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TowneBank Reports Second Quarter Earnings

SUFFOLK, Va., July 28, 2016 (GLOBE NEWSWIRE) -- Hampton Roads based TowneBank (the “Bank”) (NASDAQ:TOWN) today reported financial results for the quarter and six months ended June 30, 2016. Earnings for the quarter ended June 30, 2016 were $6.26 million compared to $17.81 million for the same quarter in 2015. Fully diluted earnings per share were $0.12 compared to $0.35 for the second quarter of 2015. Earnings in the second quarter of 2016 included after-tax acquisition-related expenses of $12.26 million as compared to $0.24 million in the second quarter of 2015.

Excluding after-tax acquisition-related expenses, earnings for the quarter ended June 30, 2016 were $18.52 million (non-GAAP) compared to $18.05 million (non-GAAP) for the same quarter in 2015. Fully diluted earnings per share, excluding after-tax acquisition-related expenses, were $0.36 (non-GAAP measure) compared to $0.35 for the second quarter of 2015.

Earnings for the year-to-date period were $24.08 million as compared to the $32.35 million earned in the same period of 2015. Fully diluted earnings per share were $0.47 compared to $0.63 for the six months ended June 30, 2015. Earnings in 2016 included after-tax acquisition-related expenses of $12.64 million as compared to $0.51 million in 2015. Earnings per share were also affected by the issuance of 10.49 million new common shares in conjunction with the acquisition of Monarch Financial Holdings, Inc. (“Monarch”) on June 24, 2016.

Excluding after-tax acquisition-related expenses, earnings for the year-to-date period were $36.72 million (non-GAAP) as compared to the $32.86 million (non-GAAP) earned in the same period of 2015. Fully diluted earnings per share were $0.71 (non-GAAP) compared to $0.64 (non-GAAP) for the six months ended June 30, 2015.

Three Months Ended Three Months Ended
June 30, 2016 June 30, 2015
(dollars in thousands, except per share amounts) Net Income Diluted
Earnings Per
Share
Net Income Diluted
Earnings Per
Share
Net income, excluding after-tax merger-related expenses (Non-GAAP) $18,517 $0.36 $18,052 $0.35
Less: After tax acquisition-related expenses (12,258) (0.24) (240)
Net income (GAAP) $6,259 $0.12 $17,812 $0.35


Six Months Ended Six Months Ended
June 30, 2016 June 30, 2015
(dollars in thousands, except per share amounts) Net Income Diluted
Earnings Per
Share
Net Income Diluted
Earnings Per
Share
Net income, excluding after-tax merger-related expenses (Non-GAAP) $36,717 $0.71 $32,860 $0.64
Less: After tax acquisition-related expenses (12,639) (0.24) (510) (0.01)
Net income (GAAP) $24,078 $0.47 $32,350 $0.63
Core and other non-GAAP measures are defined in the "Reconcilement of Non-GAAP Measures"

The Bank’s common dividend was $0.13 per share for the quarter with the common dividend totaling $8.11 million. The current dividend represents an increase of 8.3% over the dividend paid during the same quarter of 2015.

“Our strong operating performance continued this quarter, as we delivered record quarterly revenue and successfully completed our merger with Monarch,” said G. Robert Aston, Jr., Chairman and Chief Executive Officer. “We saw an increase in core operating earnings to $18.52 million and core diluted earnings per share to $0.36 while producing a core return on average assets of 1.14% and a core return on average tangible equity of 11.60%."

"We are pleased to report that our operations team has successfully completed the entire integration and systems conversion process including targeted implementation of estimated cost saves. We believe the merger with our long-time friends at Monarch presents an exciting opportunity to increase shareholder value and better serve the financial needs of our members as we take the next step in the Towne growth story," said Aston.

Second Quarter 2016 Performance Highlights

  • Total revenues were a record $84.25 million, an increase of $8.22 million, or 10.81%, from second quarter 2015, excluding the 2015 gain of $1.93 million on the sale of investment properties
    • Taxable equivalent net interest margin was 3.36%, including accretion of 0.05%, compared to 3.52%, including accretion of 0.10%, for second quarter 2015
    • Insurance segment total revenue increased 13.42% from second quarter 2015, to $13.53 million
  • Core operating earnings were $18.52 million, an increase of 2.58% from June 30, 2015
  • Loans held for investment increased $1.33 billion, or 31.50%, from June 30, 2015, which included $818.12 million of loans acquired in the Monarch merger
  • Total deposits were $6.19 billion, an increase of $1.50 billion, or 32.00%, from second quarter 2015, which included $1.06 billion of deposits acquired in the Monarch merger
    • Noninterest bearing deposits increased by 43.07%, to $1.95 billion and represent 31.53% of total deposits
    • Total cost of deposits increased to 0.42% from 0.39% at June 30, 2015 reflective of an increase in higher cost time deposits
  • Asset quality showed continued strength
    • Nonperforming assets declined to $36.29 million, or 0.46% of total assets compared to $53.61 million, or 0.89%, at June 30, 2015
    • Nonperforming loans were 0.19% of period end loans
    • Foreclosed property decreased 44.30% to $25.71 million
  • The Bank remained well-capitalized
    • Common equity tier 1 capital ratio of 11.82%
    • Tier 1 leverage capital ratio of 12.36%
    • Tier 1 risk-based capital ratio of 11.89%
    • Total risk-based capital ratio of 12.50%

Second Quarter 2016 Earnings Compared to Second Quarter 2015

Net income for the second quarter was $6.26 million, or $0.12 per diluted share, versus $17.81 million, or $0.35 per diluted share, in second quarter 2015. Excluding after-tax acquisition-related expenses of $12.26 million, net income for the second quarter was $18.52 million, or $0.36 per diluted share.

Net Interest Income
Net interest income increased to $47.78 million, a $2.90 million, or 6.46%, increase from the second quarter of 2015. The primary driver was the increase in average earning assets, which increased $617.52 million, or 11.42%, from second quarter 2015. Tax-equivalent net interest margin was 3.36% in the current quarter as compared to 3.52% in second quarter 2015. Accretion income added $0.61 million, or 5 basis points, to margin in the current quarter as compared to $1.08 million, or 10 basis points, in the second quarter of 2015.

Noninterest Income
Noninterest income, excluding gains or losses on investments, was $36.47 million for the second quarter of 2016, an increase of $5.44 million, or 17.51%, from the second quarter of 2015. Residential mortgage banking income increased $1.90 million, or 18.51%, from second quarter 2015 due to improved pricing and higher production volumes. Mortgage production was $591.79 million in the second quarter of 2016, which was $125.55 million greater than second quarter 2015. Insurance commissions and other title fees increased $1.74 million, or 17.62%, primarily due to the acquisition of three insurance agencies in the third and fourth quarters of 2015. Additionally, real estate brokerage and property management income increased $1.53 million, or 33.42%, from the second quarter of 2015 primarily due to the acquisition of a resort property management company in Oak Island, North Carolina ("Oak Island") in first quarter 2016.

Noninterest Expense
Noninterest expense increased by $22.83 million, or 46.53%, from the comparative quarter of 2015. The primary driver was an increase of $18.07 million of pre-tax acquisition-related expenses combined with increased operating expenses of $1.09 million related to insurance agencies acquired in 2015 and operating expenses of $1.21 million related to the North Carolina resort property management acquisition. Excluding the additional noninterest expense from acquisition-related expenses, the insurance agencies acquired in 2015, and the resort property management company acquired in 2016, core expenses increased by $2.10 million, or 4.28%, in second quarter 2016.

Second Quarter 2016 Earnings Compared to First Quarter 2016

Net income for the second quarter, excluding after-tax acquisition-related expenses of $12.26 million, was $18.52 million, or $0.36 per diluted share, versus $18.05 million, or $0.35 per diluted share, in first quarter 2016. The increase in earnings was reflective of seasonal improvement and growth in our Realty segment.

Performance Highlights

  • Record revenues of $84.25 million, a $5.50 million, or 6.99%, increase from first quarter 2016
    • Taxable equivalent net interest margin was 3.36%, including accretion of 0.05%, compared to 3.37%, including accretion of 0.06%, for first quarter 2016
    • Noninterest income increased $4.05 million due to seasonality and growth in our Realty segment
  • Loans held for investment increased $1.01 billion from March 31, 2016, with $818.12 million of loans acquired in the Monarch merger
  • Noninterest bearing deposits increased by $501.16 million, or 34.57% during the quarter
  • Nonperforming assets decreased 3.71% during the quarter

Net Interest Income
On a linked quarter basis, net interest income increased by $1.45 million, or 3.13%, in second quarter 2016 versus first quarter 2016, while tax-equivalent net interest margin was 3.36%, a decrease of 1 basis point from the first quarter of 2016. Accretion income added $0.61 million, or 5 basis points, to margin in the current quarter, as compared to $0.65 million, or 6 basis points, in the linked quarter.

Noninterest Income
In comparison to the first quarter of 2016, noninterest income, excluding gains and losses on investment securities, increased $4.05 million, or 12.50%. Residential mortgage banking income increased by $5.03 million, or 70.67%, from the first quarter of 2016 as mortgage production saw a seasonally driven increase of $278.65 million combined with improved pricing. Additionally, real estate brokerage and property management income increased due to seasonal improvements in our resort property management and real estate brokerage businesses. Partially offsetting the increase from the linked quarter was a decline in insurance commissions due to lower contingent commission revenue, which is mostly received during the first quarter of each year.

Noninterest Expense
Noninterest expense increased by $19.74 million, or 37.84%, from the first quarter of 2016. Driving the increase were additional pre-tax acquisition-related expenses of $18.02 million. Excluding the additional noninterest expense from acquisition-related expenses, core expenses increased by $1.72 million, or 3.32% in second quarter 2016.

Noninterest Income % Change
Q2 Q2 Q1 Q2 16 vs. Q2 16 vs.
(dollars in thousands)2016 2015 2016 Q2 15 Q1 16
Residential mortgage banking income, net$12,148 $10,251 $7,118 18.51% 70.67%
Real estate brokerage and property management, net6,116 4,584 4,827 33.42% 26.70%
Insurance commissions and other title fees and income, net11,627 9,885 14,033 17.62% (17.15)%
Service charges on deposit accounts2,284 2,326 2,176 (1.81)% 4.96%
Credit card merchant fees, net1,113 566 895 96.64% 24.36%
Other income3,180 3,421 3,366 (7.04)% (5.53)%
Subtotal before gain on investments36,468 31,033 32,415 17.51% 12.50%
Net gain on investment properties 1,933 (100.00)% N/M
Net gain on investment securities 119 (100.00)% N/M
Total noninterest income$36,468 $33,085 $32,415 10.23% 12.50%


Noninterest Expense % Change
Q2 Q2 Q1 Q2 16 vs. Q2 16 vs.
(dollars in thousands)2016 2015 2016 Q2 15 Q1 16
Salaries and benefits$30,093 $26,544 $30,187 13.37% (0.31)%
Occupancy expense5,157 4,856 5,017 6.20% 2.79%
Furniture and equipment2,381 2,369 2,357 0.51% 1.02%
Other expenses15,833 14,928 14,186 6.06% 11.61%
Core noninterest expense53,464 48,697 51,747 9.79% 3.32%
Acquisition-related expenses18,435 370 414 N/M N/M
Total noninterest expense$71,899 $49,067 $52,161 46.53% 37.84%

Segment Results

The following table presents our segment results:

$ Change
(in thousands) Q2 Q2 Q1 Q2 16 vs. Q2 16 vs.
Segment Net Income 2016 2015 2016 Q2 15 Q1 16
Banking $1,290 $13,067 $14,133 $(11,777) $(12,843)
Realty 3,765 3,727 1,033 38 2,732
Insurance 1,204 1,018 2,653 186 (1,449)
Total net income $6,259 $17,812 $17,819 $(11,553) $(11,560)

Second Quarter 2016 Compared to Second Quarter 2015

Banking
Net income for the three months ended June 30, 2016 for the Banking segment was $1.29 million as compared to $13.07 million in the comparative 2015 quarter, as the current quarter results included an increase in acquisition-related expenses of $17.83 million related to the Monarch transaction. Total Banking segment revenue increased to a record $52.43 million, as net interest income climbed by $2.81 million due to an increase in earning assets, as average loan balances increased $541.52 million. Also contributing to the variance from second quarter 2015 was an increase in the loan loss provision driven by loan growth and increased personnel costs.

Realty
For the three months ended June 30, 2016, the Realty segment had net income of $3.77 million compared to $3.73 million the second quarter of 2015. The current quarter results were driven by an increase in residential mortgage banking income of $2.03 million, or 19.44%, due to higher production volumes. Additionally, property management fees increased by $1.10 million, or 42.15%, primarily due to our purchase of Oak Island in January 2016.

Insurance
The Insurance segment had net income of $1.20 million for the three months ended June 30, 2016, an increase of $0.19 million as compared to the second quarter of 2015. Insurance agencies acquired in 2015 contributed additional revenue, net of commission expense, of $1.09 million in second quarter 2016. Contributing to the increase was an improvement in benefits insurance lines and commissions from travel insurance, partially offset by a slight decline in commercial lines, excluding the acquired agencies. The acquired agencies resulted in additional noninterest expenses of $1.09 million of noninterest expenses, including acquisition-related expenses.

Second Quarter 2016 Compared to First Quarter 2016

Banking
The decrease in earnings from $14.13 million in the first quarter of 2015 was driven by an increase in noninterest expenses of $17.80 million, of which $17.70 million resulted from the Monarch merger. Also contributing was an increase in the loan loss provision of $2.36 million, primarily due to loan growth. Increased revenue partially offset the merger costs and loan loss provision increase as net interest income grew by $1.07 million as average earning assets increased by $209.65 million.

Realty
Net income in the Realty segment increased by $2.73 million from the linked quarter ended March 31, 2016. The increase resulted from a combination of higher residential mortgage banking income of $5.18 million and seasonal increases in real estate brokerage and resort property management businesses.

Insurance
Net income decreased $1.45 million from the first quarter of 2015. The variance from the linked quarter was driven by a decrease in contingency and bonus revenue of $2.97 million, which was partially offset by a seasonal increase in property and casualty commission income of $0.55 million. Contingent commissions are seasonal in nature and are mostly received during the first quarter of each year.

Balance Sheet

At June 30, 2016, total Bank assets reached $7.94 billion, an increase of $1.89 billion, or 31.14%, over June 30, 2015.

Loans

% Change
Q2 Q2 Q1 Q2 16 vs. Q2 16 vs.
(dollars in thousands)2016 2015 2016 Q2 15 Q1 16
Construction and land development$824,609 $554,053 $635,992 48.83% 29.66%
Commercial real estate - investment
related properties
1,221,488 987,945 998,082 23.64% 22.38%
Commercial real estate - owner occupied896,620 760,622 764,230 17.88% 17.32%
Multifamily real estate171,501 137,378 160,246 24.84% 7.02%
1-4 family residential real estate1,183,818 948,138 988,432 24.86% 19.77%
Commercial and industrial business loans1,075,736 732,936 852,005 46.77% 26.26%
Consumer loans and other186,177 107,055 153,273 73.91% 21.47%
Total$5,559,949 $4,228,127 $4,552,260 31.50% 22.14%

The Bank’s loan portfolio ended the period at $5.56 billion representing an increase of 31.50%, or $1.33 billion, from the prior year and an increase of 22.14%, or $1.01 billion, from March 31, 2016. In addition to organic growth, the increase in loans is related to the acquisition of $818.12 million loans in the Monarch merger on June 24, 2016.

Deposits

% Change
Q2 Q2 Q1 Q2 16 vs. Q2 16 vs.
(dollars in thousands)2016 2015 2016 Q2 15 Q1 16
Noninterest-bearing demand$1,950,816 $1,363,551 $1,449,660 43.07% 34.57%
Interest-bearing:
Demand and money market accounts2,174,154 1,680,038 1,769,414 29.41% 22.87%
Savings317,071 300,203 302,373 5.62% 4.86%
Certificates of deposits1,744,238 1,342,860 1,433,679 29.89% 21.66%
Total$6,186,279 $4,686,652 $4,955,126 32.00% 24.85%

The Bank continued to experience solid deposit growth with total deposits increasing to $6.19 billion, up $1.50 billion, or 32.00%, from June 30, 2015. Growth in total deposits includes $1.06 billion of deposits acquired in the Monarch merger. The Bank saw continued growth in noninterest bearing demand deposits, which ended the quarter at $1.95 billion, a 43.07% increase from June 30, 2015. Noninterest deposits represented 31.53% of total deposits at June 30, 2016.

Capital Ratios

Q2 Q2 Q1
2016 2015 2016
Common Equity Tier 1 11.82% 12.96% 12.66%
Tier 1 11.89% 13.07% 12.73%
Total 12.50% 13.84% 13.46%
Tier 1 leverage ratio 12.36% 11.12% 10.70%

The Bank’s total equity at June 30, 2016 rose to $1.06 billion, an increase of $258.66 million, or 32.22%, from June 30, 2015. 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 12.50%, 11.89%, 12.36%, 11.82%, respectively. All ratios exceed the current regulatory standards for well capitalized status.

Asset Quality

(in thousands)6/30/2016 3/31/2016 12/31/2015 9/30/2015 6/30/2015
Nonperforming loans$10,580 $7,944 $8,670 $8,477 $7,455
Foreclosed property25,707 29,740 34,420 39,509 46,154
Total nonperforming assets$36,287 $37,684 $43,090 $47,986 $53,609
Quarterly net loans charged off
(recovered)
$241 $340 $(156) $69 $339
Year-to-date net loans charged off$581 $340 $585 $741 $672


Change
Q2 Q2 Q1 Q2 16 vs. Q2 16 vs.
(dollars in thousands) 2016 2015 2016 Q2 15 Q1 16
Total loans 90 days past due and still accruing $ $277 $ $(277) $
Total loans 30-89 days past due $5,041 $5,283 $12,055 $(242) $(7,014)
Allowance for loan losses $39,618 $37,290 $37,760 $2,328 $1,858
Total performing TDRs $28,184 $31,714 $24,955 $(3,530) $3,229
Nonperforming loans to period end loans 0.19% 0.18% 0.17% 0.01% 0.02%
Nonperforming assets to period end assets 0.46% 0.89% 0.59% (0.43)% (0.13)%
Allowance for loan losses to period end loans 0.71% 0.88% 0.83% (0.17)% (0.12)%
Allowance for loan losses (originated) to originated period end loans 0.90% 1.00% 0.92% (0.10)% (0.02)%
Net charge-offs (recoveries) to average loans (annualized) 0.02% 0.03% 0.03% (0.01)% (0.01)%
Ratio of allowance for loan losses to nonperforming loans 3.74x 5.00x 4.75x (1.26)x (1.01)x

Continued strength in credit quality contributed to the Bank's financial results as net charge-offs were $0.24 million in the second quarter of 2016 compared to $0.34 million in the second quarter of 2015 and $0.34 million in the linked quarter. Total nonperforming assets were $36.29 million, or 0.46% of Bank assets, at June 30, 2016, as compared to $53.61 million, or 0.89%, at June 30, 2015, and $37.68 million, or 0.59%, at March 31, 2016. The allowance for loan losses was $39.62 million, increased from $37.29 million at June 30, 2015 and $37.76 million at March 31, 2016.

About TowneBank:
As one of the top community banks in Virginia and North Carolina, TowneBank operates 37 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 $7.94 billion as of June 30, 2016, 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. TowneBank’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 TowneBank’s market areas; TowneBank’s implementation of new technologies and the ability to develop and maintain secure and reliable electronic systems; changes in the securities markets; and 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. ###

TOWNEBANK
Selected Financial Highlights (unaudited)
(dollars in thousands, except per share data)
Increase/ % Increase/
Three months ended June 30,2016 2015 (Decrease) (Decrease)
Results of Operations:
Net interest income$47,784 $44,884 $2,900 6.46%
Noninterest income (1)36,468 31,033 5,435 17.51%
Gain on investment securities 119 (119) (100.00)%
Gain on investment properties 1,933 (1,933) (100.00)%
Total Revenue84,252 77,969 6,283 8.06%
Acquisition-related expenses18,435 370 18,065 N/M
Noninterest expenses, excluding acquisition-related expenses53,464 48,697 4,767 9.79%
Provision for loan losses2,099 1,723 376 21.82%
Income before income tax and noncontrolling interest10,254 27,179 (16,925) (62.27)%
Provision for income tax expense2,375 8,201 (5,826) (71.04)%
Net income7,879 18,978 (11,099) (58.48)%
Net income attributable to noncontrolling interest(1,620) (1,166) (454) 38.94%
Net income attributable to TowneBank6,259 17,812 (11,553) (64.86)%
Net income available to common shareholders6,259 17,812 (11,553) (64.86)%
Net income per common share - basic0.12 0.35 (0.23) (65.71)%
Net income per common share - diluted0.12 0.35 (0.23) (65.71)%
Period End Data:
Total assets$7,940,741 $6,055,181 $1,885,560 31.14%
Total assets - tangible7,641,740 5,879,975 1,761,765 29.96%
Earning assets (2)7,310,561 5,576,243 1,734,318 31.10%
Loans (net of unearned income)5,559,949 4,228,127 1,331,822 31.50%
Allowance for loan losses39,618 37,290 2,328 6.24%
Goodwill and other intangibles299,000 175,207 123,793 70.66%
Nonperforming assets36,287 53,609 (17,322) (32.31)%
Noninterest bearing deposits1,950,816 1,363,551 587,265 43.07%
Interest bearing deposits4,235,463 3,323,101 912,362 27.46%
Total deposits6,186,279 4,686,652 1,499,627 32.00%
Total equity1,061,548 802,891 258,657 32.22%
Total equity - tangible762,548 627,685 134,863 21.49%
Common equity1,050,360 794,018 256,342 32.28%
Common equity - tangible751,360 618,812 132,548 21.42%
Book value per common share16.84 15.40 1.44 9.35%
Book value per common share - tangible12.05 12.00 0.05 0.42%
Daily Average Balances:
Total assets$6,534,063 $5,900,816 $633,247 10.73%
Total assets - tangible6,339,815 5,724,957 614,858 10.74%
Earning assets (2)6,025,033 5,407,516 617,517 11.42%
Loans (net of unearned income), excluding nonaccrual loans4,702,825 4,161,304 541,521 13.01%
Allowance for loan losses38,419 36,854 1,565 4.25%
Goodwill and other intangibles194,248 175,858 18,390 10.46%
Noninterest bearing deposits1,538,370 1,307,075 231,295 17.70%
Interest bearing deposits3,544,493 3,241,276 303,217 9.35%
Total deposits5,082,863 4,548,351 534,512 11.75%
Total equity859,938 800,369 59,569 7.44%
Total equity - tangible665,690 624,511 41,179 6.59%
Common equity850,393 791,915 58,478 7.38%
Common equity - tangible656,145 616,057 40,088 6.51%
Key Ratios:
Return on average assets0.39% 1.21% (0.82)% (67.77)%
Return on average assets - tangible0.44% 1.28% (0.84)% (65.63)%
Return on average equity2.93% 8.93% (6.00)% (67.19)%
Return on average equity - tangible4.19% 11.77% (7.58)% (64.40)%
Return on average common equity2.96% 9.02% (6.06)% (67.18)%
Return on average common equity - tangible4.25% 11.93% (7.68)% (64.38)%
Net interest margin-fully tax equivalent (2)(3)3.36% 3.52% (0.16)% (4.55)%
Net interest margin (2)3.27% 3.43% (0.16)% (4.66)%
Average earning assets/total average assets92.21% 91.64% 0.57% 0.62%
Average loans/average deposits92.52% 91.49% 1.03% 1.13%
Average noninterest deposits/total average deposits30.27% 28.74% 1.53% 5.32%
Allowance for loan losses/period end loans0.71% 0.88% (0.17)% (19.32)%
Nonperforming assets to period end assets0.46% 0.89% (0.43)% (48.31)%
Period end equity/period end total assets13.37% 13.26% 0.11% 0.83%
Efficiency ratio (1)85.34% 64.63% 20.71% 32.04%
(1) Excludes gain on investment securities and properties
(2) Includes bank-owned life insurance
(3) Presented on a tax-equivalent basis


TOWNEBANK
Selected Financial Highlights (unaudited)
(dollars in thousands, except per share data)
Increase/ % Increase/
Six Months Ended June 30,2016 2015 (Decrease) (Decrease)
Results of Operations:
Net interest income$94,120 $88,440 $5,680 6.42%
Noninterest income (1)68,882 59,799 9,083 15.19%
Gain on investment securities 169 (169) (100.00)%
Gain on investment properties 1,933 (1,933) (100.00)%
Total Revenue163,002 150,341 12,661 8.42%
Acquisition-related expenses18,849 784 18,065 N/M
Noninterest expenses, excluding acquisition-related expenses105,211 98,723 6,488 6.57%
Provision for loan losses1,840 2,045 (205) (10.02)%
Income before income tax and noncontrolling interest37,102 48,789 (11,687) (23.95)%
Provision for income tax expense10,563 14,586 (4,023) (27.58)%
Net income26,539 34,203 (7,664) (22.41)%
Net income attributable to noncontrolling interest(2,461) (1,853) (608) 32.81%
Net income attributable to TowneBank24,078 32,350 (8,272) (25.57)%
Preferred stock dividends 13 (13) (100.00)%
Net income available to common shareholders24,078 32,337 (8,259) (25.54)%
Net income per common share - basic0.47 0.64 (0.17) (26.56)%
Net income per common share - diluted0.47 0.63 (0.16) (25.40)%
Period End Data:
Total assets$7,940,741 $6,055,181 $1,885,560 31.14%
Total assets - tangible7,641,740 5,879,975 1,761,765 29.96%
Earning assets (2)7,310,561 5,576,243 1,734,318 31.10%
Loans (net of unearned income)5,559,949 4,228,127 1,331,822 31.50%
Allowance for loan losses39,618 37,290 2,328 6.24%
Goodwill and other intangibles299,000 175,207 123,793 70.66%
Nonperforming assets36,287 53,609 (17,322) (32.31)%
Noninterest bearing deposits1,950,816 1,363,551 587,265 43.07%
Interest bearing deposits4,235,463 3,323,101 912,362 27.46%
Total deposits6,186,279 4,686,652 1,499,627 32.00%
Total equity1,061,548 802,891 258,657 32.22%
Total equity - tangible762,548 627,685 134,863 21.49%
Common equity1,050,360 794,018 256,342 32.28%
Common equity - tangible751,360 618,812 132,548 21.42%
Book value per common share16.84 15.40 1.44 9.35%
Book value per common share - tangible12.05 12.00 0.05 0.42%
Daily Average Balances:
Total assets$6,423,650 $5,865,372 $558,278 9.52%
Total assets - tangible6,233,169 5,684,147 549,022 9.66%
Earning assets (2)5,920,207 5,349,362 570,845 10.67%
Loans (net of unearned income), excluding nonaccrual loans4,609,551 4,114,156 495,395 12.04%
Allowance for loan losses38,487 36,453 2,034 5.58%
Goodwill and other intangibles190,481 181,224 9,257 5.11%
Noninterest bearing deposits1,477,081 1,281,690 195,391 15.24%
Interest bearing deposits3,522,050 3,245,034 277,016 8.54%
Total deposits4,999,131 4,526,724 472,407 10.44%
Total equity845,058 791,152 53,906 6.81%
Total equity - tangible654,577 609,928 44,649 7.32%
Common equity835,830 780,014 55,816 7.16%
Common equity - tangible645,349 598,790 46,559 7.78%
Key Ratios:
Return on average assets0.75% 1.11% (0.36)% (32.43)%
Return on average assets - tangible0.82% 1.19% (0.37)% (31.09)%
Return on average equity5.73% 8.25% (2.52)% (30.55)%
Return on average equity - tangible7.81% 11.04% (3.23)% (29.26)%
Return on average common equity5.79% 8.36% (2.57)% (30.74)%
Return on average common equity - tangible7.92% 11.24% (3.32)% (29.54)%
Net interest margin-fully tax equivalent (2)(3)3.36% 3.52% (0.16)% (4.55)%
Net interest margin (2)3.28% 3.43% (0.15)% (4.37)%
Average earning assets/total average assets92.16% 91.20% 0.96% 1.05%
Average loans/average deposits92.21% 90.89% 1.32% 1.45%
Average noninterest deposits/total average deposits29.55% 28.31% 1.24% 4.38%
Allowance for loan losses/period end loans0.71% 0.88% (0.17)% (19.32)%
Nonperforming assets to period end assets0.46% 0.89% (0.43)% (48.31)%
Period end equity/period end total assets13.37% 13.26% 0.11% 0.83%
Efficiency ratio (1)76.11% 67.13% 8.98% 13.38%
(1) Excludes gain on investment securities and properties
(2) Includes bank-owned life insurance
(3) Presented on a tax-equivalent basis


TOWNEBANK
Selected Financial Highlights (unaudited)
(dollars in thousands, except per share data)
June 30, March 31, Increase/ % Increase/
Three Months Ended2016 2016 (Decrease) (Decrease)
Results of Operations:
Net interest income$47,784 $46,336 $1,448 3.13%
Noninterest income (1)36,468 32,415 4,053 12.50%
Total Revenue84,252 78,751 5,501 6.99%
Acquisition-related expenses18,435 414 18,021 N/M
Noninterest expenses, excluding acquisition-related expenses53,464 51,747 1,717 3.32%
Provision for loan losses2,099 (259) 2,358 (910.42)%
Income before income tax and noncontrolling interest10,254 26,849 (16,595) (61.81)%
Provision for income tax expense2,375 8,188 (5,813) (70.99)%
Net income7,879 18,661 (10,782) (57.78)%
Net income attributable to noncontrolling interest(1,620) (842) (778) 92.40%
Net income attributable to TowneBank6,259 17,819 (11,560) (64.87)%
Net income available to common shareholders6,259 17,819 (11,560) (64.87)%
Net income per common share - basic0.12 0.35 (0.23) (65.71)%
Net income per common share - diluted0.12 0.35 (0.23) (65.71)%
Period End Data:
Total assets$7,940,741 $6,365,169 $1,575,572 24.75%
Total assets - tangible7,641,740 6,178,224 1,463,516 23.69%
Earning assets (2)7,310,561 5,896,763 1,413,798 23.98%
Loans (net of unearned income)5,559,949 4,552,260 1,007,689 22.14%
Allowance for loan losses39,618 37,760 1,858 4.92%
Goodwill and other intangibles299,000 186,945 112,055 59.94%
Nonperforming assets36,287 37,684 (1,397) (3.71)%
Noninterest bearing deposits1,950,816 1,449,660 501,156 34.57%
Interest bearing deposits4,235,463 3,505,466 729,997 20.82%
Total deposits6,186,279 4,955,126 1,231,153 24.85%
Total equity1,061,548 836,003 225,545 26.98%
Total equity - tangible762,548 649,058 113,490 17.49%
Common equity1,050,360 826,875 223,485 27.03%
Common equity - tangible751,360 639,930 111,430 17.41%
Book value per common share16.84 16.00 0.84 5.25%
Book value per common share - tangible12.05 12.38 (0.33) (2.67)%
Daily Average Balances:
Total assets$6,534,063 $6,313,238 $220,825 3.50%
Total assets - tangible6,339,815 6,126,524 213,291 3.48%
Earning assets (2)6,025,033 5,815,383 209,650 3.61%
Loans (net of unearned income), excluding nonaccrual loans4,702,825 4,516,277 186,548 4.13%
Allowance for loan losses38,419 38,555 (136) (0.35)%
Goodwill and other intangibles194,248 186,714 7,534 4.04%
Noninterest bearing deposits1,538,370 1,415,793 122,577 8.66%
Interest bearing deposits3,544,493 3,499,607 44,886 1.28%
Total deposits5,082,863 4,915,400 167,463 3.41%
Total equity859,938 830,178 29,760 3.58%
Total equity - tangible665,690 643,464 22,226 3.45%
Common equity850,393 821,268 29,125 3.55%
Common equity - tangible656,145 634,554 21,591 3.40%
Key Ratios:
Return on average assets0.39% 1.14% (0.75)% (65.79)%
Return on average assets - tangible0.44% 1.21% (0.77)% (63.64)%
Return on average equity2.93% 8.63% (5.70)% (66.05)%
Return on average equity - tangible4.19% 11.56% (7.37)% (63.75)%
Return on average common equity2.96% 8.73% (5.77)% (66.09)%
Return on average common equity - tangible4.25% 11.72% (7.47)% (63.74)%
Net interest margin-fully tax equivalent (2)(3)3.36% 3.37% (0.01)% (0.30)%
Net interest margin (2)3.27% 3.29% (0.02)% (0.61)%
Average earning assets/total average assets92.21% 92.11% 0.10% 0.11%
Average loans/average deposits92.52% 91.88% 0.64% 0.70%
Average noninterest deposits/total average deposits30.27% 28.80% 1.47% 5.10%
Allowance for loan losses/period end loans0.71% 0.83% (0.12)% (14.46)%
Nonperforming assets to period end assets0.46% 0.59% (0.13)% (22.03)%
Period end equity/period end total assets13.37% 13.13% 0.24% 1.83%
Efficiency ratio (1)85.34% 66.24% 19.10% 28.83%
(1) Excludes gain on investment securities
(2) Includes bank-owned life insurance
(3) Presented on a tax-equivalent basis


TOWNEBANK
Average Balances, Yields and Rate Paid (unaudited)
(dollars in thousands)
Three Months Ended Three Months Ended Three Months Ended
June 30, 2016 March 31, 2016 June 30, 2015
InterestAverage InterestAverage InterestAverage
AverageIncome/Yield/ AverageIncome/Yield/ AverageIncome/Yield/
BalanceExpenseRate BalanceExpenseRate BalanceExpenseRate
Assets:
Loans (net of unearned income and deferred costs), excluding nonaccrual loans$4,702,825 $52,232 4.47% $4,516,277 $50,781 4.52% $4,161,304 $48,730 4.70%
Taxable investment securities671,792 2,734 1.63% 754,514 3,055 1.62% 818,000 2,825 1.38%
Tax-exempt investment securities52,398 405 3.09% 52,979 410 3.09% 63,255 496 3.14%
Interest-bearing deposits289,698 364 0.51% 265,256 330 0.50% 87,709 56 0.25%
Loans held for sale156,425 1,294 3.31% 76,503 693 3.62% 131,305 1,161 3.54%
Bank-owned life insurance151,895 1,817 4.81% 149,854 1,802 4.84% 145,943 2,044 5.62%
Total earning assets6,025,033 58,846 3.93% 5,815,383 57,071 3.95% 5,407,516 55,312 4.10%
Less: allowance for loan losses(38,419) (38,555) (36,854)
Total nonearning assets547,449 536,410 530,154
Total assets$6,534,063 $6,313,238 $5,900,816
Liabilities and Equity:
Interest-bearing deposits
Demand and money market$1,813,502 $1,298 0.29% $1,782,908 $1,328 0.30% $1,646,075 $1,144 0.28%
Savings301,542 709 0.95% 300,070 700 0.94% 301,020 692 0.92%
Certificates of deposit1,429,449 3,260 0.92% 1,416,629 3,185 0.90% 1,294,181 2,606 0.81%
Total interest-bearing deposits3,544,493 5,267 0.60% 3,499,607 5,213 0.60% 3,241,276 4,442 0.55%
Borrowings469,939 3,190 2.69% 468,798 3,185 2.69% 460,993 3,382 2.90%
Total interest-bearing liabilities4,014,432 8,457 0.85% 3,968,405 8,398 0.85% 3,702,269 7,824 0.85%
Demand deposits1,538,370 1,415,793 1,307,075
Other noninterest-bearing liabilities121,323 98,862 91,103
Total liabilities5,674,125 5,483,060 5,100,447
Shareholders’ equity859,938 830,178 800,369
Total liabilities and equity$6,534,063 $6,313,238 $5,900,816
Net interest income (tax-equivalent basis) $50,389 $48,673 $47,488
Reconcilement of Non-GAAP Financial Measures
Bank-owned life insurance (1,817) (1,802) (2,044)
Tax-equivalent basis adjustment (788) (535) (560)
Net interest income (GAAP) $47,784 $46,336 $44,884
Interest rate spread (1) 3.08% 3.10% 3.26%
Interest expense as a percent of average earning assets 0.56% 0.58% 0.58%
Net interest margin (tax equivalent basis) (2) 3.36% 3.37% 3.52%
Total cost of deposits 0.42% 0.43% 0.39%

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


TOWNEBANK
Average Balances, Yields and Rate Paid (unaudited)
(dollars in thousands)
Six Months Ended Six Months Ended Six Months Ended June 30, 2016
June 30, 2016 June 30, 2015 Compared with June 30, 2015
InterestAverage InterestAverage
AverageIncome/Yield/ AverageIncome/Yield/ IncreaseChange due to
BalanceExpenseRate BalanceExpenseRate (Decrease)RateVolume
Assets:
Loans (net of unearned income and deferred costs), excluding nonaccrual loans$4,609,551 $103,012 4.49% $4,114,156 $96,619 4.74% $6,394 $(26,189)$32,583
Taxable investment securities713,152 5,790 1.62% 783,896 5,626 1.44% 164 2,502 (2,338)
Tax-exempt investment securities52,689 814 3.09% 65,024 1,032 3.17% (218)(26)(192)
Interest-bearing deposits277,477 694 0.50% 144,962 181 0.25% 513 268 245
Loans held for sale116,464 1,987 3.41% 98,093 1,726 3.52% 261 (327)588
Bank-owned life insurance150,874 3,619 4.82% 143,231 3,797 5.35% (178)(1,178)1,000
Total earning assets5,920,207 115,916 3.94% 5,349,362 108,981 4.11% 6,936 (24,950)31,886
Less: allowance for loan losses(38,487) (36,453)
Total nonearning assets$541,930 $552,463
Total assets$6,423,650 $5,865,372
Liabilities and Equity:
Interest-bearing deposits
Demand and money market$1,798,205 $2,626 0.29% $1,640,794 $2,255 0.28% $371 $142 $229
Savings300,806 1,409 0.94% 303,007 1,375 0.92% 34 92 (58)
Certificates of deposit1,423,039 6,445 0.91% 1,301,233 5,236 0.81% 1,209 685 524
Total interest-bearing deposits3,522,050 10,480 0.60% 3,245,034 8,866 0.55% 1,614 919 695
Borrowings469,368 6,375 2.69% 454,134 6,770 2.96% (394)(1,606)1,212
Total interest-bearing liabilities3,991,418 16,855 0.85% 3,699,168 15,636 0.85% 1,220 (687)1,907
Demand deposits1,477,081 1,281,690
Other noninterest-bearing liabilities110,093 93,362
Total liabilities5,578,592 5,074,220
Shareholders’ equity845,058 791,152
Total liabilities and equity$6,423,650 $5,865,372
Net interest income (tax-equivalent basis) $99,061 $93,345 $5,716 $(24,263)$29,979
Reconcilement of Non-GAAP Financial Measures
Bank-owned life insurance (3,619) (3,797) 178
Tax-equivalent basis adjustment (1,322) (1,108) (214)
Net interest income (GAAP) $94,120 $88,440 $5,680
Interest rate spread (1) 3.09% 3.26%
Interest expense as a percent of average earning assets 0.57% 0.59%
Net interest margin (tax equivalent basis) (2) 3.36% 3.52%
Total cost of deposits 0.42% 0.39%
(1) Interest spread is the average yield earned on earning assets less the average rate paid on interest bearing liabilities. Fully tax equivalent.
(2) Net interest margin is net interest income expressed as a percentage of average earning assets. Fully tax equivalent.


TOWNEBANK
Consolidated Balance Sheets
(dollars in thousands, except share data)
June 30, December 31,
2016 2015 2015
(unaudited) (audited)
ASSETS
Cash and due from banks$188,183 $184,099 $250,836
Interest-bearing deposits in financial institutions33,777 1,011 1,001
Federal funds sold14
Total Cash and Cash Equivalents221,974 185,110 251,837
Securities available for sale, at fair value812,375 759,425 723,489
Securities held to maturity, at amortized cost65,728 80,195 69,045
Federal Home Loan Bank stock, at amortized cost28,008 24,058 23,691
Total Securities906,111 863,678 816,225
Mortgage loans held for sale474,978 165,994 102,346
Loans, net of unearned income and deferred costs:
Real estate - residential 1-4 family1,183,818 948,138 973,331
Real estate - commercial2,118,108 1,748,567 1,784,393
Real estate - construction and land development824,609 554,053 598,875
Real estate - multifamily171,501 137,378 167,371
Commercial and industrial business1,075,736 732,936 857,036
Consumer and other loans186,177 107,055 138,387
Loans, net of unearned income and deferred costs5,559,949 4,228,127 4,519,393
Less: Allowance for loan losses(39,618) (37,290) (38,359)
Net Loans5,520,331 4,190,837 4,481,034
Premises and equipment, net202,333 172,492 173,695
Goodwill257,485 153,191 154,842
Other intangible assets, net41,515 22,016 26,153
Bank-owned life insurance policies164,933 146,729 149,452
Other assets151,081 155,134 140,990
TOTAL ASSETS$7,940,741 $6,055,181 $6,296,574
LIABILITIES AND EQUITY
Liabilities
Deposits:
Noninterest-bearing demand$1,950,816 $1,363,551 $1,393,264
Interest-bearing:
Demand and money market accounts2,174,154 1,680,038 1,824,226
Savings317,071 300,203 300,408
Certificates of deposit1,744,238 1,342,860 1,396,129
Total Deposits6,186,279 4,686,652 4,914,027
Advances from the Federal Home Loan Bank500,798 437,584 429,080
Repurchase agreements and other borrowings44,008 35,737 37,434
Total Borrowings544,806 473,321 466,514
Other liabilities148,108 92,317 95,839
TOTAL LIABILITIES6,879,193 5,252,290 5,476,380
Shareholders’ Equity
Preferred stock:
Authorized and unissued shares - 2,000,000
Common stock, $1.667 par: 90,000,000 shares authorized
62,365,197; 51,551,312; and 51,605,521 shares issued at
June 30, 2016 and 2015 and December 31, 2015, respectively103,963 85,936 86,026
Capital surplus742,228 532,646 535,094
Retained earnings202,565 175,145 192,795
Common stock issued to deferred compensation trust, at cost
674,899; 651,738; and 648,350 shares at
June 30, 2016 and 2015 and December 31, 2015, respectively(10,785) (10,110) (10,172)
Deferred compensation trust10,785 10,110 10,172
Accumulated other comprehensive income (loss)1,604 291 (2,994)
TOTAL SHAREHOLDERS’ EQUITY1,050,360 794,018 810,921
Noncontrolling interests11,188 8,873 9,273
TOTAL EQUITY1,061,548 802,891 820,194
TOTAL LIABILITIES AND EQUITY$7,940,741 $6,055,181 $6,296,574


TOWNEBANK
Consolidated Statements of Income (unaudited)
(dollars in thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
2016 2015 2016 2015
INTEREST INCOME:
Loans, including fees$51,444 $48,170 $101,690 $95,511
Investment securities3,139 3,321 6,604 6,658
Interest-bearing deposits in financial institutions and federal funds sold364 56 694 181
Mortgage loans held for sale1,294 1,161 1,987 1,726
Total Interest Income56,241 52,708 110,975 104,076
INTEREST EXPENSE:
Deposits5,267 4,442 10,480 8,866
Advances from the Federal Home Loan Bank3,158 3,365 6,321 6,739
Repurchase agreements and other borrowings32 17 54 31
Total Interest Expense8,457 7,824 16,855 15,636
Net Interest Income47,784 44,884 94,120 88,440
PROVISION FOR LOAN LOSSES2,099 1,723 1,840 2,045
Net Interest Income after Provision for Loan Losses45,685 43,161 92,280 86,395
NONINTEREST INCOME:
Residential mortgage banking income, net12,148 10,251 19,266 18,694
Real estate brokerage and property management income, net6,116 4,584 10,943 8,539
Insurance commissions and other title fees and income, net11,627 9,885 25,660 20,934
Service charges on deposit accounts2,284 2,326 4,460 4,523
Credit card merchant fees, net1,113 566 2,008 998
Other income3,180 5,354 6,545 8,044
Net gain on investment securities 119 169
Total Noninterest Income36,468 33,085 68,882 61,901
NONINTEREST EXPENSE:
Salaries and employee benefits30,093 26,544 60,279 54,223
Occupancy expense5,157 4,856 10,174 9,786
Furniture and equipment2,381 2,369 4,739 4,738
Other expenses34,268 15,298 48,868 30,760
Total Noninterest Expense71,899 49,067 124,060 99,507
Income before income tax expense and noncontrolling interest10,254 27,179 37,102 48,789
Provision for income tax expense2,375 8,201 10,563 14,586
Net income7,879 18,978 26,539 34,203
Net income attributable to noncontrolling interest(1,620) (1,166) (2,461) (1,853)
Net income attributable to TowneBank$6,259 $17,812 $24,078 $32,350
Preferred stock dividends 13
Net income available to common shareholders$6,259 $17,812 $24,078 $32,337
Per common share information
Basic earnings$0.12 $0.35 $0.47 $0.64
Diluted earnings$0.12 $0.35 $0.47 $0.63
Cash dividends declared$0.13 $0.12 $0.25 $0.23


TOWNEBANK
Consolidated Statements of Comprehensive Income (unaudited)
(dollars in thousands)
Three Months Ended Six Months Ended
June 30, June 30,
2016 2015 2016 2015
Net income$7,879 $18,978 $26,539 $34,203
Other comprehensive income (loss)
Unrealized gains (losses) on securities
Unrealized holding gains (losses) arising during the period2,329 (3,200) 6,809 (286)
Deferred tax benefit (expense)(815) 1,120 (2,383) 100
Realized gains reclassified into earnings (49)
Deferred tax benefit 17
Net unrealized gains (losses)1,514 (2,080) 4,426 (218)
Pension and postretirement benefit plans
Actuarial gains 109
Deferred tax expense (38)
Amortization of prior service costs115 153
Deferred tax expense(40) (53)
Amortization of net actuarial loss(2) 18 2 78
Deferred tax benefit (expense)1 (6) (1) (27)
Change in defined benefit retirement plan, net of tax74 12 172 51
Other comprehensive income (loss), net of tax1,588 (2,068) 4,598 (167)
Comprehensive income$9,467 $16,910 $31,137 $34,036


TOWNEBANK
Consolidated Balance Sheets - Five Quarter Trend
(dollars in thousands, except share data)
June 30, March 31, December 31, September 30, June 30,
2016 2016 2015 2015 2015
(unaudited) (unaudited) (audited) (unaudited) (unaudited)
ASSETS
Cash and due from banks$188,183 $195,161 $250,836 $284,625 $184,099
Interest-bearing deposits in financial institutions33,777 1,006 1,001 1,000 1,011
Federal funds sold14
Total Cash and Cash Equivalents221,974 196,167 251,837 285,625 185,110
Securities available for sale, at fair value812,375 821,551 723,489 542,634 759,425
Securities held to maturity, at amortized cost65,728 66,921 69,045 75,154 80,195
Federal Home Loan Bank stock, at amortized cost28,008 23,903 23,691 24,058 24,058
Total Securities906,111 912,375 816,225 641,846 863,678
Mortgage loans held for sale474,978 97,491 102,346 99,330 165,994
Loans, net of unearned income and deferred costs:5,559,949 4,552,260 4,519,393 4,367,039 4,228,127
Less: allowance for loan losses(39,618) (37,760) (38,359) (37,351) (37,290)
Net Loans5,520,331 4,514,500 4,481,034 4,329,688 4,190,837
Premises and equipment, net202,333 178,154 173,695 172,940 172,492
Goodwill257,485 157,659 154,842 152,438 153,191
Other intangible assets, net41,515 29,286 26,153 23,080 22,016
Bank-owned life insurance policies164,933 150,623 149,452 147,949 146,729
Other assets151,081 128,914 140,990 320,995 155,134
TOTAL ASSETS$7,940,741 $6,365,169 $6,296,574 $6,173,891 $6,055,181
LIABILITIES AND EQUITY
Deposits:
Noninterest-bearing demand$1,950,816 $1,449,660 $1,393,264 $1,445,978 $1,363,551
Interest-bearing:
Demand and money market accounts2,174,154 1,769,414 1,824,226 1,676,623 1,680,038
Savings317,071 302,373 300,408 295,952 300,203
Certificates of deposit1,744,238 1,433,679 1,396,129 1,369,325 1,342,860
Total Deposits6,186,279 4,955,126 4,914,027 4,787,878 4,686,652
Advances from the Federal Home Loan Bank500,798 428,940 429,080 437,282 437,584
Repurchase agreements and other borrowings44,008 39,442 37,434 33,784 35,737
Total Borrowings544,806 468,382 466,514 471,066 473,321
Other liabilities148,108 105,658 95,839 98,878 92,317
TOTAL LIABILITIES6,879,193 5,529,166 5,476,380 5,357,822 5,252,290
Preferred stock
Authorized and unissued shares - 2,000,000
Common stock, $1.667 par value103,963 86,151 86,026 85,985 85,936
Capital surplus742,228 536,294 535,094 533,609 532,646
Retained earnings202,565 204,413 192,795 186,522 175,145
Common stock issued to deferred compensation trust, at cost(10,785) (10,288) (10,172) (10,151) (10,110)
Deferred compensation trust10,785 10,288 10,172 10,151 10,110
Accumulated other comprehensive income (loss)1,604 17 (2,994) 1,036 291
TOTAL SHAREHOLDERS’ EQUITY1,050,360 826,875 810,921 807,152 794,018
Noncontrolling interest11,188 9,128 9,273 8,917 8,873
TOTAL EQUITY1,061,548 836,003 820,194 816,069 802,891
TOTAL LIABILITIES AND EQUITY$7,940,741 $6,365,169 $6,296,574 $6,173,891 $6,055,181


TOWNEBANK
Consolidated Statements of Income - Five Quarter Trend (unaudited)
(dollars in thousands, except per share data)
Three Months Ended
June 30, March 31, December 31, September 30, June 30,
2016 2016 2015 2015 2015
INTEREST INCOME:
Loans, including fees$51,444 $50,247 $50,319 $48,906 $48,170
Investment securities3,139 3,464 3,415 3,728 3,321
Interest-bearing deposits in financial institutions and federal funds sold364 330 212 107 56
Mortgage loans held for sale1,294 693 865 1,246 1,161
Total Interest Income56,241 54,734 54,811 53,987 52,708
INTEREST EXPENSE:
Deposits5,267 5,213 5,119 4,881 4,442
Advances from the Federal Home Loan Bank3,158 3,163 3,326 3,422 3,365
Repurchase agreements and other borrowings32 22 35 14 17
Total Interest Expense8,457 8,398 8,480 8,317 7,824
Net Interest Income47,784 46,336 46,331 45,670 44,884
PROVISION FOR LOAN LOSSES2,099 (259) 852 130 1,723
Net Interest Income after Provision for Loan Losses45,685 46,595 45,479 45,540 43,161
NONINTEREST INCOME:
Residential mortgage banking income, net12,148 7,118 7,255 8,262 10,251
Real estate brokerage and property management income, net6,116 4,827 2,438 5,349 4,584
Insurance commissions and other title fees and income, net11,627 14,033 8,997 9,710 9,885
Service charges on deposit accounts2,284 2,176 2,254 2,388 2,326
Credit card merchant fees, net1,113 895 767 823 566
Other income3,180 3,366 3,368 3,036 5,354
Net gain on investment securities 736 119
Total Noninterest Income36,468 32,415 25,079 30,304 33,085
NONINTEREST EXPENSE:
Salaries and employee benefits30,093 30,187 30,826 28,910 26,544
Occupancy expense5,157 5,017 5,156 4,703 4,856
Furniture and equipment2,381 2,357 2,390 2,211 2,369
Other expenses34,268 14,600 14,371 14,082 15,298
Total Noninterest Expense71,899 52,161 52,743 49,906 49,067
Income before income tax expense and noncontrolling interest10,254 26,849 17,815 25,938 27,179
Provision for income tax expense2,375 8,188 4,846 7,444 8,201
Net income7,879 18,661 12,969 18,494 18,978
Net income attributable to noncontrolling interest(1,620) (842) (503) (928) (1,166)
Net income attributable to TowneBank$6,259 $17,819 $12,466 $17,566 $17,812
Preferred stock dividends
Net income available to common shareholders$6,259 $17,819 $12,466 $17,566 $17,812
Per common share information
Basic earnings$0.12 $0.35 $0.24 $0.34 $0.35
Diluted earnings$0.12 $0.35 $0.24 $0.34 $0.35
Basic weighted average shares outstanding51,994,473 51,290,010 51,267,447 51,153,205 51,089,051
Diluted weighted average shares outstanding52,116,772 51,392,857 51,440,440 51,263,382 51,151,512
Cash dividends declared$0.13 $0.12 $0.12 $0.12 $0.12


TOWNEBANK
Insurance Segment Financial Information
(dollars in thousands)
Increase/(Decrease)
Three Months Ended June 30, 2016 June 30, 2016
June 30, March 31, June 30, 2015 March 31, 2016
2016 2015 2016 Amount Percent Amount Percent
Commission and fee income
Property and casualty$8,815 $7,945 $8,263 $870 10.95% $552 6.68%
Employee benefits2,907 2,505 2,721 402 16.05% 186 6.84%
Travel insurance1,163 910 1,456 253 27.80% (293) (20.12)%
Specialized benefit services152 135 153 17 12.59% (1) (0.65)%
Total commissions and fees13,037 11,495 12,593 1,542 13.41% 444 3.53%
Contingency and bonus revenue445 391 3,411 54 13.81% (2,966) (86.95)%
Other income52 47 77 5 10.64% (25) (32.47)%
Total revenue$13,534 $11,933 $16,081 $1,601 13.42% $(2,547) (15.84)%
Employee commission expense2,254 2,325 2,168 (71) (3.05)% 86 3.97%
Revenue, net of commission expense$11,280 $9,608 $13,913 $1,672 17.40% $(2,633) (18.92)%
Salaries and employee benefits5,723 4,734 5,968 989 20.89% (245) (4.11)%
Occupancy expense517 480 529 37 7.71% (12) (2.27)%
Furniture and equipment259 225 224 34 15.11% 35 15.63%
Amortization of intangible assets692 540 685 152 28.15% 7 1.02%
Other expenses1,586 1,424 1,390 162 11.38% 196 14.10%
Total operating expenses8,777 7,403 8,796 1,374 18.56% (19) (0.22)%
Income before income tax provision and noncontrolling interest$2,503 $2,205 $5,117 $298 13.51% $(2,614) (51.08)%
Plus: Acquisition related expenses277 176 76 101 57.39% 201 264.47%
Plus: Amortization of intangible assets692 540 685 152 28.15% 7 1.02%
Operating earnings before income taxes (non-GAAP)$3,472 $2,921 $5,878 $551 18.86% $(2,406) (40.93)%


TOWNEBANK
Insurance Segment Financial Information
(dollars in thousands)
Six Months Ended Increase/(Decrease)
June 30, 2016 over 2015
2016 2015 Amount Percent
Net commission and fee income
Property and casualty$16,961 $14,410 $2,551 17.70%
Employee benefits5,806 5,223 583 11.16%
Travel insurance2,619 2,041 578 28.32%
Specialized benefit services305 268 37 13.81%
Total commissions and fees25,691 21,942 3,749 17.09%
Contingency and bonus revenue3,796 2,849 947 33.24%
Other income129 95 34 35.79%
Total revenues$29,616 $24,886 $4,730 19.01%
Employee commission expense4,421 4,349 72 1.66%
Revenue, net of commission expense$25,195 $20,537 $4,658 22.68%
Salaries and employee benefits$11,692 $9,528 $2,164 22.71%
Occupancy expense1,045 936 109 11.65%
Furniture and equipment483 466 17 3.65%
Amortization of intangible assets1,377 1,066 311 29.17%
Other expenses2,976 2,667 309 11.59%
Total operating expenses17,573 14,663 2,910 19.85%
Income before income tax provision and noncontrolling interest$7,622 $5,874 $1,748 29.76%
Plus: Acquisition related expenses354 356 (2) (0.56)%
Plus: Amortization of intangible assets1,377 1,066 311 29.17%
Operating earnings before income taxes (non-GAAP)$9,353 $7,296 $2,057 28.19%


TOWNEBANK
Purchase Price Allocation - Monarch
(dollars in thousands)
Fair value of assets acquired:
Cash and cash equivalents $67,457
Securities available for sale 20,818
Securities held to maturity 283,528
Net loans 818,119
Bank premise and equipment 23,998
Core deposit intangible 13,210
Other assets 59,352
Total assets $1,286,482
Fair value of liabilities assumed:
Deposits $1,061,620
Long-term borrowings 82,046
Other liabilities 20,978
Total liabilities $1,164,644
Net identifiable assets acquired $121,838
Goodwill 100,606
Net assets acquired $222,444
Purchase Price:
Company common shares issued 10,487,069
Purchase price per share of Company’s common stock $21.21
Common stock issued $222,431
Cash exchanged for fractional shares 13
Fair value of total consideration transferred $222,444


TOWNEBANK
Reconcilement of Non-GAAP Financial Measures
Three Months Ended Six Months Ended
June 30, June 30, December 31, June 30, June 30,
2016 2015 2015 2016 2015
Return on average assets (GAAP basis) 0.39% 1.21% 0.78% 0.75% 1.11%
Impact of excluding average goodwill and other intangibles and amortization 0.05% 0.07% 0.07% 0.07% 0.08%
Return on average tangible assets (Non-GAAP) 0.44% 1.28% 0.85% 0.82% 1.19%
Return on average equity (GAAP basis) 2.93% 8.93% 6.00% 5.73% 8.25%
Impact of excluding average goodwill and other intangibles and amortization 1.26% 2.84% 2.11% 2.08% 2.79%
Return on average tangible equity (Non-GAAP) 4.19% 11.77% 8.11% 7.81% 11.04%
Return on average common equity (GAAP basis) 2.96% 9.02% 6.07% 5.79% 8.36%
Impact of excluding average goodwill and other intangibles and amortization 1.29% 2.91% 2.15% 2.13% 2.88%
Return on average tangible common equity (Non-GAAP) 4.25% 11.93% 8.22% 7.92% 11.24%
Book value (GAAP basis) $16.84 15.40 $15.71 $16.84 $15.40
Impact of excluding average goodwill and other intangibles and amortization (4.79) (3.40) (3.50) (4.79) (3.40)
Tangible book value $12.05 $12.00 $12.21 $12.05 $12.00


TOWNEBANK
Reconcilement of Non-GAAP Financial Measures
(dollars in thousands)
Three Months Ended
June 30, March 31, December 31, September 30, June 30,
Reconcilement of GAAP Earnings to Core Operating Earnings 2016 2016 2015 2015 2015
Net income available to common shareholders (GAAP) $6,259 $17,819 $12,466 $17,566 $17,812
Acquisition-related expenses 18,435 414 285 243 370
Non-core charges 18,435 414 285 243 370
Income tax (expense) benefit (6,177) (33) (100) (85) (130)
Non-core charges, net of taxes 12,258 381 185 158 240
Core operating earnings (non-GAAP) $18,517 $18,200 $12,651 $17,724 $18,052
Weighted average diluted shares 52,116,772 51,392,857 51,440,440 51,263,382 51,151,512
Diluted EPS (GAAP) $0.12 $0.35 $0.24 $0.34 $0.35
Core diluted EPS (non-GAAP) $0.36 $0.35 $0.25 $0.35 $0.35
Average assets $6,534,063 $6,313,238 $6,305,571 $6,115,681 $5,900,816
Average tangible equity $665,690 $643,464 $638,855 $637,179 $624,511
Core return on average tangible assets (non-GAAP) 1.14% 1.16% 0.80% 1.15% 1.23%
Core return on average tangible equity (non-GAAP) 11.60% 11.80% 8.23% 11.35% 11.92%


TOWNEBANK
Reconcilement of Non-GAAP Financial Measures
(dollars in thousands)
Six Months Ended
June 30, June 30,
Reconcilement of GAAP Earnings to Core Operating Earnings 2016 2015
Net income available to common shareholders (GAAP) $24,078 $32,337
Acquisition-related expenses 18,849 784
Non-core charges 18,849 784
Income tax (expense) benefit (6,210) (274)
Non-core charges, net of taxes 12,639 510
Core operating earnings (non-GAAP) $36,717 $32,847
Weighted average diluted shares 51,711,472 50,936,409
Diluted EPS (GAAP) $0.47 $0.63
Core diluted EPS (non-GAAP) $0.71 $0.64
Average assets $6,423,650 $5,865,372
Average tangible equity $654,577 $609,928
Core return on average tangible assets (non-GAAP) 1.15% 1.13%
Core return on average tangible equity (non-GAAP) 11.70% 11.21%


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 CSO, 757-638-6813

Source:TowneBank