1,665,632  1,653,694  1,638,534  1,606,452  1,565,656 
TOTAL LIABILITIES AND EQUITY$12,623,826  $11,947,663  $12,021,291  $11,942,480  $11,568,263 
(1) For 2020, disclosures are presented in compliance with ASC 326.      



  
TOWNEBANK 
Consolidated Statements of Income - Five Quarter Trend (unaudited) 
(dollars in thousands, except share data) 
  
  
 Three Months Ended
 March 31, December 31, September 30, June 30, March 31, 
 2020 2019 2019 2019 2019 
INTEREST INCOME:          
Loans, including fees$100,062  $100,059  $102,047  $101,874  $99,695  
Investment securities9,949  9,936  9,889  8,987  8,134  
Interest-bearing deposits in financial institutions and federal funds sold1,102  2,067  3,745  4,015  3,998  
Mortgage loans held for sale2,988  4,413  3,956  3,007  2,003  
Total interest income114,101  116,475  119,637  117,883  113,830  
INTEREST EXPENSE:          
Deposits19,062  21,744  23,552  21,784  19,174  
Advances from the FHLB2,492  1,730  1,935  3,201  4,153  
Subordinated debt2,962  2,962  2,962  2,962  2,962  
Repurchase agreements and other borrowings89  80  85  117  68  
Total interest expense24,605  26,516  28,534  28,064  26,357  
Net interest income89,496  89,959  91,103  89,819  87,473  
           
PROVISION FOR CREDIT LOSSES7,016  3,601  1,508  2,824  1,438  
Net interest income after provision for credit losses82,480  86,358  89,595  86,995  86,035  
NONINTEREST INCOME:          
Residential mortgage banking income, net7,416  15,884  18,855  18,565  13,508  
Insurance commissions and other title fees and income, net16,893  15,001  16,681  17,213  15,582  
Real estate brokerage and property management income, net6,938  6,737  9,444  8,843  9,268  
Service charges on deposit accounts2,440  2,245  2,253  3,185  2,861  
Credit card merchant fees, net1,179  1,389  1,514  660  1,183  
BOLI3,105  3,865  2,117  1,635  1,598  
Other income5,227  4,591  3,981  4,617  3,157  
Net gain/(loss) on investment securities5,002    (69)   (776) 
Total noninterest income48,200  49,712  54,776  54,718  46,381  
NONINTEREST EXPENSE:          
Salaries and employee benefits55,867  56,013  55,784  54,263  52,860  
Occupancy expense7,502  7,516  7,953  7,662  8,251  
Furniture and equipment3,640  3,598  3,805  3,578  3,371  
Amortization - intangibles2,950  3,005  3,059  3,113  3,192  
Software expense3,492  2,976  3,208  2,788  2,745  
Data processing2,791  2,510  2,533  3,616  3,166  
Professional fees3,067  2,990  3,566  3,707  2,679  
Advertising and marketing3,584  2,839  3,429  3,182  2,829  
Other expenses13,995  10,889  13,950  14,647  13,030  
Total noninterest expense96,888  92,336  97,287  96,556  92,123  
Income before income tax expense and noncontrolling interest33,792  43,734  47,084  45,157  40,293  
Provision for income tax expense6,187  7,786  7,684  8,915  8,211  
Net income27,605  35,948  39,400  36,242  32,082  
Net income attributable to noncontrolling interest(1,221) (873) (1,741) (1,604) (673) 
Net income attributable to TowneBank$26,384  $35,075  $37,659  $34,638  $31,409  
Per common share information          
Basic earnings$0.37  $0.49  $0.52  $0.48  $0.44  
Diluted earnings$0.36  $0.49  $0.52  $0.48  $0.44  
Basic weighted average shares outstanding72,206,228  72,122,476  72,091,221  72,044,817  71,992,330  
Diluted weighted average shares outstanding72,299,721  $72,302,414  72,222,934  72,145,600  72,099,558  
Cash dividends declared$0.18  $0.18  $0.18  $0.18  $0.16  


 
TOWNEBANK
Banking Segment Financial Information (unaudited)
(dollars in thousands)
 
      
 Three Months Ended Increase/(Decrease)
 March 31, December 31, 2020 over 2019
 2020 2019 2019 Amount Percent
Revenue         
Net interest income$87,406  $86,400  $87,637  $1,006  1.16%
Service charges on deposit         
  accounts2,440  2,861  2,245  (421) (14.72)%
Credit card merchant fees1,179  1,183  1,389  (4) (0.34)%
Other income7,061  3,927  5,271  3,134  79.81%
Subtotal10,680  7,971  8,905  2,709  33.99%
Net gain/(loss) on investment securities5,002  (776)   5,778  (744.59)%
Total noninterest income15,682  7,195  8,905  8,487  117.96%
Total revenue103,088  93,595  96,542  9,493  10.14%
          
Provision for credit losses7,041  1,438  3,601  5,603  389.64%
          
Expenses         
Salaries and employee benefits33,225  31,087  34,183  2,138  6.88%
Occupancy expense4,916  5,244  4,959  (328) (6.25)%
Furniture and equipment2,660  2,367  2,577  293  12.38%
Amortization of intangibles1,164  1,366  1,214  (202) (14.79)%
Other expenses18,705  16,181  14,078  2,524  15.6%
Total expenses60,670  56,245  57,011  4,425  7.87%
Income before income tax, corporate allocation and noncontrolling interest35,377  35,912  35,930  (535) (1.49)%
Corporate allocation670  452  627  218  48.23%
Income before income tax provision and noncontrolling interest36,047  36,364  36,557  (317) (0.87)%
Provision for income tax expense6,663  7,192  6,368  (529) (7.36)%
Net income29,384  29,172  30,189  212  0.73%
Noncontrolling interest(1) 2  (1) (3) (150.00)%
Net income attributable to TowneBank$29,383  $29,174  $30,188  $209  0.72%
          
Efficiency ratio61.85% 59.6% 59.05% 2.25% 3.78%


 
TOWNEBANK
Realty Segment Financial Information (unaudited)
(dollars in thousands)
 
   
 Three Months Ended Increase/(Decrease)
 March 31, December 31, 2020 over 2019
 2020 2019 2019 Amount Percent
Revenue         
Residential mortgage brokerage$8,007  $13,756  $16,617  $(5,749) (41.79)%
income, net
Real estate brokerage income, net1,865  1,561  2,550  304  19.47%
Title insurance and settlement fees436  368  531  68  18.48%
Property management fees, net5,073  7,708  4,187  (2,635) (34.19)%
Income from unconsolidated186  94  75  92  97.87%
subsidiary
Net interest and other income2,421  1,372  2,787  1,049  76.46%
Total revenue17,988  24,859  26,747  (6,871) (27.64)%
          
Expenses         
Salaries and employee benefits13,293  12,895  12,941  398  3.09%
Occupancy expense1,927  2,345  1,857  (418) (17.83)%
Furniture and equipment762  768  773  (6) (0.78)%
Amortization of intangible assets657  725  655  (68) (9.38)%
Other expenses6,867  6,241  7,030  626  10.03%
Total expenses23,506  22,974  23,256  532  2.32%
          
(Loss) income before income tax, corporate allocation and noncontrolling interest(5,518) 1,885  3,491  (7,403) (392.73)%
Corporate allocation(393) (263) (362) (130) 49.43%
(Loss) income before income tax provision and noncontrolling interest(5,911) 1,622  3,129  (7,533) (464.43)%
Provision for income tax (benefit) expense(1,292) 551  416  (1,843) (334.48)%
Net (loss) income(4,619) 1,071  2,713  (5,690) (531.28)%
Noncontrolling interest(791) (252) (715) (539) 213.89%
Net (loss) income attributable to TowneBank$(5,410) $819  $1,998  $(6,229) (760.56)%
          
Efficiency ratio130.68% 92.42% 86.95% 38.26% 41.4%



 
TOWNEBANK
Insurance Segment Financial Information (unaudited)
(dollars in thousands)
 
      
 Three Months Ended Increase/(Decrease)
 March 31, December 31, 2020 over 2019
 2020 2019 2019 Amount Percent
Commission and fee income         
Property and casualty$12,786  $11,873  $11,957  $913  7.69%
Employee benefits3,918  3,506  3,758  412  11.75%
Travel insurance1,266  1,289  794  (23) (1.78)%
Specialized benefit services168  170  173  (2) (1.18)%
Total commissions and fees18,138  16,838  16,682  1,300  7.72%
          
Contingency and bonus revenue2,022  1,585  1,396  437  27.57%
Other income81  75  1,805  6  8%
Total revenue20,241  18,498  19,883  1,743  9.42%
          
Employee commission expense3,596  3,098  3,501  498  16.07%
Revenue, net of commission expense16,645  15,400  16,382  1,245  8.08%
          
Salaries and employee benefits9,349  8,878  8,889  471  5.31%
Occupancy expense659  662  700  (3) (0.45)%
Furniture and equipment218  236  248  (18) (7.63)%
Amortization of intangible assets1,129  1,101  1,136  28  2.54%
Other expenses1,357  2,027  1,096  (670) (33.05)%
Total operating expenses12,712  12,904  12,069  (192) (1.49)%
Income before income tax, corporate allocation and noncontrolling interest3,933  2,496  4,313  1,437  57.57%
Corporate allocation(277) (189) (265) (88) 46.56%
Income before income tax provision and noncontrolling interest3,656  2,307  4,048  1,349  58.47%
Provision for income tax expense816  468  1,002  348  74.36%
Net income2,840  1,839  3,046  1,001  54.43%
Noncontrolling interest(429) (423) (157) (6) 1.42%
Net income attributable to TowneBank$2,411  $1,416  $2,889  $995  70.27%
          
Provision for income taxes816  468  1,002  348  74.36%
Depreciation, amortization and interest expense1,300  1,333  1,309  (33) (2.48)%
EBITDA (non-GAAP)$4,527  $3,217  $5,200  $1,310  40.72%
          
Efficiency ratio76.37% 83.79% 73.67% (7.42)% (8.86)%



 
TOWNEBANK
Reconcilement of Non-GAAP Financial Measures
(dollars in thousands)
 
      
 Three Months Ended
 March 31, March 31, December 31,
 2020 2019 2019
      
Return on average assets (GAAP)0.88% 1.14% 1.16%
Impact of excluding average goodwill and other0.12% 0.15% 0.14%
intangibles and amortization
Return on average tangible assets (non-GAAP)1% 1.29% 1.3%
      
Return on average equity (GAAP)6.37% 8.24% 8.44%
Impact of excluding average goodwill and other3.54% 5% 4.53%
intangibles and amortization
Return on average tangible equity (non-GAAP)9.91% 13.24% 12.97%
      
Return on average common equity (GAAP)6.42% 8.3% 8.51%
Impact of excluding average goodwill and other3.59% 5.09% 4.61%
intangibles and amortization
Return on average tangible common equity10.01% 13.39% 13.12%
(non-GAAP)
      
Book value (GAAP)$22.77  $21.4  $22.58 
Impact of excluding average goodwill and other(6.86) (6.94) (6.89)
intangibles and amortization
Tangible book value (non-GAAP)$15.91  $14.46  $15.69 
      
Average assets (GAAP)$12,049,323  $11,194,753  $11,970,593 
Less: average goodwill446,838  442,869  446,428 
Less: average intangible assets53,285  63,400  56,339 
Average tangible assets (non-GAAP)$11,549,200  $10,688,484  $11,467,826 
      
Average equity (GAAP)$1,665,706  $1,545,899  $1,647,929 
Less: average goodwill446,838  442,869  446,428 
Less: average intangible assets53,285  63,400  56,339 
Average tangible equity (non-GAAP)$1,165,583  $1,039,630  $1,145,162 
      
Average common equity (GAAP)$1,653,676  $1,534,131  $1,635,394 
Less: average goodwill446,838  442,869  446,428 
Less: average intangible assets53,285  63,400  56,339 
Average tangible common equity (non-GAAP)$1,153,553  $1,027,862  $1,132,627 
      
Net Income (GAAP)$26,384  $31,409  35,075 
Amortization of Intangibles, net of tax2,331  2,521  2,374 
Tangible Net Income (non-GAAP)$28,715  $33,930  $37,449 


 
TOWNEBANK
Reconcilement of Non-GAAP Financial Measures
(dollars in thousands, except per share data)
           
           
Reconcilement of GAAP Earnings to Operating Earnings Excluding Certain Items Affecting Comparability Three Months Ended
  March 31, December 31, September 30, June 30, March 31,
  2020 2019 2019 2019 2019
Net income (GAAP) $26,384  $35,075  $37,659  $34,638  $31,409 
           
Acquisition-related expenses (150) 19  207  20  411 
Income tax expense (benefit) - other items 21  (3) (20) (3) (52)
Total charges, net of taxes (129) 16  187  17  359 
Operating earnings, excluding certain items affecting $26,255  $35,091  $37,846  $34,655  $31,768 
comparability (non-GAAP)
Weighted average diluted shares 72,299,721  72,311,979  72,222,934  72,145,600  72,099,558 
Diluted EPS (GAAP) $0.36  $0.49  $0.52  $0.48  $0.44 
Diluted EPS, excluding certain items affecting $0.36  $0.49  $0.52  $0.48  $0.44 
comparability (non-GAAP)
Average assets $12,049,323  $11,970,593  $11,845,282  $11,532,278  $11,194,753 
Average tangible equity $1,165,583  $1,145,162  1,119,824  $1,070,635  $1,039,630 
Return on average assets, excluding certain items 0.88% 1.16% 1.27% 1.21% 1.15%
affecting comparability (non-GAAP)
Return on average tangible equity, excluding certain items affecting comparability (non-GAAP) 9.86% 12.98% 14.26% 13.9% 13.38%
Return on average common tangible equity, excluding certain items affecting comparability (non-GAAP) 9.97% 13.12% 14.42% 14.06% 13.53%
Efficiency ratio, excluding certain items affecting 73.13% 66.1% 66.52% 66.79% 68.12%
comparability (non-GAAP)

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Source: TowneBank