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TowneBank Reports 30.6% Increase in First Quarter Earnings

SUFFOLK, Va., April 27, 2015 (GLOBE NEWSWIRE) -- Hampton Roads based TowneBank (the "Bank") (Nasdaq:TOWN) reported record earnings of $14.54 million for the quarter ended March 31, 2015, a 30.61% increase, or $3.41 million, over the $11.13 million reported for the comparative period in 2014. Fully diluted earnings per share were $0.29 per share compared to $0.31 per share for the comparative period of 2014. First quarter earnings per share reflect the issuance of 15.55 million new common shares issued in conjunction with the acquisition of Franklin Financial Corporation (FRNK) ("Franklin") on January 2, 2015. "The benefits of this merger are reflected in our operating results for the quarter that produced a 1.01% return on average assets and a 10.27% return on average tangible equity," said G. Robert Aston, Jr., Chairman and Chief Executive Officer. "Tangible book value ended the quarter at $11.73 compared to $11.00 in the 2014 comparative period and $11.09 in the linked quarter. The merger also provided an estimated $50 million of additional equity that will provide for approximately $500 million of asset growth in future periods," added Aston.

The Bank's common dividend was $0.11 per share for the quarter with the common dividend totaling $5.66 million. The current dividend represents an increase of 10.0% over the dividend paid during the same quarter of 2014.

"In addition to our strong financial performance in the first quarter of 2015, we set the stage for the continuation of the Towne growth story with the Franklin acquisition and our expansion into the Richmond, Virginia metro market," added Aston. "Importantly, our operations team has successfully completed the entire integration and systems conversion process including full implementation of all estimated cost saves and combined balance sheet restructuring. In addition, we have assembled a strong team of Richmond hometown bankers and have begun implementing our branding and market development strategies that resulted in $33.6 million of new loan originations in Richmond during the quarter."

First Quarter 2015 Performance Highlights

  • Total revenues were $72.37 million, an increase of $14.45 million, or 24.95%, compared to the first quarter of 2014
    • Taxable equivalent net interest margin was 3.52%, including accretion of 0.08%, compared to 3.44% for first quarter 2014
    • Residential mortgage banking income increased 66.79% from first quarter 2014 to $8.44 million on production volume of $318.42 million
    • Insurance commissions increased 21.94% to $11.05 million
    • Noninterest income was 39.82% of total revenue in first quarter 2015
  • Return on average assets of 1.01%, increased from 0.96% for first quarter 2014
  • Loans held for investment increased $657.91 million, or 20.12%, from March 31, 2014 with organic growth of $190.60 million, an increase of 5.83%
    • Commercial and industrial loans increased by $36.25 million, or 7.32%, with organic growth of $19.59 million
    • Owner occupied commercial real estate loans increased $19.64 million, or 2.61% with organic growth of $13.21 million
    • Income producing commercial real estate loans increased $310.70 million, or 48.24% with organic growth of $83.61 million
    • Construction and development loans increased $49.55 million, or 10.55% with organic growth of $1.70 million
    • Consumer and other loans increased $40.33 million, or 83.30% through organic growth
  • Total deposits were $4.51 billion, an increase of $823.91 million, or 22.38%, from the first quarter of 2014
    • Noninterest bearing deposits increased by 15.70%, to $1.26 billion
    • Average interest-bearing deposit costs were 0.55%, up 2 basis points from the prior year
    • Noninterest bearing deposits were 28.0% of total deposits compared to 29.61% at March 31, 2014
    • Total cost of deposits increased to 0.40% from 0.38% at March 31, 2014 reflective of a richer mix of savings deposits acquired in the Franklin merger
  • Asset quality showed continued strength
    • Nonperforming assets were $58.74 million, or 1.01% of total assets compared to 1.10% at March 31, 2014
    • Nonperforming loans decreased 35.82% to $7.05 million
    • Foreclosed property increased to $51.70 million, including $14.30 million acquired in the Franklin merger
    • Performing troubled debt restructurings decreased $10.96 million
    • Low credit costs as provision for loan losses was $0.32 million for first quarter 2015
  • Strategic acquisitions
    • On February 1, 2015, acquired Lackey Saunders Co., Inc. and Gloucester Southside Insurance Agency, Inc., independent insurance agencies
    • On January 2, 2015, completed the acquisition of Franklin and its wholly owned subsidiary, Franklin Federal Savings Bank, based in Richmond, Virginia
  • The Bank remained well-capitalized
    • Common equity tier 1 capital ratio of 13.09%
    • Tier 1 leverage capital ratio of 10.99%
    • Tier 1 risk-based capital ratio of 13.20%
    • Total risk-based capital ratio of 13.96%
    • Capital ratios were not significantly impacted by Basel III capital rules, which became effective on January 1, 2015
    • Tangible book value increased to $11.73
  • On January 7, 2015, the Company redeemed in full its $76.46 million of Preferred Stock issued to the U.S. Treasury under the Small Business Lending Fund.
    • Capital structure of shareholders' equity is now 100% common equity
    • Liquidity ratio in excess of 21%

Net Interest Income

Net interest income increased to $43.56 million, an $8.36 million, or 23.77%, increase from the first quarter of 2014. The primary driver of the increase was the significant increase in earning assets from the Franklin merger along with the restructuring of the Franklin balance sheet. Average earning assets increased $988.74 million, or 22.98%, from the first quarter of 2014. The increase was augmented by an 8 basis point widening of the tax-equivalent net interest margin to 3.52% in the current quarter from 3.44% in the first quarter of 2014. Accretion income added $0.78 million, or 8 basis points, to margin in the current quarter.

On a linked quarter basis, net interest income increased $6.42 million or 17.28%, in first quarter 2015 versus the fourth quarter of 2014, while tax-equivalent net interest margin was 3.52% versus 3.35% for the fourth quarter of 2014.

Noninterest Income

% Change
Q1 Q1 Q4 Q1 15 vs. Q1 15 vs.
(in millions) 2015 2014 2014 Q1 14 Q4 14
Residential mortgage banking income, net $ 8,443 $ 5,062 $ 6,523 66.79% 29.43%
Real estate brokerage and property management, net 3,955 3,292 2,450 20.14% 61.43%
Insurance commissions and other title fees and income, net 11,049 9,061 7,743 21.94% 42.70%
Service charges on deposit accounts 2,197 2,131 2,288 3.10% (3.98)%
Credit card merchant fees, net 432 773 911 (44.11)% (52.58)%
Other income 2,691 2,408 2,486 11.75% 8.25%
Subtotal before gain on investment securities 28,767 22,727 22,401 26.58% 28.42%
Net gain (loss) on investment securities 49 2 2,350.00% N/M
Total noninterest income $ 28,816 $ 22,729 $ 22,401 26.79% 28.64%

Noninterest income, excluding gains or losses on investment securities, was $28.77 million for the first quarter of 2015, an increase of $6.04 million, or 26.58%, from the first quarter of 2014. The majority of the increase from the comparative period in 2014 is attributable to residential mortgage banking income, which increased $3.38 million, or 66.79%, from the first quarter of 2014 primarily due to increased production volumes and improved pricing and margins. Mortgage production was $318.42 million in the first quarter of 2015, which was $114.66 million greater than first quarter 2014. Also contributing to the increase were insurance commissions, which increased $1.99 million, or 21.94%, due to the acquisition of two insurance agencies in February 2015 and one agency in May 2014. The increase in real estate brokerage and property management income was driven by the acquisition of a resort property management company in Hilton Head, South Carolina in fourth quarter 2014.

In comparison to the fourth quarter of 2014, noninterest income, excluding gains or losses on investment securities, increased $6.37 million, or 28.42%. Residential mortgage banking income increased by $1.92 million, or 29.43%, from the fourth quarter of 2014 despite a slight decrease in mortgage production of $2.88 million due to improvements in pricing and an increase in the value of rate lock commitments. Purchase closed volume was 76% of total production versus 24% refinance activity for first quarter 2015. Real estate brokerage and property management income increased due to a seasonal increase related to our resort property management business. Our North Carolina-based property management business, which was sold to a third party on April 1, 2015, generated $1.80 million in management fee revenue in first quarter 2015. Additionally, insurance commissions increased due to the current year agency acquisitions and higher contingent commission revenue, which is mostly received during the first quarter of each year.

Noninterest Expense

% Change
Q1 Q1 Q4 Q1 15 vs. Q1 15 vs.
(in millions) 2015 2014 2014 Q1 14 Q4 14
Salaries and benefits $ 27,679 $ 23,396 $ 25,205 18.31% 9.82%
Occupancy expense 4,930 4,176 4,676 18.06% 5.43%
Furniture and equipment 2,369 2,000 2,103 18.45% 12.65%
Acquisition-related expenses 415 52 3,103 698.08% (86.63)%
Other 15,047 11,457 13,872 31.33% 8.47%
Total noninterest expense $ 50,440 $ 41,081 $ 48,959 22.78% 3.02%

Noninterest expense increased by $9.36 million, or 22.78%, from the comparative quarter of 2014. Driving the increase were operating expenses of $2.88 million related to the Franklin merger. Additionally, operating expenses increased $2.56 million due to our insurance and resort property management acquisitions in first quarter of 2015 and in 2014.

Noninterest expense increased by $1.48 million, or 3.02%, from the fourth quarter of 2014. Driving the increase were the additional operating expenses related to the first quarter 2015 acquisitions combined with the effect of a fourth quarter 2014 reversal of $0.90 million, pre-tax, in previously accrued employee incentive compensation unearned for the full 2014 year. These factors more than offset the decrease in acquisition-related expenses from the linked quarter.

Segment Results

$ Change
(in millions) Q1 Q1 Q4 Q1 15 vs. Q1 15 vs.
Segment Net Income 2015 2014 2014 Q1 14 Q4 14
Banking $ 11,108 $ 9,037 $ 7,193 $ 2,071 $ 3,915
Realty 1,647 (25) (234) 1,672 1,881
Insurance 1,783 2,119 276 (336) 1,507
Total net income $ 14,538 $ 11,131 $ 7,235 $ 3,407 $ 7,303

Banking

Net income for the three months ended March 31, 2015 for the Banking segment was $11.11 million, increasing $2.07 million, or 22.92%, from the comparative 2014 quarter. The increase in earnings was driven by an increase in net interest income of $8.28 million, primarily due to the increase in earning assets from the Franklin merger. The increase in net interest income was partially offset by an increase in noninterest expense related to the Franklin merger combined with increases in charitable contributions and marketing expenses.

The increase in earnings of $3.92 million, or 54.43% from the fourth quarter of 2014 was primarily driven by increases in net interest income of $6.49 million, which was also due to the increase in earning assets related to the Franklin merger and other income of $0.36 million combined with decreases in other expenses of $1.71 million, as acquisition-related expense decreased $2.83 million.

Realty

For the three months ended March 31, 2015, the Realty segment had net income of $1.65 million, an increase of $1.67 million compared to the first quarter of 2014. Contributing to the improvement was an increase in residential mortgage banking income of $3.40 million, or 66.35%. Also contributing to the improvement was an increase in property management fees of $0.54 million, or 24.95%.

Net income in the Realty segment increased by $1.88 million from the linked quarter ended December 31, 2014. Residential mortgage banking income increased $1.88 million, or 28.38% and seasonal increases in resort property management business led to increased fees of $1.75 million in the linked quarter comparison. Total noninterest expenses increased by 5.97%, or $0.59 million, compared to the linked quarter.

Insurance

The Insurance segment had net income of $1.78 million for the three months ended March 31, 2015, a decrease of $0.34 million as compared to the first quarter of 2014. The decline was primarily caused by an increase of $0.47 million due to a combination of higher acquisition-related expenses and a one-time reclassification of expenses between segments in the prior year. The insurance agency acquisitions in first quarter 2015 and second quarter 2014 resulted in additional commissions and fee revenue of $1.47 million and additional $1.46 million of noninterest expenses.

Net income increased $1.51 million from the fourth quarter of 2014. The improvement from the linked quarter was driven by an increase in contingency and bonus revenue of $2.46 million. Contingent commissions are seasonal in nature and are mostly received during the first half of each year. The acquisition of two insurance agencies in first quarter 2015 accounted for an increase in commission and fee revenue of $0.42 million and an increase in noninterest expenses of $0.32 million and resulted in $0.18 million of acquisition-related expenses.

Balance Sheet

At March 31, 2015, total Bank assets reached $5.83 billion, an increase of $1.05 billion, or 22.06%, over March 31, 2014.

Loans

% Change
Q1 Q1 Q4 Q1 15 vs. Q1 15 vs.
(in thousands) 2015 2014 2014 Q1 14 Q4 14
Construction and land development $ 519,390 $ 469,841 $ 452,481 10.55% 14.79%
Commercial real estate - investment related properties 954,826 644,126 695,526 48.24% 37.28%
Commercial real estate - owner occupied 770,880 751,243 751,552 2.61% 2.57%
Multifamily real estate 146,395 50,014 51,472 192.71% 184.42%
1-4 family residential real estate 915,205 810,145 837,370 12.97% 9.30%
Commercial and industrial business loans 531,831 495,576 533,500 7.32% (0.31)%
Consumer loans and other 88,747 48,417 75,365 83.30% 17.76%
Total $ 3,927,274 $ 3,269,362 $ 3,397,266 20.12% 15.60%

The Bank's loan portfolio ended the period at $3.93 billion representing an increase of 20.12%, or $657.91 million, from the prior year and an increase of 15.60%, or $530.01 million, from December 31, 2014. Organic growth, including the effect of loan transfers to OREO, in first quarter 2015 was $66.72 million, or 7.84% on an annualized basis. Included in this growth were originations of $33.62 million in our Richmond market. In addition, acquired loan balances were impacted by accelerated prepayments during the quarter.

Deposits

% Change
Q1 Q1 Q4 Q1 15 vs. Q1 15 vs.
(in thousands) 2015 2014 2014 Q1 14 Q4 14
Noninterest-bearing demand $ 1,261,482 $ 1,090,273 $ 1,224,466 15.70% 3.02%
Interest-bearing:
Demand and money market accounts 1,643,534 1,303,207 1,365,183 26.11% 20.39%
Savings 303,936 197,892 301,033 53.59% 0.96%
Certificates of deposits 1,296,666 1,090,337 955,920 18.92% 35.65%
Total $ 4,505,618 $ 3,681,709 $ 3,846,602 22.38% 17.13%

The Bank continued to experience solid deposit growth with total deposits increasing to $4.51 billion, up $823.91 million, or 22.38%, from March 31, 2014. The increase was mostly due to the $682.95 million of deposits acquired in the Franklin merger. Organic growth in total deposits was $185.13 million, or 5.03%, from March 31, 2014. The Bank saw continued growth in noninterest bearing demand deposits, which ended the quarter at $1.26 billion, a 15.70% increase from March 31, 2014. Noninterest deposits represented 28.00% of total deposits at March 31, 2015. The slight percentage decline was a result of the funding mix in the acquired Franklin deposits.

Capital Ratios

Q1 Q1 Q4
2015 2014 2014
Common Equity Tier 1 (a) 13.09% N/A N/A
Tier 1 (a) 13.20% 12.95% 12.73%
Total (a) 13.96% 13.97% 13.67%
Tier 1 leverage ratio (a) 10.99% 10.42% 9.94%
(a) Basel III rules became effective January 1, 2015, with transitional provisions. All prior period data is based on Basel I rules

The Bank's total equity at March 31, 2015 rose to $791.58 million, an increase of $198.17 million, or 33.40%, from March 31, 2014. Common equity increased 54.18%, or $275.19 million, as the Bank issued common stock in the amount of $238.66 million in the Franklin merger and redeemed in full its $76.46 million of outstanding Non-Cumulative Convertible Preferred Stock, Series C issued to the U.S. Treasury under the Small Business Lending Fund. Total risk-based capital remained strong as total risk-based capital, Tier 1 capital, Tier 1 leverage ratios, and common equity Tier 1 capital ratios were 13.96%, 13.20%, 10.99%, 13.09%, respectively. All ratios exceed the current regulatory standards for well capitalized status.

Asset Quality

(in thousands) 3/31/2015 12/31/2014 9/30/2014 6/30/2014 3/31/2014
Nonperforming loans $ 7,045 $ 6,741 $ 5,853 $ 7,501 $ 10,977
Foreclosed property 51,698 35,116 37,951 42,404 41,510
Total nonperforming assets $ 58,743 $ 41,857 $ 43,804 $ 49,905 $ 52,487
Quarterly net loans charged off $ 333 $ 262 $ 602 $ 925 $ 1,167
Year-to-date net loans charged off $ 333 $ 2,955 $ 2,694 $ 2,092 $ 1,167

Continued improvements in credit quality contributed to the Bank's financial results as nonperforming loans decreased to $7.05 million from $10.98 million, at March 31, 2014 and increased from $6.74 million at December 31, 2014. Net charge-offs were $0.33 million in the first quarter of 2015 compared to $1.17 million in the first quarter of 2014 and $0.26 million in the linked quarter. Total nonperforming assets were $58.74 million, or 1.01%, of Bank assets, including foreclosed property of $14.30 million acquired in the Franklin merger, at March 31, 2015, as compared to $52.49 million, or 1.10%, at March 31, 2014, and $41.86 million, or 0.84%, at December 31, 2014.

Change
Q1 Q1 Q4 Q1 15 vs. Q1 15 vs.
(dollars in thousands) 2015 2014 2014 Q1 14 Q4 14
Total loans 90 days past due and still accruing $ 3 $ 576 $ 12 $ (573) $ (9)
Total loans 30-89 days past due $ 10,483 $ 12,663 $ 13,436 $ (2,180) $ (2,953)
Allowance for loan losses $ 35,907 $ 37,543 $ 35,917 $ (1,636) $ (10)
Total performing TDRs $ 32,896 $ 43,859 $ 38,418 $ (10,963) $ (5,522)
Nonperforming loans to period end loans 0.18% 0.34% 0.20% (0.16) (0.02)
Nonperforming assets to period end assets 1.01% 1.10% 0.84% (0.09) 0.17
Allowance for loan losses to period end loans 0.91% 1.15% 1.06% (0.24) (0.15)
Allowance for loan losses (originated) to originated period end loans 1.05% 1.16% 1.07% (0.11) (0.02)
Net charge-offs to average loans (annualized) 0.03% 0.15% 0.03% (0.12)
Ratio of allowance for loan losses to nonperforming loans 5.10x 3.42x 5.33x 1.68x (0.23)x

About TowneBank:

As one of the top community banks in Virginia and North Carolina, TowneBank operates 36 banking offices serving Chesapeake, Chesterfield County, Glen Allen, Hampton, James City County, Mechanicsville, Newport News, Norfolk, Portsmouth, Richmond, Suffolk, Virginia Beach, Williamsburg, and York County in Virginia, along with Moyock, Grandy, Camden County, Southern Shores, Corolla and Nags Head in North Carolina. Towne also offers a full range of financial services through its controlled divisions and subsidiaries that include Towne Investment Group, Towne Insurance Agency, TFA Benefits, TowneBank Mortgage, TowneBank Commercial Mortgage, Berkshire Hathaway HomeServices Towne Realty, Towne 1031 Exchange, LLC, and Beach Properties of Hilton Head. 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 $5.83 billion as of March 31, 2015, 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 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:

Statements made in this release, other than those concerning historical financial information, may be considered forward-looking statements, which speak only as of the date of this release and are based on current expectations and involve a number of assumptions. 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. The Company's ability to predict results, or the actual effect of future plans or strategies, is inherently uncertain. 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; the quality and composition of the loan and securities portfolios; demand for loan products; deposit flows; competition; demand for financial services in the companies' respective market areas; implementation of new technologies; ability to develop and maintain secure and reliable electronic systems; changes in the securities markets; changes in accounting principles, policies and guidelines; mergers and acquisitions; 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.

Selected Financial Highlights (unaudited)
TOWNEBANK
March 31, 2015
(dollars in thousands, except per share data)
Increase/ % Increase/
Three months ended March 31, 2015 2014 (Decrease) (Decrease)
Results of Operations:
Net interest income $43,556 $ 35,192 $ 8,364 23.77%
Noninterest income (1) 28,767 22,727 6,040 26.58%
Gain (loss) on investment securities 49 2 47 2,350.00%
Total Revenue 72,372 57,921 14,451 24.95%
Noninterest expenses 50,440 41,081 9,359 22.78%
Provision for loan losses 323 330 (7) (2.12)%
Income before income tax and noncontrolling interest 21,610 16,510 5,100 30.89%
Provision for income tax expense 6,385 4,905 1,480 30.17%
Net income 15,224 11,605 3,619 31.18%
Net income attributable to noncontrolling interest (686) (474) (212) 44.73%
Net income attributable to TowneBank 14,538 11,131 3,407 30.61%
Preferred stock dividends and accretion 13 191 (178) (93.19)%
Net income available to common shareholders 14,525 10,940 3,585 32.77%
Net income per common share - basic 0.29 0.31 (0.02) (6.45)%
Net income per common share - diluted 0.29 0.31 (0.02) (6.45)%
Period End Data:
Total assets $ 5,828,703 $ 4,775,234 $ 1,053,469 22.06%
Total assets - tangible 5,649,097 4,655,641 993,456 21.34%
Earning assets (2) 5,355,376 4,415,853 939,523 21.28%
Loans (net of unearned income) 3,927,274 3,269,362 657,912 20.12%
Allowance for loan losses 35,907 37,543 (1,636) (4.36)%
Goodwill and other intangibles 179,607 119,593 60,014 50.18%
Nonperforming assets 58,743 52,488 6,255 11.92%
Noninterest bearing deposits 1,261,482 1,090,273 171,209 15.70%
Interest bearing deposits 3,244,136 2,591,437 652,699 25.19%
Total deposits 4,505,618 3,681,709 823,909 22.38%
Total equity 791,581 593,406 198,175 33.40%
Total equity - tangible 611,974 473,813 138,161 29.16%
Common equity 783,157 507,963 275,194 54.18%
Common equity - tangible 603,550 388,370 215,180 55.41%
Book value per common share 15.22 14.38 0.84 5.84%
Book value per common share - tangible 11.73 11.00 0.73 6.64%
Daily Average Balances:
Total assets $ 5,829,533 $ 4,684,881 $ 1,144,652 24.43%
Total assets - tangible 5,642,883 4,565,004 1,077,879 23.61%
Earning assets (2) 5,290,562 4,301,821 988,741 22.98%
Loans (net of unearned income), excluding nonaccrual loans 3,898,576 3,225,089 673,487 20.88%
Allowance for loan losses 36,048 38,596 (2,548) (6.60)%
Goodwill and other intangibles 186,650 119,877 66,773 55.70%
Noninterest bearing deposits 1,256,023 1,037,907 218,116 21.02%
Interest bearing deposits 3,248,834 2,545,505 703,329 27.63%
Total deposits 4,504,857 3,583,412 921,445 25.71%
Total equity 781,833 591,688 190,145 32.14%
Total equity - tangible 595,183 471,811 123,372 26.15%
Common equity 767,980 506,435 261,545 51.64%
Common equity - tangible 581,330 386,558 194,772 50.39%
Key Ratios:
Return on average assets 1.01% 0.96% 0.05% 5.21%
Return on average assets - tangible 1.08% 0.99% 0.09% 9.09%
Return on average equity 7.54% 7.63% (0.09)% (1.18)%
Return on average equity - tangible 10.27% 9.57% 0.70% 7.31%
Return on average common equity 7.67% 8.76% (1.09)% (12.44)%
Return on average common equity - tangible 10.51% 11.48% (0.97)% (8.45)%
Net interest margin-fully tax equivalent (2)(3) 3.52% 3.44% 0.08% 2.33%
Net interest margin (2) 3.43% 3.36% 0.07% 2.08%
Average earning assets/total average assets 90.75% 91.82% (1.07)% (1.17)%
Average loans/average deposits 86.54% 90.00% (3.46)% (3.84)%
Average noninterest deposits/total average deposits 27.88% 28.96% (1.08)% (3.73)%
Allowance for loan losses/period end loans 0.91% 1.15% (0.24)% (20.87)%
Nonperforming assets to period end assets 1.01% 1.10% (0.09)% (8.18)%
Period end equity/period end total assets 13.58% 12.43% 1.15% 9.25%
Efficiency ratio (1) 69.74% 70.93% (1.19)% (1.68)%
(1) Excludes gain (loss) on investment securities
(2) Includes bank-owned life insurance
(3) Presented on a tax-equivalent basis
Selected Financial Highlights (unaudited)
TOWNEBANK
March 31, 2015
(dollars in thousands, except per share data)
March 31, December 31, Increase/ % Increase/
Three Months Ended 2015 2014 (Decrease) (Decrease)
Results of Operations:
Net interest income $ 43,556 $ 37,139 $ 6,417 17.28%
Noninterest income (1) 28,767 22,401 6,366 28.42%
Gain (loss) on investment securities 49 49 N/M
Total Revenue 72,372 59,540 12,832 21.55%
Noninterest expenses 50,440 48,959 1,481 3.02%
Provision for loan losses 323 (1) 324 N/M
Income before income tax and noncontrolling interest 21,610 10,582 11,028 104.21%
Provision for income tax expense 6,385 2,798 3,587 128.20%
Net income 15,224 7,784 7,440 95.58%
Net income attributable to noncontrolling interest (686) (549) (137) 24.95%
Net income attributable to TowneBank 14,538 7,235 7,303 100.94%
Preferred stock dividends and accretion 13 191 (178) (93.19)%
Net income available to common shareholders 14,525 7,044 7,481 106.20%
Net income per common share - basic 0.29 0.20 0.09 45.00%
Net income per common share - diluted 0.29 0.20 0.09 45.00%
Period End Data:
Total assets $ 5,828,703 $ 4,982,485 $ 846,218 16.98%
Total assets - tangible 5,649,097 4,846,816 802,281 16.55%
Earning assets (2) 5,355,376 4,610,142 745,234 16.17%
Loans (net of unearned income) 3,927,274 3,397,266 530,008 15.60%
Allowance for loan losses 35,907 35,917 (10) (0.03)%
Goodwill and other intangibles 179,607 135,668 43,939 32.39%
Nonperforming assets 58,743 41,857 16,886 40.34%
Noninterest bearing deposits 1,261,482 1,224,466 37,016 3.02%
Interest bearing deposits 3,244,136 2,622,136 622,000 23.72%
Total deposits 4,505,618 3,846,602 659,016 17.13%
Total equity 791,581 618,276 173,305 28.03%
Total equity - tangible 611,974 482,608 129,366 26.81%
Common equity 783,157 532,487 250,670 47.08%
Common equity - tangible 603,550 396,819 206,731 52.10%
Book value per common share 15.22 14.88 0.34 2.28%
Book value per common share - tangible 11.73 11.09 0.64 5.77%
Daily Average Balances:
Total assets $ 5,829,533 $ 5,005,112 $ 824,421 16.47%
Total assets - tangible 5,642,883 4,868,868 774,015 15.90%
Earning assets (2) 5,290,562 4,610,309 680,253 14.76%
Loans (net of unearned income), excluding nonaccrual loans 3,898,576 3,362,814 535,762 15.93%
Allowance for loan losses 36,048 36,296 (248) (0.68)%
Goodwill and other intangibles 186,650 136,243 50,407 37.00%
Noninterest bearing deposits 1,256,023 1,247,712 8,311 0.67%
Interest bearing deposits 3,248,834 2,616,976 631,858 24.14%
Total deposits 4,504,857 3,864,688 640,169 16.56%
Total equity 781,833 621,579 160,254 25.78%
Total equity - tangible 595,183 485,335 109,848 22.63%
Common equity 767,980 536,091 231,889 43.26%
Common equity - tangible 581,330 399,848 181,482 45.39%
Key Ratios:
Return on average assets 1.01% 0.57% 0.44% 77.19%
Return on average assets - tangible 1.08% 0.63% 0.45% 71.43%
Return on average equity 7.54% 4.62% 2.92% 63.20%
Return on average equity - tangible 10.27% 6.35% 3.92% 61.73%
Return on average common equity 7.67% 5.21% 2.46% 47.22%
Return on average common equity - tangible 10.51% 7.52% 2.99% 39.76%
Net interest margin-fully tax equivalent (2)(3) 3.52% 3.35% 0.17% 5.07%
Net interest margin (2) 3.43% 3.26% 0.17% 5.21%
Average earning assets/total average assets 90.75% 92.11% (1.36)% (1.48)%
Average loans/average deposits 86.54% 87.01% (0.47)% (0.54)%
Average noninterest deposits/total average deposits 27.88% 32.28% (4.40)% (13.63)%
Allowance for loan losses/period end loans 0.91% 1.06% (0.15)% (14.15)%
Nonperforming assets to period end assets 1.01% 0.84% 0.17% 20.24%
Period end equity/period end total assets 13.58% 12.41% 1.17% 9.43%
Efficiency ratio (1) 69.74% 82.23% (12.49)% (15.19)%
(1) Excludes gain (loss) on investment securities
(2) Includes bank-owned life insurance
(3) Presented on a tax-equivalent basis
TOWNEBANK
Average Balances, Yields and Rate Paid
(dollars in thousands)
Three Months Ended Three Months Ended Three Months Ended
March 31, 2015 December 31, 2014 March 31, 2014
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 $ 3,898,576 $ 46,160 4.80% $ 3,362,814 $ 39,508 4.66% $ 3,225,089 $ 38,220 4.81%
Taxable investment securities 803,681 3,145 1.57% 714,991 2,178 1.22% 470,029 1,720 1.46%
Tax-exempt investment securities 180,453 1,922 4.26% 176,887 1,919 4.34% 172,205 1,769 4.11%
Interest-bearing deposits 202,852 125 0.25% 227,773 145 0.25% 334,136 207 0.25%
Loans held for sale 64,512 565 3.50% 69,496 652 3.75% 42,849 428 4.00%
Bank-owned life insurance 140,488 1,753 5.06% 58,348 1,200 8.16% 57,514 749 5.28%
Total earning assets 5,290,562 53,670 4.11% 4,610,309 45,602 3.92% 4,301,822 43,093 4.06%
Less: allowance for loan losses (36,048) (36,296) (38,596)
Total nonearning assets 575,019 431,099 421,655
Total assets $ 5,829,533 $ 5,005,112 $ 4,684,881
Liabilities and Equity:
Interest-bearing deposits
Demand and money market $ 1,635,454 $ 1,111 0.28% $ 1,344,262 $ 772 0.23% $ 1,258,335 $ 740 0.23%
Savings 305,016 683 0.91% 303,623 699 0.91% 319,263 725 0.92%
Certificates of deposit 1,308,364 2,630 0.82% 969,091 1,837 0.75% 967,907 1,877 0.75%
Total interest-bearing deposits 3,248,834 4,424 0.55% 2,616,976 3,308 0.50% 2,545,505 3,342 0.53%
Borrowings 447,198 3,388 3.03% 430,374 3,396 3.09% 435,559 3,300 3.03%
Total interest-bearing liabilities 3,696,032 7,812 0.86% 3,047,350 6,704 0.87% 2,981,064 6,642 0.90%
Demand deposits 1,256,025 1,247,712 1,037,907
Other noninterest-bearing liabilities 95,643 88,471 74,222
Total liabilities 5,047,700 4,383,533 4,093,193
Shareholders' equity 781,833 621,579 591,688
Total liabilities and equity $ 5,829,533 $ 5,005,112 $ 4,684,881
Net interest income (tax-equivalent basis)
Reconcilement of Non-GAAP Financial Measures $ 45,858 $ 38,898 $ 36,451
Bank-owned life insurance (1,753) (1,200) (749)
Tax-equivalent basis adjustment (549) (558) (509)
Net interest income (GAAP) $ 43,556 $ 37,140 $ 35,193
Interest rate spread (1) 3.26% 3.05% 3.16%
Interest expense as a percent of average earning assets 0.60% 0.58% 0.63%
Net interest margin (tax equivalent basis) (2) 3.52% 3.35% 3.44%
Total cost of deposits 0.40% 0.34% 0.38%
(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 Statements of Income (unaudited)
(dollars in thousands)
Three Months Ended
March 31,
2015 2014
INTEREST INCOME:
Loans, including fees $ 46,145 $ 38,207
Investment securities 4,533 2,992
Interest-bearing deposits in financial institutions and federal funds sold 125 207
Mortgage loans held for sale 565 428
Total Interest Income 51,368 41,834
INTEREST EXPENSE:
Deposits 4,424 3,342
Advances from the Federal Home Loan Bank 3,374 3,285
Repurchase agreements and other borrowings 14 15
Total Interest Expense 7,812 6,642
Net Interest Income 43,556 35,192
PROVISION FOR LOAN LOSSES 323 330
Net Interest Income after Provision for Loan Losses 43,233 34,862
NONINTEREST INCOME:
Residential mortgage banking income, net 8,443 5,062
Real estate brokerage and property management income, net 3,955 3,292
Insurance commissions and other title fees and income, net 11,049 9,061
Service charges on deposit accounts 2,197 2,131
Credit card merchant fees, net 432 773
Other income 2,691 2,408
Net gain on investment securities 49 2
Total Noninterest Income 28,816 22,729
NONINTEREST EXPENSE:
Salaries and employee benefits 27,679 23,396
Occupancy expense 4,930 4,176
Furniture and equipment 2,369 2,000
Other expenses 15,462 11,509
Total Noninterest Expense 50,440 41,081
Income before income tax expense and noncontrolling interest 21,609 16,510
Provision for income tax expense 6,385 4,905
Net income 15,224 11,605
Net income attributable to noncontrolling interest (686) (474)
Net income attributable to TowneBank $ 14,538 $ 11,131
Preferred stock dividends 13 191
Net income available to common shareholders $ 14,525 $ 10,940
Per common share information
Basic earnings $ 0.29 $ 0.31
Diluted earnings $ 0.29 $ 0.31
Cash dividends declared $ 0.11 $ 0.10
TOWNEBANK
Consolidated Statements of Comprehensive Income (unaudited)
(dollars in thousands)
Three Months Ended
March 31,
2015 2014
Net income $ 15,224 $ 11,605
Other comprehensive income
Unrealized gains on securities
Unrealized holding gains arising during the period 2,914 359
Deferred tax expense (1,020) (126)
Realized gains reclassified into earnings (49) (2)
Deferred tax benefit 17 1
Net unrealized gains (losses) 1,862 232
Defined benefit retirement plan
Amortization 60
Deferred tax expense (21)
Change in defined benefit retirement plan, net of tax 39
Other comprehensive income, net of tax 1,901 232
Comprehensive income $ 17,125 $ 11,837
TOWNEBANK
Consolidated Balance Sheets (unaudited)
(dollars in thousands)
March 31, December 31,
2015 2014 2014
(unaudited) (audited)
ASSETS
Cash and due from banks $ 144,215 $ 235,984 $ 212,994
Interest-bearing deposits in financial institutions 1,000 1,000 1,011
Total Cash and Cash Equivalents 145,215 236,984 214,005
Securities available for sale, at fair value 771,208 551,797 603,908
Securities held to maturity, at amortized cost 252,173 232,879 252,370
Federal Home Loan Bank stock, at amortized cost 22,366 21,987 22,157
Total Securities 1,045,747 806,663 878,435
Mortgage loans held for sale 102,850 57,745 71,390
Loans, net of unearned income and deferred costs:
Real estate - residential 1-4 family 915,205 810,145 837,370
Real estate - commercial 1,725,706 1,395,369 1,447,078
Real estate - construction and land development 519,390 469,841 452,481
Real estate - multifamily 146,395 50,014 51,472
Commercial and industrial business 531,831 495,576 533,500
Consumer and other loans 88,747 48,417 75,365
Loans, net of unearned income and deferred costs 3,927,274 3,269,362 3,397,266
Less: Allowance for loan losses (35,907) (37,543) (35,917)
Net Loans 3,891,367 3,231,819 3,361,349
Premises and equipment, net 166,164 152,976 155,774
Goodwill 156,516 104,508 113,159
Other intangible assets, net 23,090 15,084 22,509
Bank-owned life insurance policies 145,401 57,567 58,716
Other assets 152,353 111,888 107,148
TOTAL ASSETS $ 5,828,703 $ 4,775,234 $ 4,982,485
LIABILITIES AND EQUITY
Liabilities
Deposits:
Noninterest-bearing demand $ 1,261,482 $ 1,090,273 $ 1,224,466
Interest-bearing:
Demand and money market accounts 1,643,534 1,303,207 1,365,183
Savings 303,936 197,892 301,033
Certificates of deposit 1,296,666 1,090,337 955,920
Total Deposits 4,505,618 3,681,709 3,846,602
Advances from the Federal Home Loan Bank 397,884 394,855 398,181
Repurchase agreements and other borrowings 37,202 31,571 31,893
Total Borrowings 435,086 426,426 430,074
Other liabilities 96,419 73,693 87,533
TOTAL LIABILITIES 5,037,123 4,181,828 4,364,209
Shareholders' Equity
Preferred stock: 2,000,000 shares authorized 0 shares issued at March 31, 2015 and 76,458 shares issued at March 31, 2014 and December 31, 2014 76,458 76,458
Common stock, $1.667 par: 90,000,000 shares authorized 51,466,606; 35,312,537; and 35,785,679 shares issued at March 31, 2015 and 2014 and December 31, 2014, respectively 85,795 58,866 59,655
Capital surplus 531,483 313,272 317,718
Retained earnings 163,519 135,936 154,655
Common stock issued to deferred compensation trust, at cost 637,935; 571,101; and 627,730 shares at March 31, 2015 and 2014 and December 31, 2014, respectively (9,816) (8,782) (9,674)
Deferred compensation trust 9,816 8,782 9,674
Accumulated other comprehensive income (loss) 2,359 (112) 458
TOTAL SHAREHOLDERS' EQUITY 783,156 584,420 608,944
Noncontrolling interests 8,424 8,986 9,332
TOTAL EQUITY 791,580 593,406 618,276
TOTAL LIABILITIES AND EQUITY $ 5,828,703 $ 4,775,234 $ 4,982,485
TOWNEBANK
March 31, 2015
Reconcilement of Non-GAAP Financial Measures:
(dollars in thousands)
Three Months Ended
March 31, March 31, December 31,
2015 2014 2014
Return on average assets (GAAP basis) 1.01% 0.96% 0.57%
Impact of excluding average goodwill and other intangibles and amortization 0.07% 0.03% 0.06%
Return on average tangible assets (Non-GAAP) 1.08% 0.99% 0.63%
Return on average equity (GAAP basis) 7.54% 7.63% 4.62%
Impact of excluding average goodwill and other intangibles and amortization 2.73% 1.94% 1.73%
Return on average tangible equity (Non-GAAP) 10.27% 9.57% 6.35%
Return on average common equity (GAAP basis) 7.67% 8.76% 5.21%
Impact of excluding average goodwill and other intangibles and amortization 2.84% 2.72% 2.31%
Return on average tangible common equity (Non-GAAP) 10.51% 11.48% 7.52%
Book value (GAAP basis) $ 15.22 $ 14.38 $ 14.88
Impact of excluding average goodwill and other intangibles and amortization (3.49) (3.38) (3.79)
Tangible book value $ 11.73 $ 11.00 $ 11.09

CONTACT: For more information contact: G. Robert Aston, Jr. Chairman and CEO 757-638-6780 Clyde E. McFarland, Jr. Senior Executive Vice President and CFO 757-638-6801 William B. Littreal Chief Investment Relations Officer and COO 757-638-6813

Source: TowneBank