TowneBank Reports Full Year and Fourth Quarter Financial Results for 2016

SUFFOLK, Va., Jan. 26, 2017 (GLOBE NEWSWIRE) -- Hampton Roads based TowneBank (the “Bank” or “Company”) (NASDAQ:TOWN) today reported financial results for the full year and the fourth quarter ended December 31, 2016.

Record Earnings for Full Year 2016

The Bank reported record annual earnings of $67.25 million for the year ended December 31, 2016, as compared to the $62.38 million reported in 2015, representing a 7.80% increase. Fully diluted earnings per share were $1.18 per share compared to $1.22 per share for 2015. Earnings per share were affected in 2016 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, core earnings for the year ended December 31, 2016 were $80.15 million (non-GAAP) compared to $63.24 million (non-GAAP) in 2015. Fully diluted core earnings per share, excluding after-tax acquisition-related expenses, were $1.41 (non-GAAP measure) compared to $1.24 (non-GAAP measure) for 2015.

The Bank’s quarterly dividend was increased to $0.13 per share beginning in the second quarter of 2016 resulting in total dividends of $0.51 per share for 2016, an increase of 8.5% over 2015. On an annualized basis, the current annual dividend rate is $0.52 per share.

“We are pleased to announce our 17th consecutive year of record annual earnings,” said G. Robert Aston, Jr., Chairman and Chief Executive Officer. “We finished 2016 with revenue growth of $76.37 million, or 25.65%, over 2015, while producing a core return on average assets of 1.11% and a core return on average tangible equity of 11.73%.”

2016 Performance Highlights

  • Total revenues were $374.10 million, an increase of $76.37 million, or 25.65% from 2015
    - Taxable equivalent net interest margin was 3.50%, including accretion of 11 basis points, compared to 3.45%, including accretion of 9 basis points, for 2015
    - Residential mortgage banking income increased $24.58 million, or 71.85%
    - Insurance segment total revenue increased 14.67% to $54.51 million

  • Core net income, excluding after-tax acquisition-related expenses, was $80.15 million, an increase of 26.75% from 2015
  • Loans held for investment increased $1.29 billion, or 28.50%, from December 31, 2015 with organic growth of $479.69 million, or 10.61%, excluding $808.14 million of loans acquired in the Monarch merger
  • Total deposits were $6.04 billion, an increase of $1.12 billion, or 22.82%, from 2015. The increase included $1.06 billion deposits acquired in the Monarch merger
    - Noninterest bearing deposits increased by 39.77%, to $1.95 billion, representing 32.27% of total deposits
    - Total cost of deposits remained steady at 0.40% at December 31, 2016 and 2015
  • Asset quality showed continued strength
    - Nonperforming assets declined to $37.60 million, or 0.47% of total assets compared to $43.09 million, or 0.68%, at December 31, 2015
    - Nonperforming loans were 0.23% of period end loans
    - Foreclosed property decreased to $21.01 million

  • Strategic acquisitions
    - On January 14, 2016, the Company acquired Oak Island Accommodations, Inc., an independent resort property management company in coastal North Carolina
    - On June 24, 2016, the Company completed the acquisition of Monarch and its wholly-owned bank subsidiary, Monarch Bank, headquartered in Chesapeake, Virginia

  • Banking centers
    - On September 15, 2016, the Company opened a new regional headquarters in the Gateway Plaza in downtown Richmond, Virginia
    - On December 9, 2016, the Company consolidated its banking office in the Port Warwick area of Newport News, Virginia into the banking office in the Oyster Point area of Newport News, Virginia

  • The Bank remained well-capitalized
    - Common equity tier 1 capital ratio of 11.75%
    - Tier 1 leverage capital ratio of 10.44%
    - Tier 1 risk-based capital ratio of 11.82%
    - Total risk-based capital ratio of 12.44%

Fourth Quarter 2016 Earnings Compared to Fourth Quarter 2015

Net income for the fourth quarter was $19.0 million, or $0.31 per diluted share, versus $12.47 million, or $0.24 per diluted share, in 2015, reflecting strong growth in net interest income as compared to the prior year period.

Performance Highlights

  • Total revenues were $101.67 million, a $30.26 million, or 42.37%, increase from fourth quarter 2015
    - Taxable equivalent net interest margin was 3.64%, including accretion of 11 basis points, compared to 3.36%, including accretion of 9 basis points. in fourth quarter 2015
    - Noninterest income increased 57.57% primarily due to merger-related growth in our residential mortgage banking business

Net Interest Income
Net interest income increased to $62.15 million, a $15.82 million, or 34.15%, increase from fourth quarter 2015. The primary driver was the growth in average earning assets, which increased $1.50 billion, or 25.80%, while tax-equivalent net interest margin increased to 3.64% in the current quarter from 3.36% in fourth quarter 2015. Accretion income added $2.34 million, or 15 basis points, to margin in the current quarter as compared to $1.22 million, or 9 basis points, in the fourth quarter of 2015. The Company expects decreases in BOLI income and accretion income to negatively impact tax-equivalent net interest margin by approximately 7 basis points and 8 basis points, respectively.

Noninterest Income
Noninterest income, excluding gains or losses on investment securities, was $39.51 million for the fourth quarter of 2016, an increase of $14.43 million, or 57.55%, from the fourth quarter of 2015. Residential mortgage banking income increased $10.84 million, or 149.43%, from the fourth quarter of 2015 primarily due to higher production volumes resulting from the Monarch merger. Mortgage production was $1.01 billion in fourth quarter 2016, which was $652.47 million higher than fourth quarter 2015 production of $353.52 million. Insurance commissions and other title fees increased $0.83 million, or 9.18%, primarily due to increases in commercial lines and travel insurance commissions combined with increased title income. Also contributing to the increase, other income was higher by $1.63 million primarily due to a rise in BOLI income of $0.87 million combined with an increase in loan service fees and income from Towne Investment Group.

Noninterest Expense
Noninterest expense increased by $20.09 million, or 38.09%, from the fourth quarter of 2015. The primary driver was an increase of $12.24 million in salaries and benefits expense due to the addition of staff resulting from the Monarch acquisition, combined with the addition of staff resulting from the acquisition of a resort property management company in Oak Island, North Carolina ("Oak Island") in first quarter 2016. Also contributing were increases in occupancy expenses of $1.73 million and furniture and equipment expenses of $0.99 million primarily related to mortgage facilities acquired in the Monarch acquisition.

Fourth Quarter 2016 Earnings Compared to Third Quarter 2016
Net income for the fourth quarter was $19.0 million, or $0.31 per diluted share, versus $24.18 million, or $0.39 per diluted share, in third quarter 2016, reflecting the seasonality in our Insurance and Realty segments.

Performance Highlights

  • Total revenues were $101.67 million compared to $109.43 million in the third quarter of 2016
    - Taxable equivalent net interest margin was 3.64%, including accretion of 11 basis points, compared to 3.57%, including accretion of 17 basis points, in the third quarter of 2016
    - Noninterest income, excluding gains on investment securities, decreased $7.31 million due to seasonality in our Insurance and Realty segments

  • Total loans held for investment increased $155.58 million, or 2.75%, from September 30, 2016

Net Interest Income
On a linked quarter basis, net interest income decreased slightly by $0.45 million or 0.73%, in fourth quarter 2016 versus third quarter 2016, while tax-equivalent net interest margin was 3.64% versus 3.57% for the third quarter of 2016. The decrease in net interest income was primarily due to seasonally lower loans held for sale average balances combined with an increase in FHLB borrowings and lower accretion income. Accretion income added $2.34 million, or 15 basis points, to margin in the current quarter, as compared to $2.63 million, or 17 basis points, in the linked quarter.

Noninterest Income
In comparison to the third quarter of 2016, noninterest income, excluding gains or losses on investment securities, decreased $7.31 million, or 15.61%. Residential mortgage banking income decreased by $3.33 million, or 15.56%, from the third quarter of 2016 primarily due to a seasonal decrease in mortgage production of $240.70 million, from $1.25 billion in third quarter 2016 to $1.01 billion in fourth quarter 2016. A seasonal decrease in policy renewals led to the decrease in net insurance commissions, while decreases in real estate brokerage and property management income from the linked quarter also reflected the seasonal nature of those businesses.

Noninterest Expense
Noninterest expense increased by $1.90 million, or 2.68%, from the third quarter of 2016. The primary driver was an increase in salaries and benefits expenses of $2.57 million, partially offset by a decrease in acquisition-related expenses of $1.68 million, which was primarily due to a fourth quarter 2016 change in estimate of previously accrued expenses related to the disposal of acquired facilities.

Noninterest Income % Change
Q4 Q4 Q3 Q4 16 vs. Q4 16 vs.
(dollars in thousands)2016 2015 2016 Q4 15 Q3 16
Residential mortgage banking income, net$18,096 $7,255 $21,430 149.43% (15.56)%
Insurance commissions and other title fees and income, net9,823 8,997 11,258 9.18% (12.75)%
Real estate brokerage and property management, net2,925 2,438 6,647 19.98% (56.00)%
Service charges on deposit accounts2,535 2,254 2,552 12.47% (0.67)%
Credit card merchant fees, net1,135 767 1,365 47.98% (16.85)%
Other income4,998 3,368 3,569 48.40% 40.04%
Subtotal before gain on investment securities39,512 25,079 46,821 57.55% (15.61)%
Net gain on investment securities6 N/M N/M
Total noninterest income$39,518 $25,079 $46,821 57.57% (15.60)%


Noninterest Expense % Change
Q4 Q4 Q3 Q4 16 vs. Q4 16 vs.
(dollars in thousands)2016 2015 2016 Q4 15 Q3 16
Salaries and benefits$43,071 $30,826 $40,497 39.72% 6.36%
Occupancy expense6,885 5,156 6,656 33.53% 3.44%
Furniture and equipment3,378 2,390 3,199 41.34% 5.60%
Acquisition-related expenses(707) 285 969 (348.07)% (172.96)%
Other expenses20,207 14,086 19,612 43.45% 3.03%
Total noninterest expense$72,834 $52,743 $70,933 38.09% 2.68%

Segment Results

$ Change
(in thousands) Q4 Q4 Q3 Q4 16 vs. Q4 16 vs.
Segment Net Income (Loss) 2016 2015 2016 Q4 15 Q3 16
Banking $17,931 $12,219 $18,276 $5,712 $(345)
Realty 673 6 4,815 $667 $(4,142)
Insurance 392 241 1,085 $151 $(693)
Total net income $18,996 $12,466 $24,176 $6,530 $(5,180)

Fourth Quarter 2016 Compared to Fourth Quarter 2015

Banking
Net income for the three months ended December 31, 2016 for the Banking segment was $17.93 million, increasing $5.71 million, or 46.75%, from comparative 2015, as net interest income climbed by $13.77 million due to the increase in earning assets from the Monarch merger. Also contributing to the variance was an increase in noninterest income of $2.33 million. These factors were partially offset by increases in the provision for loan losses and noninterest expenses.

Realty
For the three months ended December 31, 2016, the Realty segment increased net income to $0.67 million from $0.01 million for fourth quarter 2015. The improvement was driven by an increase in residential mortgage banking income of $10.93 million, or 146.81%, due to higher production volumes resulting from the Monarch merger and net interest income increased by $2.05 million as higher production volume led to higher average mortgage loans held for sale. These improvements were partially offset by an increase in operational expenses related to the merger with Monarch.

Insurance
The Insurance segment had net income of $0.39 million for the three months ended December 31, 2016, an increase of $0.15 million compared to fourth quarter 2015. The increase in net income was driven by higher property and casualty insurance commission income combined with a decrease in salaries and benefits expenses.

Fourth Quarter 2016 Compared to Third Quarter 2016

Banking
Earnings decreased slightly by $0.35 million, or 1.89% from the third quarter of 2016 as increases in net interest income and noninterest income were overcome by higher personnel costs of $3.26 million, primarily related to performance based staff incentives and employee benefits expenses. Also, loan growth in the quarter led to an increase of $0.11 million in the provision for loan losses.

Realty
Net income in the Realty segment decreased by $4.14 million from the linked quarter ended September 30, 2016, due to due to historically seasonal decreases in the Bank's mortgage, real estate brokerage, and resort property management businesses.

Insurance
Net income decreased $0.69 million from the third quarter of 2016 due to the historically seasonal decrease in fourth quarter policy renewals. The seasonal decrease in revenue was partially offset by a decline in operating expenses during the current quarter.

Balance Sheet

At December 31, 2016, total Bank assets reached $7.97 billion, an increase of $1.68 billion, or 26.64%, over December 31, 2015.

Loans

% Change
Q4 Q4 Q3 Q4 16 vs. Q4 16 vs.
(dollars in thousands)2016 2015 2016 Q4 15 Q3 16
Construction and land development$826,027 $598,875 $820,453 37.93% 0.68%
Commercial real estate - investment related properties1,322,466 1,004,393 1,283,619 31.67% 3.03%
Commercial real estate - owner occupied928,846 780,000 905,870 19.08% 2.54%
Multifamily real estate222,791 167,371 206,623 33.11% 7.82%
1-4 family residential real estate1,215,823 973,331 1,208,001 24.91% 0.65%
Commercial and industrial business loans1,089,539 857,036 1,033,797 27.13% 5.39%
Consumer loans and other201,729 138,387 193,279 45.77% 4.37%
Total$5,807,221 $4,519,393 $5,651,642 28.50% 2.75%

The Bank’s loan portfolio ended the period at $5.81 billion representing an increase of 28.50%, or $1.29 billion, from December 31, 2015, and an increase of $155.58 million, or 2.75%, from September 30, 2016. In addition to organic growth, the increase in loans from the prior year is related to loans acquired in the Monarch merger on June 24, 2016.

Deposits

% Change
Q4 Q4 Q3 Q4 16 vs. Q4 16 vs.
(dollars in thousands)2016 2015 2016 Q4 15 Q3 16
Noninterest-bearing demand$1,947,312 $1,393,264 $1,974,395 39.77% (1.37)%
Interest-bearing:
Demand and money market accounts2,263,894 1,824,226 2,207,962 24.10% 2.53%
Savings319,611 300,408 315,477 6.39% 1.31%
Certificates of deposits1,504,380 1,396,129 1,649,113 7.75% (8.78)%
Total$6,035,197 $4,914,027 $6,146,947 22.82% (1.82)%

The Bank continued to experience solid deposit growth with total deposits increasing to $6.04 billion, up $1.12 billion, or 22.82%, from December 31, 2015. The increase was primarily due to the deposits acquired in the Monarch merger. The Bank saw continued growth in noninterest-bearing demand deposits, which ended the year at $1.95 billion, a 39.77% increase from the prior year. Noninterest-bearing deposits represented 32.27% of total deposits at December 31, 2016.

Capital Ratios

Q4 Q4 Q3
2016 2015 2016
Common Equity Tier 1 11.75% 12.59% 11.74%
Tier 1 11.82% 12.70% 11.81%
Total 12.44% 13.44% 12.42%
Tier 1 Leverage Ratio 10.44% 10.67% 10.18%

The Bank’s total equity at December 31, 2016 rose to $1.09 billion, an increase of $266.36 million, or 32.48%, from December 31, 2015. Total risk-based capital remained strong as common equity Tier 1, Tier 1 capital, total risk-based capital, and Tier 1 leverage capital ratios were 11.75%, 11.82%, 12.44%, 10.44%, respectively. All ratios exceed the current regulatory standards for well capitalized status.

Asset Quality

(in thousands)12/31/2016 9/30/2016 6/30/2016 3/31/2016 12/31/2015
Nonperforming loans$13,099 $11,337 $10,580 $7,944 $8,670
Former bank premises3,494
Foreclosed property21,011 22,884 25,707 29,740 34,420
Total nonperforming assets$37,604 $34,221 $36,287 $37,684 $43,090
Quarterly net loans charged off (recovered)$485 $649 $241 $340 $(156)
Year-to-date net loans charged off$1,715 $1,230 $581 $340 $585


Change
Q4 Q4 Q3 Q4 2016 vs. Q4 2016 vs.
(dollars in thousands) 2016 2015 2016 Q4 2015 Q3 2016
Total loans 90 days past due and still accruing $76 $424 $ $(348) $76
Total loans 30-89 days past due $10,459 $7,477 $6,707 $2,982 $3,752
Allowance for loan losses $42,001 $38,359 $40,655 $3,642 $1,346
Total performing TDRs $31,351 $29,114 $28,345 $2,237 $3,006
Nonperforming loans to period end loans 0.23% 0.19% 0.20% 0.04 0.03
Nonperforming assets to period end assets 0.47% 0.68% 0.44% (0.21) 0.03
Allowance for loan losses to period end loans 0.72% 0.85% 0.72% (0.13)
Allowance for loan losses (originated) to originated period end loans 0.87% 0.94% 0.91% (0.07) (0.04)
Net charge-offs (recoveries) to average loans (annualized) 0.03% (0.01)% 0.05% 0.04 (0.02)
Ratio of allowance for loan losses to nonperforming loans 3.21x 4.42x 3.59x (1.21)x (.38)x

Continued strength in credit quality contributed to the Bank's financial results as net charge-offs remained low at $0.49 million in the fourth quarter of 2016 compared to net recoveries of $0.16 million in the fourth quarter of 2015 and net charge-offs of $0.65 million in the linked quarter. Total nonperforming assets were $37.60 million, or 0.47%, of Bank assets at December 31, 2016, as compared to $43.09 million, or 0.68%, at December 31, 2015, and $34.22 million, or 0.44%, at September 30, 2016. The allowance for loan losses was $42.00 million, increased from $38.36 million at December 31, 2015 and $40.66 million at September 30, 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, Towne 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 $7.97 billion as of December 31, 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 December 31,2016 2015 (Decrease) (Decrease)
Results of Operations:
Net interest income$62,151 $46,331 $15,820 34.15%
Noninterest income (1)39,512 25,079 14,433 57.55%
Gain on investment securities6 6 N/M
Total Revenue101,669 71,410 30,259 42.37%
Acquisition-related expenses(707) 285 (992) (348.07)%
Noninterest expenses, excluding acquisition-related expenses73,541 52,458 21,083 40.19%
Provision for loan losses1,831 852 979 114.91%
Income before income tax and noncontrolling interest27,004 17,815 9,189 51.58%
Provision for income tax expense7,160 4,846 2,314 47.75%
Net income19,844 12,969 6,875 53.01%
Net income attributable to noncontrolling interest(848) (503) (345) 68.59%
Net income attributable to TowneBank18,996 12,466 6,530 52.38%
Net income available to common shareholders18,996 12,466 6,530 52.38%
Net income per common share - basic0.31 0.24 0.07 29.17%
Net income per common share - diluted0.31 0.24 0.07 29.17%
Period End Data:
Total assets$7,973,915 $6,296,574 $1,677,341 26.64%
Total assets - tangible7,671,149 6,115,579 1,555,570 25.44%
Earning assets (2)7,346,961 5,827,888 1,519,073 26.07%
Loans (net of unearned income)5,807,221 4,519,393 1,287,828 28.50%
Allowance for loan losses42,001 38,359 3,642 9.49%
Goodwill and other intangibles302,766 180,995 121,771 67.28%
Nonperforming assets37,605 43,091 (5,486) (12.73)%
Noninterest bearing deposits1,947,312 1,393,264 554,048 39.77%
Interest bearing deposits4,087,885 3,520,763 567,122 16.11%
Total deposits6,035,197 4,914,027 1,121,170 22.82%
Total equity1,086,558 820,194 266,364 32.48%
Total equity - tangible783,792 639,199 144,593 22.62%
Common equity1,075,102 810,921 264,181 32.58%
Common equity - tangible772,337 629,925 142,412 22.61%
Book value per common share17.20 15.71 1.49 9.48%
Book value per common share - tangible12.36 12.21 0.15 1.23%
Daily Average Balances:
Total assets$7,965,438 $6,305,571 $1,659,867 26.32%
Total assets - tangible7,661,845 6,120,799 1,541,046 25.18%
Earning assets (2)7,297,299 5,800,907 1,496,392 25.80%
Loans (net of unearned income), excluding nonaccrual loans5,705,832 4,426,387 1,279,445 28.90%
Allowance for loan losses41,188 37,918 3,270 8.62%
Goodwill and other intangibles303,593 184,773 118,820 64.31%
Noninterest bearing deposits1,961,902 1,420,047 541,855 38.16%
Interest bearing deposits4,137,806 3,458,597 679,209 19.64%
Total deposits6,099,708 4,878,643 1,221,065 25.03%
Total equity1,087,382 823,627 263,755 32.02%
Total equity - tangible783,789 638,855 144,934 22.69%
Common equity1,076,277 814,894 261,383 32.08%
Common equity - tangible772,683 630,121 142,562 22.62%
Key Ratios:
Return on average assets0.95% 0.78% 0.17% 21.79%
Return on average assets - tangible1.05% 0.85% 0.20% 23.53%
Return on average equity6.95% 6.00% 0.95% 15.83%
Return on average equity - tangible10.27% 8.11% 2.16% 26.63%
Return on average common equity7.02% 6.07% 0.95% 15.65%
Return on average common equity - tangible10.42% 8.22% 2.20% 26.76%
Net interest margin-fully tax equivalent (2)(3)3.64% 3.36% 0.28% 8.33%
Net interest margin (2)3.52% 3.27% 0.25% 7.65%
Average earning assets/total average assets91.61% 92.07% (0.46)% (0.50)%
Average loans/average deposits93.54% 90.73% 2.81% 3.10%
Average noninterest deposits/total average deposits32.16% 29.11% 3.05% 10.48%
Allowance for loan losses/period end loans0.72% 0.85% (0.13)% (15.29)%
Nonperforming assets to period end assets0.47% 0.68% (0.21)% (30.88)%
Period end equity/period end total assets13.63% 13.03% 0.60% 4.60%
Efficiency ratio (1)71.64% 73.86% (2.22)% (3.01)%
(1) Excludes gain on investment securities
(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/
Twelve Months Ended December 31,2016 2015 (Decrease) (Decrease)
Results of Operations:
Net interest income$218,876 $180,442 $38,434 21.30%
Noninterest income (1)155,216 116,379 38,837 33.37%
Gain on investment securities6 904 (898) (99.34)%
Total Revenue374,098 297,725 76,373 25.65%
Acquisition-related expenses19,111 1,312 17,799 1,356.63%
Noninterest expenses, excluding acquisition-related expenses248,717 200,845 47,872 23.84%
Provision for loan losses5,357 3,027 2,330 76.97%
Income before income tax and noncontrolling interest100,913 92,541 8,372 9.05%
Provision for income tax expense28,698 26,876 1,822 6.78%
Net income72,215 65,665 6,550 9.97%
Net income attributable to noncontrolling interest(4,965) (3,283) (1,682) 51.23%
Net income attributable to TowneBank67,250 62,382 4,868 7.80%
Preferred stock dividends 13 (13) (100.00)%
Net income available to common shareholders67,250 62,369 4,881 7.83%
Net income per common share - basic1.18 1.22 (0.04) (3.28)%
Net income per common share - diluted1.18 1.22 (0.04) (3.28)%
Period End Data:
Total assets$7,973,915 $6,296,574 $1,677,341 26.64%
Total assets - tangible7,671,149 6,115,579 1,555,570 25.44%
Earning assets (2)7,346,961 5,827,888 1,519,073 26.07%
Loans (net of unearned income)5,807,221 4,519,393 1,287,828 28.50%
Allowance for loan losses42,001 38,359 3,642 9.49%
Goodwill and other intangibles302,766 180,995 121,771 67.28%
Nonperforming assets37,605 43,091 (5,486) (12.73)%
Noninterest bearing deposits1,947,312 1,393,264 554,048 39.77%
Interest bearing deposits4,087,885 3,520,763 567,122 16.11%
Total deposits6,035,197 4,914,027 1,121,170 22.82%
Total equity1,086,558 820,194 266,364 32.48%
Total equity - tangible783,792 639,199 144,593 22.62%
Common equity1,075,102 810,921 264,181 32.58%
Common equity - tangible772,337 629,925 142,412 22.61%
Book value per common share17.20 15.71 1.49 9.48%
Book value per common share - tangible12.36 12.21 0.15 1.23%
Daily Average Balances:
Total assets$7,205,236 $6,039,418 $1,165,818 19.30%
Total assets - tangible6,958,267 5,858,762 1,099,505 18.77%
Earning assets (2)6,603,377 5,528,362 1,075,015 19.45%
Loans (net of unearned income), excluding nonaccrual loans5,129,990 4,239,887 890,103 20.99%
Allowance for loan losses39,547 37,194 2,353 6.33%
Goodwill and other intangibles246,968 180,656 66,312 36.71%
Noninterest bearing deposits1,720,093 1,343,360 376,733 28.04%
Interest bearing deposits3,852,099 3,324,533 527,566 15.87%
Total deposits5,572,192 4,667,893 904,299 19.37%
Total equity963,775 804,744 159,031 19.76%
Total equity - tangible716,807 624,088 92,719 14.86%
Common equity953,669 794,874 158,795 19.98%
Common equity - tangible706,701 614,218 92,483 15.06%
Key Ratios:
Return on average assets0.93% 1.03% (0.10)% (9.71)%
Return on average assets - tangible1.02% 1.10% (0.08)% (7.27)%
Return on average equity6.98% 7.75% (0.77)% (9.94)%
Return on average equity - tangible9.93% 10.34% (0.41)% (3.97)%
Return on average common equity7.05% 7.85% (0.80)% (10.19)%
Return on average common equity - tangible10.07% 10.51% (0.44)% (4.19)%
Net interest margin-fully tax equivalent (2)(3)3.50% 3.45% 0.05% 1.45%
Net interest margin (2)3.41% 3.36% 0.05% 1.49%
Average earning assets/total average assets91.65% 91.54% 0.11% 0.12%
Average loans/average deposits92.06% 90.83% 1.23% 1.35%
Average noninterest deposits/total average deposits30.87% 28.78% 2.09% 7.26%
Allowance for loan losses/period end loans0.72% 0.85% (0.13)% (15.29)%
Nonperforming assets to period end assets0.47% 0.68% (0.21)% (30.88)%
Period end equity/period end total assets13.63% 13.03% 0.60% 4.60%
Efficiency ratio (1)71.59% 68.11% 3.48% 5.11%
(1) Excludes gain on investment securities
(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)
December 31, September 30, Increase/ % Increase/
Three Months Ended2016 2016 (Decrease) (Decrease)
Results of Operations:
Net interest income$62,151 $62,605 $(454) (0.73)%
Noninterest income (1)39,512 46,821 (7,309) (15.61)%
Gain on investment securities6 6 N/M
Total Revenue101,669 109,426 (7,757) (7.09)%
Acquisition-related expenses(707) 969 (1,676) (172.96)%
Noninterest expenses, excluding acquisition-related expenses73,541 69,964 3,577 5.11%
Provision for loan losses1,831 1,686 145 8.60%
Income before income tax and noncontrolling interest27,004 36,807 (9,803) (26.63)%
Provision for income tax expense7,160 10,974 (3,814) (34.75)%
Net income19,844 25,833 (5,989) (23.18)%
Net income attributable to noncontrolling interest(848) (1,657) 809 (48.82)%
Net income attributable to TowneBank18,996 24,176 (5,180) (21.43)%
Net income available to common shareholders18,996 24,176 (5,180) (21.43)%
Net income per common share - basic0.31 0.39 (0.08) (20.51)%
Net income per common share - diluted0.31 0.39 (0.08) (20.51)%
Period End Data:
Total assets$7,973,915 $7,830,142 $143,773 1.84%
Total assets - tangible7,671,149 7,525,817 145,332 1.93%
Earning assets (2)7,346,961 7,197,077 149,884 2.08%
Loans (net of unearned income)5,807,221 5,651,642 155,579 2.75%
Allowance for loan losses42,001 40,655 1,346 3.31%
Goodwill and other intangibles302,766 304,325 (1,559) (0.51)%
Nonperforming assets37,605 34,221 3,384 9.89%
Noninterest bearing deposits1,947,312 1,974,395 (27,083) (1.37)%
Interest bearing deposits4,087,885 4,172,552 (84,667) (2.03)%
Total deposits6,035,197 6,146,947 (111,750) (1.82)%
Total equity1,086,558 1,078,878 7,680 0.71%
Total equity - tangible783,792 774,553 9,239 1.19%
Common equity1,075,102 1,067,193 7,909 0.74%
Common equity - tangible772,337 762,868 9,469 1.24%
Book value per common share17.20 17.11 0.09 0.53%
Book value per common share - tangible12.36 12.23 0.13 1.06%
Daily Average Balances:
Total assets$7,965,438 $7,991,213 $(25,775) (0.32)%
Total assets - tangible7,661,845 7,689,122 (27,277) (0.35)%
Earning assets (2)7,297,299 7,255,956 41,343 0.57%
Loans (net of unearned income), excluding nonaccrual loans5,705,832 5,583,711 122,121 2.19%
Allowance for loan losses41,188 40,004 1,184 2.96%
Goodwill and other intangibles303,593 302,091 1,502 0.50%
Noninterest bearing deposits1,961,902 1,959,025 2,877 0.15%
Interest bearing deposits4,137,806 4,219,316 (81,510) (1.93)%
Total deposits6,099,707 6,178,341 (78,634) (1.27)%
Total equity1,087,382 1,075,023 12,359 1.15%
Total equity - tangible783,789 772,932 10,857 1.40%
Common equity1,076,277 1,064,179 12,098 1.14%
Common equity - tangible772,683 762,088 10,595 1.39%
Key Ratios:
Return on average assets0.95% 1.20% (0.25)% (20.83)%
Return on average assets - tangible1.05% 1.29% (0.24)% (18.60)%
Return on average equity6.95% 8.95% (2.00)% (22.35)%
Return on average equity - tangible10.27% 12.87% (2.60)% (20.20)%
Return on average common equity7.02% 9.04% (2.02)% (22.35)%
Return on average common equity - tangible10.42% 13.05% (2.63)% (20.15)%
Net interest margin-fully tax equivalent (2)(3)3.64% 3.57% 0.07% 1.96%
Net interest margin (2)3.52% 3.50% 0.02% 0.57%
Average earning assets/total average assets91.61% 90.80% 0.81% 0.89%
Average loans/average deposits93.54% 90.38% 3.16% 3.50%
Average noninterest deposits/total average deposits32.16% 31.71% 0.45% 1.42%
Allowance for loan losses/period end loans0.72% 0.72% % %
Nonperforming assets to period end assets0.47% 0.44% 0.03% 6.82%
Period end equity/period end total assets13.63% 13.78% (0.15)% (1.09)%
Efficiency ratio (1)71.64% 64.82% 6.82% 10.52%
(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
December 31, 2016 September 30, 2016 December 31, 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$5,705,832 $66,061 4.61% $5,583,711 $65,245 4.65% $4,426,387 $50,850 4.56%
Taxable investment securities666,936 2,762 1.66% 687,480 2,703 1.57% 782,998 2,987 1.53%
Tax-exempt investment securities52,199 390 2.99% 53,180 396 2.98% 54,974 428 3.11%
Interest-bearing deposits352,418 487 0.55% 287,672 (36)(0.05)% 292,085 211 0.29%
Loans held for sale353,308 3,028 3.43% 481,358 4,137 3.44% 95,932 865 3.61%
Bank-owned life insurance166,606 3,656 8.73% 162,555 1,945 4.76% 148,531 2,311 6.17%
Total earning assets7,297,299 76,384 4.16% 7,255,956 74,390 4.08% 5,800,907 57,652 3.94%
Less: allowance for loan losses(41,188) (40,004) (37,918)
Total nonearning assets709,327 775,261 542,582
Total assets$7,965,438 $7,991,213 $6,305,571
Liabilities and Equity:
Interest-bearing deposits
Demand and money market$2,230,198 $1,742 0.31% $2,216,987 $1,674 0.30% $1,780,151 $1,265 0.28%
Savings316,211 728 0.92% 318,193 723 0.90% 299,503 684 0.91%
Certificates of deposit1,591,397 3,458 0.86% 1,684,136 3,512 0.83% 1,378,943 3,170 0.91%
Total interest-bearing deposits4,137,806 5,928 0.57% 4,219,316 5,909 0.56% 3,458,597 5,119 0.59%
Borrowings628,272 3,739 2.33% 512,027 3,309 2.53% 471,929 3,360 2.79%
Total interest-bearing liabilities4,766,078 9,667 0.81% 4,731,343 9,218 0.78% 3,930,526 8,479 0.86%
Demand deposits1,961,902 1,959,025 1,420,047
Other noninterest-bearing liabilities150,076 225,822 131,371
Total liabilities6,878,056 6,916,190 5,481,944
Shareholders’ equity1,087,382 1,075,023 823,627
Total liabilities and equity$7,965,438 $7,991,213 $6,305,571
Net interest income (tax-equivalent basis) $66,717 $65,172 $49,173
Reconcilement of Non-GAAP Financial Measures
Bank-owned life insurance (3,656) (1,945) (2,311)
Tax-equivalent basis adjustment (910) (622) (531)
Net interest income (GAAP) $62,151 $62,605 $46,331
Interest rate spread (1) 3.35% 3.30% 3.09%
Interest expense as a percent of average earning assets 0.53% 0.51% 0.58%
Net interest margin (tax equivalent basis) (2) 3.64% 3.57% 3.36%
Total cost of deposits 0.39% 0.38% 0.42%

(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)
Year Ended December 31,
2016 2015 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$5,129,990 $234,318 4.57% $4,239,887 $196,868 4.64% $3,450,730 $162,347 4.70%
Taxable investment securities695,082 11,254 1.62% 786,737 11,849 1.51% 574,229 6,895 1.20%
Tax-exempt investment securities52,689 1,601 3.04% 61,489 1,952 3.17% 70,154 2,180 3.11%
Interest-bearing deposits300,130 1,145 0.38% 188,546 499 0.26% 253,416 637 0.25%
Mortgage loans held for sale267,721 9,152 3.42% 106,149 3,836 3.61% 65,746 2,586 3.93%
Bank-owned life insurance157,765 9,220 5.84% 145,554 7,985 5.49% 57,842 3,290 5.69%
Total earning assets6,603,377 266,690 4.04% 5,528,362 222,989 4.03% 4,472,117 177,935 3.98%
Less: allowance for loan losses(39,547) (37,194) (37,168)
Total nonearning assets641,406 548,250 431,635
Total assets$7,205,236 $6,039,418 $4,866,584
Liabilities and Equity:
Interest-bearing deposits
Demand and money market$2,012,061 $6,043 0.30% $1,689,185 $4,721 0.28% $1,306,738 $3,036 0.23%
Savings309,049 2,859 0.93% 300,620 2,755 0.92% 310,722 2,855 0.92%
Certificates of deposit1,530,990 13,414 0.88% 1,334,728 11,390 0.85% 972,702 7,461 0.77%
Total interest-bearing deposits3,852,100 22,316 0.58% 3,324,533 18,866 0.57% 2,590,162 13,352 0.52%
FHLB advances and repurchase agreements523,366 13,424 2.56% 463,153 13,565 2.93% 429,249 13,424 3.13%
Total interest-bearing liabilities4,375,466 35,740 0.82% 3,787,686 32,431 0.86% 3,019,411 26,776 0.89%
Noninterest-bearing liabilities
Demand deposits1,720,093 1,343,360 1,158,888
Other noninterest-bearing liabilities145,902 103,628 81,508
Total liabilities6,241,461 5,234,674 4,259,807
Shareholders' equity963,775 804,744 606,777
Total liabilities and equity$7,205,236 $6,039,418 $4,866,584
Net interest income (tax-equivalent basis) $230,950 $190,558 $151,159
Reconcilement of Non-GAAP Financial Measures
Bank-owned life insurance (9,220) (7,985) (3,290)
Tax-equivalent basis adjustment (2,854) (2,131) (2,133)
Net interest income (GAAP) $218,876 $180,442 $145,736
Interest rate spread (1) 3.22% 3.17% 3.09%
Interest expense as a percent of average earning assets 0.54% 0.59% 0.60%
Net interest margin (tax-equivalent basis) (2) 3.50% 3.45% 3.38%
Total cost of deposits 0.40% 0.40% 0.36%

(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)
2016 2015
(unaudited) (audited)
ASSETS
Cash and due from banks$130,967 $250,836
Interest-bearing deposits in financial institutions5,581 1,001
Total Cash and Cash Equivalents136,548 251,837
Securities available for sale, at fair value812,974 723,489
Securities held to maturity, at amortized cost66,490 69,045
Federal Home Loan Bank stock, at amortized cost35,937 23,691
Total Securities915,401 816,225
Mortgage loans held for sale314,117 102,346
Loans, net of unearned income and deferred costs:5,807,221 4,519,393
Less: allowance for loan losses(42,001) (38,359)
Net Loans5,765,220 4,481,034
Premises and equipment, net198,568 173,695
Goodwill264,910 154,842
Other intangible assets, net37,856 26,153
Bank-owned life insurance policies189,499 149,452
Other assets151,796 140,990
TOTAL ASSETS$7,973,915 $6,296,574
LIABILITIES AND EQUITY
Deposits:
Noninterest-bearing demand$1,947,312 $1,393,264
Interest-bearing:
Demand and money market accounts2,263,894 1,824,226
Savings319,611 300,408
Certificates of deposit1,504,380 1,396,129
Total Deposits6,035,197 4,914,027
Advances from the Federal Home Loan Bank687,511 429,080
Repurchase agreements and other borrowings31,747 37,434
Total Borrowings719,258 466,514
Other liabilities132,902 95,839
TOTAL LIABILITIES6,887,357 5,476,380
Preferred stock
Authorized shares - 2,000,000
Issued and outstanding shares 0 and 76,458 in 2015 and 2014
Common stock, $1.667 par value
Authorized shares - 90,000,000
Issued and outstanding shares 62,492,168 in 2016
and 51,605,521 in 2015, respectively104,174 86,026
Capital surplus745,411 535,094
Retained earnings229,503 192,795
Common stock issued to deferred compensation trust, at cost
692,431 shares in 2016 and 648,350 shares in 2015(11,168) (10,172)
Deferred compensation trust11,168 10,172
Accumulated other comprehensive income (loss)(3,986) (2,994)
TOTAL SHAREHOLDERS’ EQUITY1,075,102 810,921
Noncontrolling interest11,456 9,273
TOTAL EQUITY1,086,558 820,194
TOTAL LIABILITIES AND EQUITY$7,973,915 $6,296,574


TOWNEBANK
Consolidated Statements of Income
(dollars in thousands, except per share data)
Three Months Ended Twelve months ended
December 31, December 31,
2016 2015 2016 2015
(unaudited) (unaudited) (unaudited) (audited)
INTEREST INCOME:
Loans, including fees$65,151 $50,319 $231,464 $194,737
Investment securities3,152 3,415 12,855 13,801
Interest-bearing deposits in financial institutions and federal funds sold487 212 1,145 499
Mortgage loans held for sale3,028 865 9,152 3,836
Total interest income71,818 54,811 254,616 212,873
INTEREST EXPENSE:
Deposits5,928 5,119 22,316 18,866
Advances from the Federal Home Loan Bank3,546 3,326 13,320 13,486
Repurchase agreements and other borrowings, net of capitalized interest193 35 104 79
Total interest expense9,667 8,480 35,740 32,431
Net interest income62,151 46,331 218,876 180,442
PROVISION FOR LOAN LOSSES1,831 852 5,357 3,027
Net interest income after provision for loan losses60,320 45,479 213,519 177,415
NONINTEREST INCOME:
Residential mortgage banking income, net18,096 7,255 58,792 34,211
Insurance commissions and other title fees and income, net9,823 8,997 46,741 39,641
Real estate brokerage and property management income, net2,925 2,438 20,515 16,326
Service charges on deposit accounts2,535 2,254 9,547 9,165
Credit card merchant fees, net1,135 767 4,508 2,588
Other income4,998 3,368 15,113 14,448
Gain on investment securities6 6 904
Total noninterest income39,518 25,079 155,222 117,283
NONINTEREST EXPENSE:
Salaries and employee benefits43,071 30,826 143,847 113,959
Occupancy6,885 5,156 23,717 19,645
Furniture and equipment3,378 2,390 11,315 9,339
Other expenses19,500 14,371 88,949 59,214
Total noninterest expense72,834 52,743 267,828 202,157
Income before income tax expense & noncontrolling interest27,004 17,815 100,913 92,541
Provision for income tax expense7,160 4,846 28,698 26,876
Net income$19,844 $12,969 $72,215 $65,665
Net income attributable to noncontrolling interest(848) (503) (4,965) (3,283)
Net income attributable to TowneBank$18,996 $12,466 $67,250 $62,382
Preferred stock dividends and accretion 13
Net income available to common shareholders$18,996 $12,466 $67,250 $62,369
Per common share information
Basic earnings$0.31 $0.24 $1.18 $1.22
Diluted earnings$0.31 $0.24 $1.18 $1.22
Cash dividends declared$0.13 $0.12 $0.51 $0.47


TOWNEBANK
Consolidated Statements of Comprehensive Income
(dollars in thousands)
Three Months Ended Twelve months ended
December 31, December 31,
2016 2015 2016 2015
(unaudited) (unaudited) (unaudited) (audited)
Net income$19,843 $12,970 $72,215 $65,665
Other comprehensive income (loss)
Unrealized losses on securities
Unrealized holding losses arising during the period(8,294) (5,567) (2,000) (4,031)
Deferred tax benefit2,903 1,949 700 1,411
Realized gains reclassified into earnings(6) (6) (785)
Deferred tax benefit2 2 275
Net unrealized losses(5,395) (3,618) (1,304) (3,130)
Pension and postretirement benefit plans
Prior service costs (1,405)
Deferred tax benefit 492
Actuarial gain (losses) (711) 109 694
Deferred tax benefit (expense) 249 (38) (243)
Amortization of prior service costs110 373
Deferred tax expense(39) (130)
Amortization of net actuarial (gain) loss(2) 77 (4) 215
Deferred tax benefit (expense)1 (27) 2 (75)
Change in retirement plans, net of tax70 (412) 312 (322)
Other comprehensive loss, net of tax(5,325) (4,030) (992) (3,452)
Comprehensive income$14,518 $8,940 $71,223 $62,213


TOWNEBANK
Consolidated Balance Sheets - Five Quarter Trend
(dollars in thousands, except share data)
December 31, September 30, June 30, March 31, December 31,
2016 2016 2016 2016 2015
(unaudited) (unaudited) (unaudited) (unaudited) (audited)
ASSETS
Cash and due from banks$130,967 $147,887 $188,183 $195,161 $250,836
Interest-bearing deposits in financial institutions5,581 6,891 33,777 1,006 1,001
Federal funds sold 14
Total Cash and Cash Equivalents136,548 154,778 221,974 196,167 251,837
Securities available for sale, at fair value812,974 704,418 812,375 821,551 723,489
Securities held to maturity, at amortized cost66,490 70,304 65,728 66,921 69,045
Federal Home Loan Bank stock, at amortized cost35,937 24,888 28,008 23,903 23,691
Total Securities915,401 799,610 906,111 912,375 816,225
Mortgage loans held for sale314,117 439,608 474,978 97,491 102,346
Loans, net of unearned income and deferred costs:5,807,221 5,651,642 5,559,949 4,552,260 4,519,393
Less: allowance for loan losses(42,001) (40,655) (39,618) (37,760) (38,359)
Net Loans5,765,220 5,610,987 5,520,331 4,514,500 4,481,034
Premises and equipment, net198,568 202,955 202,333 178,154 173,695
Goodwill264,910 264,578 257,485 157,659 154,842
Other intangible assets, net37,856 39,747 41,515 29,286 26,153
Bank-owned life insurance policies189,499 163,385 164,933 150,623 149,452
Other assets151,796 154,494 151,081 128,914 140,990
TOTAL ASSETS$7,973,915 $7,830,142 $7,940,741 $6,365,169 $6,296,574
LIABILITIES AND EQUITY
Deposits:
Noninterest-bearing demand$1,947,312 $1,974,395 $1,950,816 $1,449,660 $1,393,264
Interest-bearing:
Demand and money market accounts2,263,894 2,207,962 2,174,154 1,769,414 1,824,226
Savings319,611 315,477 317,071 302,373 300,408
Certificates of deposit1,504,380 1,649,113 1,744,238 1,433,679 1,396,129
Total Deposits6,035,197 6,146,947 6,186,279 4,955,126 4,914,027
Advances from the Federal Home Loan Bank687,511 427,655 500,798 428,940 429,080
Repurchase agreements and other borrowings31,747 31,927 44,008 39,442 37,434
Total Borrowings719,258 459,582 544,806 468,382 466,514
Other liabilities132,902 144,735 148,108 105,658 95,839
TOTAL LIABILITIES6,887,357 6,751,264 6,879,193 5,529,166 5,476,380
Preferred stock
Authorized shares - 2,000,000
Common stock, $1.667 par value104,174 104,000 103,963 86,151 86,026
Capital surplus745,411 743,223 742,228 536,294 535,094
Retained earnings229,503 218,631 202,565 204,413 192,795
Common stock issued to deferred compensation trust, at cost(11,168) (10,969) (10,785) (10,288) (10,172)
Deferred compensation trust11,168 10,969 10,785 10,288 10,172
Accumulated other comprehensive income (loss)(3,986) 1,339 1,604 17 (2,994)
TOTAL SHAREHOLDERS’ EQUITY1,075,102 1,067,193 1,050,360 826,875 810,921
Noncontrolling interest11,456 11,685 11,188 9,128 9,273
TOTAL EQUITY1,086,558 1,078,878 1,061,548 836,003 820,194
TOTAL LIABILITIES AND EQUITY$7,973,915 $7,830,142 $7,940,741 $6,365,169 $6,296,574


TOWNEBANK
Consolidated Statements of Income - Five Quarter Trend (unaudited)
(dollars in thousands, except per share data)
Three Months Ended
December 31, September 30, June 30, March 31, December 31,
2016 2016 2016 2016 2015
INTEREST INCOME:
Loans, including fees$65,151 $64,623 $51,444 $50,247 $50,319
Investment securities3,152 3,099 3,139 3,464 3,415
Interest-bearing deposits in financial institutions and federal funds sold487 (36) 364 330 212
Mortgage loans held for sale3,028 4,137 1,294 693 865
Total Interest Income71,818 71,823 56,241 54,734 54,811
INTEREST EXPENSE:
Deposits5,928 5,909 5,267 5,213 5,119
Advances from the Federal Home Loan Bank3,546 3,276 3,158 3,163 3,326
Repurchase agreements and other borrowings193 33 32 22 35
Total Interest Expense9,667 9,218 8,457 8,398 8,480
Net Interest Income62,151 62,605 47,784 46,336 46,331
PROVISION FOR LOAN LOSSES1,831 1,686 2,099 (259) 852
Net Interest Income after Provision for Loan Losses60,320 60,919 45,685 46,595 45,479
NONINTEREST INCOME:
Residential mortgage banking income, net18,096 21,430 12,148 7,118 7,255
Insurance commissions and other title fees and income, net9,823 11,258 11,627 14,033 8,997
Real estate brokerage and property management income, net2,925 6,647 6,116 4,827 2,438
Service charges on deposit accounts2,535 2,552 2,284 2,176 2,254
Credit card merchant fees, net1,135 1,365 1,113 895 767
Other income4,998 3,569 3,180 3,366 3,368
Net gain on investment securities6
Total Noninterest Income39,518 46,821 36,468 32,415 25,079
NONINTEREST EXPENSE:
Salaries and employee benefits43,071 40,497 30,093 30,187 30,826
Occupancy expense6,885 6,656 5,157 5,017 5,156
Furniture and equipment3,378 3,199 2,381 2,357 2,390
Other expenses19,500 20,581 34,268 14,600 14,371
Total Noninterest Expense72,834 70,933 71,899 52,161 52,743
Income before income tax expense and noncontrolling interest27,004 36,807 10,254 26,849 17,815
Provision for income tax expense7,160 10,974 2,375 8,188 4,846
Net income19,844 25,833 7,879 18,661 12,969
Net income attributable to noncontrolling interest(848) (1,657) (1,620) (842) (503)
Net income attributable to TowneBank$18,996 $24,176 $6,259 $17,819 $12,466
Net income available to common shareholders$18,996 $24,176 $6,259 $17,819 $12,466
Per common share information
Basic earnings$0.31 $0.39 $0.12 $0.35 $0.24
Diluted earnings$0.31 $0.39 $0.12 $0.35 $0.24
Basic weighted average shares outstanding61,963,948 61,908,316 51,994,473 51,290,010 51,267,447
Diluted weighted average shares outstanding62,175,705 62,067,832 52,116,772 51,392,857 51,440,440
Cash dividends declared$0.13 $0.13 $0.13 $0.12 $0.12


TOWNEBANK
Banking Segment Financial Information
(dollars in thousands)
Three Months Ended Increase/(Decrease)
December 31, September 30,
2016
December 31, 2016
December 31, 2015
December 31, 2016
September 30, 2016
2016 2015 Amount Percent Amount Percent
Revenue
Net interest income$59,482 $45,709 $58,919 $13,773 30.13% $563 0.96%
Noninterest income
Service charges on deposit accounts2,535 2,254 2,552 281 12.47% (17) (0.67)%
Credit card merchant fees1,135 767 1,365 368 47.98% (230) (16.85)%
Other income4,125 2,462 2,685 1,663 67.55% 1,440 53.63%
Subtotal7,795 5,483 6,602 2,312 42.17% 1,193 18.07%
Gain (loss) on investment securities6 (10) 16 16 (160.00)% (10) (62.50)%
Total noninterest income7,801 5,473 6,618 2,328 42.54% 1,183 17.88%
Total revenue$67,283 $51,182 $65,537 $16,101 31.46% $1,746 2.66%
Provision for loan losses1,801 852 1,686 949 111.38% 115 6.82%
Expenses
Salaries and employee benefits$23,770 $18,463 $20,509 $5,307 28.74% $3,261 15.90%
Occupancy expense4,349 3,674 4,197 675 18.37% 152 3.62%
Furniture and equipment2,374 1,887 2,358 487 25.81% 16 0.68%
Advertising and marketing749 1,092 922 (343) (31.41)% (173) (18.76)%
Charitable contributions1,011 1,049 919 (38) (3.62)% 92 10.01%
Outside processing1,387 821 1,280 566 68.94% 107 8.36%
Foreclosed property expenses607 (190) 154 797 (419.47)% 453 294.16%
FDIC and other insurance848 1,114 1,224 (266) (23.88)% (376) (30.72)%
Professional fees1,181 1,205 965 (24) (1.99)% 216 22.38%
Telephone and postage997 716 962 281 39.25% 35 3.64%
Other expenses4,241 3,748 5,180 493 13.15% (939) (18.13)%
Total expenses$41,514 $33,579 $38,670 $7,935 23.63% $2,844 7.35%
Income before income tax, corporate allocation and noncontrolling interest$23,968 $16,751 $25,181 $7,217 43.08% $(1,213) (4.82)%
Plus: Acquisition related expenses(735) 604 859 (1,339) (221.69)% (1,594) (185.56)%
Plus: Amortization of intangible assets631 55 655 576 1,047.27% (24) (3.66)%
Operating earnings before income taxes (non-GAAP)$23,864 $17,410 $26,695 $6,454 37.07% $(2,831) (10.60)%


TOWNEBANK
Banking Segment Financial Information
(dollars in thousands)
Year Ended Increase/(Decrease)
December 31, 2016 over 2015
2016 2015 Amount Percent
Revenue
Net interest income$211,112 $177,715 $33,397 18.79%
Noninterest income
Service charges on deposit accounts9,547 9,165 382 4.17%
Credit card merchant fees4,508 2,588 1,920 74.19%
Other income11,500 10,002 1,498 14.98%
Subtotal25,555 21,755 3,800 17.47%
Gain (loss) on investment securities9 904 (895) (99.00)%
Total noninterest income25,564 22,659 2,905 12.82%
Total revenue$236,676 $200,374 $36,302 18.12%
Provision for loan losses5,326 3,027 2,299 75.95%
Expenses
Salaries and employee benefits$78,910 $69,070 $9,840 14.25%
Occupancy expense15,610 13,791 1,819 13.19%
Furniture and equipment8,445 7,404 1,041 14.06%
Advertising and marketing3,478 3,960 (482) (12.17)%
Charitable contributions4,192 4,943 (751) (15.19)%
Outside processing4,439 3,373 1,066 31.60%
Foreclosed property expenses1,326 1,785 (459) (25.71)%
FDIC and other insurance4,243 4,624 (381) (8.24)%
Professional fees4,081 4,330 (249) (5.75)%
Telephone and postage3,420 2,928 492 16.80%
Other expenses34,200 12,540 21,660 172.73%
Total expenses$162,344 $128,748 $33,596 26.09%
Income before income tax expense, corporate allocation and noncontrolling interest$69,006 $68,599 $407 0.59%
Plus: Acquisition related expenses18,470 1,085 17,385 1,602.30%
Plus: Amortization of intangible assets1,396 220 1,176 534.55%
Operating earnings before income taxes (non-GAAP)$88,872 $69,904 $18,968 27.13%


TOWNEBANK
Realty Segment Financial Information
(dollars in thousands)
December 31, 2016 December 31, 2016
December 31, September 30, December 31, 2015September 30, 2016
2016 2015 2016 Amount Percent Amount Percent
Revenue
Residential mortgage brokerage income, net$18,378 $7,446 $21,692 $10,932 146.82% $(3,314) (15.28)%
Real estate brokerage income, net1,761 1,654 2,267 107 6.47% (506) (22.32)%
Title insurance and settlement fees422 363 562 59 16.25% (140) (24.91)%
Property management fees, net1,163 784 4,381 379 48.34% (3,218) (73.45)%
Income from unconsolidated subsidiary218 200 283 18 9.00% (65) (22.97)%
Net interest and other income2,959 944 3,965 2,015 213.45% (1,006) (25.37)%
Total revenue$24,901 $11,391 $33,150 $13,510 118.60% $(8,249) (24.88)%
Expenses
Salaries and employee benefits$13,551 $6,501 $14,198 $7,050 108.44% $(647) (4.56)%
Occupancy expense2,002 944 1,922 1,058 112.08% 80 4.16%
Furniture and equipment807 267 762 540 202.25% 45 5.91%
Amortization of intangible assets565 241 559 324 134.44% 6 1.07%
Other expenses5,909 3,007 6,325 2,902 96.51% (416) (6.58)%
Total expenses$22,834 $10,960 $23,766 $11,874 108.34% $(932) (3.92)%
Income before income tax, corporate allocation, and noncontrolling interest$2,067 $431 $9,384 $1,636 379.58% $(7,317) (77.97)%
Plus: Acquisition related expenses22 15 109 7 46.67% (87) (79.82)%
Plus: Amortization of intangible assets565 241 559 324 134.44% 6 1.07%
Operating earnings before income taxes (non-GAAP)$2,654 $687 $10,052 $1,967 286.32% $(7,398) (73.60)%


TOWNEBANK
Realty Segment Financial Information
(dollars in thousands)
Year Ended Increase/(Decrease)
December 31, 2016 over 2015
2016 2015 Amount Percent
Revenue
Residential mortgage banking income, net$59,870 $34,952 $24,918 71.29%
Real estate brokerage income, net7,833 6,874 959 13.95%
Title insurance and settlement fees1,883 1,574 309 19.63%
Property management fees, net12,682 9,452 3,230 34.17%
Income from unconsolidated subsidiary881 648 233 35.96%
Net interest and other income8,854 5,022 3,832 76.30%
Total revenue$92,003 $58,522 $33,481 57.21%
Expenses
Salaries and employee benefits$41,706 $24,916 $16,790 67.39%
Occupancy expense5,989 3,900 2,089 53.56%
Furniture and equipment2,113 1,030 1,083 105.15%
Amortization of intangible assets1,829 1,027 802 78.09%
Other expenses19,292 12,371 6,921 55.95%
Total expenses$70,929 $43,244 $27,685 64.02%
Income before income tax, corporate allocation, and noncontrolling interest$21,074 $15,278 $5,796 37.94%
Plus: Acquisition related expenses280 42 238 566.67%
Plus: Amortization of intangible assets1,829 1,027 802 78.09%
Operating earnings before income taxes (non-GAAP)$23,183 $16,347 $6,836 41.82%


TOWNEBANK
Insurance Segment Financial Information
(dollars in thousands)
Increase/(Decrease)
Three Months Ended December 31, 2016 December 31, 2016
December 31, September 30, December 31, 2015 September 30, 2016
2016 2015 2016 Amount Percent Amount Percent
Commission and fee income
Property and casualty$7,614 $7,371 $9,068 $243 3.30% $(1,454) (16.03)%
Employee benefits2,930 2,588 2,947 342 13.21% (17) (0.58)%
Travel insurance828 630 926 198 31.43% (98) (10.58)%
Specialized benefit services164 144 154 20 13.89% 10 6.49%
Total commissions and fees11,536 10,733 13,095 803 7.48% (1,559) (11.91)%
Contingency and bonus revenue67 53 45 14 26.42% 22 48.89%
Other income71 58 82 13 22.41% (11) (13.41)%
Total revenue$11,674 $10,844 $13,222 $830 7.65% $(1,548) (11.71)%
Employee commission expense2,221 2,008 2,482 213 10.61% (261) (10.52)%
Revenue, net of commission expense$9,453 $8,836 $10,740 $617 6.98% $(1,287) (11.98)%
Salaries and employee benefits$5,749 $5,863 $5,790 $(114) (1.94)% $(41) (0.71)%
Occupancy expense535 537 537 (2) (0.37)% (2) (0.37)%
Furniture and equipment196 235 78 (39) (16.60)% 118 151.28%
Amortization of intangible assets701 676 706 25 3.70% (5) (0.71)%
Other expenses1,304 892 1,385 412 46.19% (81) (5.85)%
Total operating expenses$8,485 $8,203 $8,496 $282 3.44% $(11) (0.13)%
Income before income tax and noncontrolling interest$968 $633 $2,244 $335 52.92% $(1,276) (56.86)%
Plus: Acquisition related expenses7 (334) 341 N/M 7 N/M
Plus: Amortization of intangible assets701 676 706 25 3.70% (5) (0.71)%
Operating earnings before income taxes (non-GAAP)$1,676 $975 $2,950 $701 71.90% $(1,274) (43.19)%


TOWNEBANK
Insurance Segment Financial Information
(dollars in thousands)
Year Ended Increase/(Decrease)
December 31, 2016 over 2015
2016 2015 Amount Percent
Commission and fee income
Property and casualty$33,544 $29,978 $3,566 11.90%
Employee benefits11,683 10,279 1,404 13.66%
Travel insurance4,374 3,297 1,077 32.67%
Specialized benefit services623 557 66 11.85%
Total commissions and fees50,224 44,111 6,113 13.86%
Contingency and bonus revenue4,008 3,223 785 24.36%
Other income280 206 74 35.92%
Total revenue$54,512 $47,540 $6,972 14.67%
Employee commission expense9,124 8,711 413 4.74%
Revenue, net of commission expense$45,388 $38,829 $6,559 16.89%
Salaries and employee benefits$23,231 $19,974 $3,257 16.31%
Occupancy expense2,117 1,954 163 8.34%
Furniture and equipment758 904 (146) (16.15)%
Amortization of intangible assets2,784 2,285 499 21.84%
Other expenses5,665 5,048 617 12.22%
Total operating expenses$34,555 $30,165 $4,390 14.55%
Income before income tax, corporate allocation and noncontrolling interest$10,833 $8,664 $2,169 25.03%
Plus: Acquisition related expenses361 186 175 94.09%
Plus: Amortization of intangible assets2,784 2,285 499 21.84%
Operating earnings before income taxes (non-GAAP)$13,978 $11,135 $2,843 25.53%


TOWNEBANK
Reconcilement of Non-GAAP Financial Measures:
Three Months Ended Twelve months ended
December 31, September 30, December 31, December 31,
2016 2016 2015 2016 2015
Return on average assets (GAAP basis)0.95% 1.20% 0.78% 0.93% 1.03%
Impact of excluding average goodwill and other intangibles and amortization0.10% 0.09% 0.07% 0.09% 0.07%
Return on average tangible assets (Non-GAAP)1.05% 1.29% 0.85% 1.02% 1.10%
Return on average equity (GAAP basis)6.95% 8.95% 6.00% 6.98% 7.75%
Impact of excluding average goodwill and other intangibles and amortization3.32% 3.92% 2.11% 2.95% 2.59%
Return on average tangible equity (Non-GAAP)10.27% 12.87% 8.11% 9.93% 10.34%
Return on average common equity (GAAP basis)7.02% 9.04% 6.07% 7.05% 7.85%
Impact of excluding average goodwill and other intangibles and amortization3.40% 4.01% 2.15% 3.02% 2.66%
Return on average tangible common equity (Non-GAAP)10.42% 13.05% 8.22% 10.07% 10.51%
Book value (GAAP basis)$17.20 $17.11 $15.71 $17.20 $15.71
Impact of excluding average goodwill and other intangibles and amortization(4.84) (4.88) (3.50) (4.84) (3.50)
Tangible book value$12.36 $12.23 $12.21 $12.36 $12.21


TOWNEBANK
Reconcilement of Non-GAAP Financial Measures
(dollars in thousands)
Three Months Ended
December 31, September 30, June 30, March 31, December 31,
Reconcilement of GAAP Earnings to Core Operating Earnings 2016 2016 2016 2016 2015
Net income (GAAP) $19,019 $24,176 $6,259 $17,819 $12,466
Acquisition-related expenses (707) 969 18,435 414 285
Non-core charges (707) 969 18,435 414 285
Income tax expense 264 (267) (6,177) (33) (100)
Non-core charges, net of taxes (443) 702 12,258 381 185
Core operating earnings (non-GAAP) $18,576 $24,878 $18,517 $18,200 $12,651
Weighted average diluted shares 62,175,705 62,067,832 52,116,772 51,392,857 51,440,440
Diluted EPS (GAAP) $0.31 $0.39 $0.12 $0.35 $0.24
Core diluted EPS (non-GAAP) $0.30 $0.40 $0.36 $0.35 $0.25
Average assets $7,965,438 $7,991,213 $6,534,063 $6,313,238 $6,305,571
Average tangible equity 783,789 $772,932 $665,690 $643,464 $638,855
Core return on average assets (non-GAAP) 0.93% 1.24% 1.14% 1.16% 0.80%
Core return on average tangible equity (non-GAAP) 10.05% 13.23% 11.60% 11.80% 8.23%
Core efficiency ratio (Non-GAAP) (1) 72.34% 63.94% 63.46% 65.71% 73.46%
(1) Excludes gain on investment securities and acquisition-related expenses


TOWNEBANK
Reconcilement of Non-GAAP Financial Measures
(dollars in thousands)
Year Ended
December 31, December 31,
Reconcilement of GAAP Earnings to Core Operating Earnings 2016 2015
Net income (GAAP) $67,250 $62,382
Acquisition-related expenses 19,111 1,312
Non-core charges 19,111 1,312
Income tax expense (6,213) (459)
Non-core charges, net of taxes 12,898 853
Core operating earnings (non-GAAP) $80,148 $63,235
Weighted average diluted shares 56,983,305 51,161,241
Diluted EPS (GAAP) $1.18 $1.22
Core diluted EPS (non-GAAP) $1.41 $1.24
Average assets $7,205,236 $6,039,418
Average tangible equity $716,807 $624,088
Core return on average assets (non-GAAP) 1.11% 1.05%
Core return on average tangible equity (non-GAAP) 11.73% 10.50%
Core efficiency ratio (Non-GAAP) (1) 66.49% 67.67%
(1) Excludes gain on investment securities and acquisition-related expenses


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