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TowneBank Reports Record Third Quarter Earnings

SUFFOLK, Va., Oct. 26, 2017 (GLOBE NEWSWIRE) -- TowneBank (the “Bank” or “Company”) (NASDAQ:TOWN) today reported record financial results for the three and nine months ended September 30, 2017. Earnings for the quarter ended September 30, 2017 were $27.15 million, a 12.30% increase from the $24.18 million for the same quarter in 2016. Fully diluted earnings per share were $0.44 per share, up 12.82% from $0.39 per share in third quarter 2016.

Earnings for the year-to-date period were $75.33 million compared to $48.25 million earned in the same period of 2016. Fully diluted earnings per share were $1.21 compared to $0.87 for the nine months ended September 30, 2016.

Excluding certain items affecting comparability, earnings for the year-to-date period were $74.31 million (non-GAAP), or $1.19 (non-GAAP) per diluted share, compared to the $61.60 million (non-GAAP), or $1.12 (non-GAAP) per diluted share, earned in the same period of 2016.

The Bank’s quarterly dividend was $0.14 per share resulting in total common dividends of $8.77 million. The current dividend represents an increase of 7.7% over the dividend paid during the same quarter of 2016.

“We are pleased to announce another quarter of record earnings, as we saw continued strength in our asset quality metrics and solid improvements in noninterest expenses, while producing a return on average assets of 1.26% and a return on average equity of 9.49%,” said G. Robert Aston, Jr., Chairman and Chief Executive Officer. “In addition, we completed a $250 million subordinated debt offering in July, which allowed us to bolster our risk-based capital ratio and reduce our CRE concentration ratio in advance of our anticipated merger with Paragon in first quarter 2017.”

Third Quarter 2017 Performance Highlights

• Total revenues were $115.34 million, an increase of $5.91 million, or 5.40% from third quarter 2016

  • Taxable equivalent net interest margin was 3.43%, including accretion of 12 basis points, compared to 3.55%, including accretion of 17 basis points, for 2016
  • Property management fee revenue increased $3.56 million, or 81.21%
  • Insurance segment total revenue increased 8.02% to $14.28 million

• Loans held for investment increased $258.84 million, or 4.58% from September 30, 2016

• Total deposits were $6.55 billion, an increase of $401.51 million, or 6.53%, from third quarter 2016

  • Noninterest bearing deposits increased by 12.04%, to $2.21 billion, representing 33.78% of total deposits
  • Total cost of deposits increased to 0.47% from 0.38% at September 30, 2016

• Issued $250.0 million of fixed to variable rate 10-year subordinated notes at a fixed rate of 4.50% for the first five years

  • Issuance resulted in a reduction of 12 basis points to net interest margin
  • Treated as Tier 2 capital for regulatory purposes at September 30, 2017

• Asset quality showed continued strength

  • Nonperforming assets declined to $33.89 million, or 0.39% of total assets compared to $34.22 million, or 0.44%, at September 30, 2016
  • Nonperforming loans were 0.15% of period end loans
  • Foreclosed property decreased to $21.50 million

• The Bank remained well-capitalized

  • Common equity tier 1 capital ratio of 12.36%
  • Tier 1 leverage capital ratio of 10.14%
  • Tier 1 risk-based capital ratio of 12.40%
  • Total risk-based capital ratio of 16.71%
  • Book value increased to $18.04
  • Tangible book value increased to $13.08

Third Quarter 2017 Earnings Compared to Third Quarter 2016

Net income for the third quarter was $27.15 million, or $0.44 per diluted share, versus $24.18 million, or $0.39 per diluted share, in 2016, reflecting growth in net interest income and noninterest income as compared to the prior year period.

Net Interest Income
Net interest income increased to $65.92 million, a $3.32 million, or 5.30%, increase from the third quarter of 2016. The primary driver was the growth in average earning assets, which increased $621.75 million, or 8.77%, while tax-equivalent net interest margin decreased to 3.43% in the current quarter from 3.55% in third quarter 2016. The subordinated note issuance in July 2017 resulted in additional interest expense of $2.37 million in third quarter 2017 and a temporary reduction of 12 basis points to net interest margin, subject to the leveraging of the proceeds into earning assets. Accretion income added $2.36 million, or 12 basis points, to margin in the current quarter as compared to $2.63 million, or 17 basis points, in the third quarter of 2016.

Noninterest Income
Noninterest income was $49.42 million for the third quarter of 2017, an increase of $2.60 million, or 5.54%, from the third quarter of 2016. Residential mortgage banking income decreased $2.34 million, or 10.93%, from the third quarter of 2016 primarily due to lower production volumes. Mortgage production was $0.95 billion in third quarter 2017, which was $299.02 million lower than third quarter 2016 production of $1.25 billion. Insurance commissions and other title fees increased $0.86 million, or 7.62%, primarily due to the acquisition of an insurance agency in August 2017, combined with organic growth in property and casualty and employee benefits lines of business. Additionally, real estate brokerage and property management income increased $3.40 million, or 51.08%, from the third quarter of 2016 primarily due to our acquisition of a resort property management company at Deep Creek Lake, Maryland (“Deep Creek”) in second quarter 2017.

Noninterest Expense
Noninterest expense increased by $3.25 million, or 4.59%, from the comparative quarter of 2016. The primary driver was an increase of $2.97 million in salaries and benefits expense primarily due to the addition of staff related to the Deep Creek and insurance agency acquisitions, combined with higher personnel costs in our Banking and Insurance segments. Also contributing was an increase in furniture and equipment expenses of $0.51 million, primarily related to equipment lease and maintenance expense. Partially offsetting the increase was a reduction in acquisition-related expenses of $0.50 million, and advertising and marketing expenses of $0.31 million.

Third Quarter 2017 Earnings Compared to Second Quarter 2017
Net income for the third quarter was $27.15 million, or $0.44 per diluted share, versus $26.21 million, or $0.42 per diluted share, in second quarter 2017, reflecting a decrease in the provision for loan losses and a lowering of noninterest expenses in third quarter 2017.

Performance Highlights

• Total revenues were $115.34 million compared to $119.60 million in the second quarter of 2017

  • Taxable equivalent net interest margin was 3.43%, including accretion of 12 basis points, compared to 3.84%, including accretion of 31 basis points, in the second quarter of 2017
  • Property management fee revenue increased $2.65 million, or 49.99%
  • Noninterest expense decreased $3.93 million, or 5.03%

• Total loans held for investment decreased slightly to $5.91 billion

• Total deposits were $6.55 billion, a slight decrease of 0.72%, from June 30, 2017

  • Average noninterest bearing deposits increased by $92.10 million, or 4.42%

• Issued $250.0 million of fixed to variable rate 10-year subordinated notes at a fixed rate of 4.50% for the first five years

  • Issuance resulted in a reduction of 12 basis points to net interest margin

Net Interest Income
On a linked quarter basis, net interest income decreased by $3.33 million, or 4.81%, in third quarter 2017 versus second quarter 2017, while tax-equivalent net interest margin was 3.43% versus 3.84% for the second quarter of 2017. The decrease in net interest income was primarily due to a one-time adjustment to accretion income of a $3.89 million, or 21 basis points, in second quarter 2017, combined with slightly higher time deposit costs and interest expense on the newly issued subordinated notes. Accretion income added $2.36 million, or 12 basis points, to margin in the current quarter, as compared to $5.57 million, or 31 basis points, in the linked quarter.

Noninterest Income
In comparison to the second quarter of 2017, noninterest income decreased $0.93 million, or 1.84%. The decrease was driven by residential mortgage banking income, which declined by $2.51 million, or 11.61%, due to a decrease in mortgage production of $130.87 million, from $1.08 billion in second quarter 2017 to $947.66 million in third quarter 2017. Additionally, insurance commissions declined due to a decrease in employee benefits insurance bonus income, combined with a seasonal decrease in travel insurance. Partially offsetting the decrease from the linked quarter was real estate brokerage and property management income, which was higher by $2.41 million, or 31.63%, due to a seasonal increase in resort property management fees.

Noninterest Expense
Noninterest expense decreased by $3.93 million, or 5.03%, from the second quarter of 2017. The primary reductions in expenses were salaries and benefits expense of $1.37 million, acquisition-related expenses of $0.82 million, and advertising and marketing expenses of $0.97 million. Salaries and benefits expenses were lower primarily due to a reduction in the accrual of expenses related to our profit sharing plan, which is linked to the achievement of certain performance thresholds and targeted levels of earnings.

Noninterest Income % Change
Q3 Q3 Q2 Q3 17 vs. Q3 17 vs.
(dollars in thousands)2017 2016 2017 Q3 16 Q2 17
Residential mortgage banking income, net$19,087 $21,430 $21,594 (10.93)% (11.61)%
Insurance commissions and other title fees and income, net12,116 11,258 12,902 7.62% (6.09)%
Real estate brokerage and property management, net10,042 6,647 7,629 51.08% 31.63%
Service charges on deposit accounts2,670 2,552 2,644 4.62% 0.98%
Credit card merchant fees, net1,388 1,365 1,298 1.68% 6.93%
Bank owned life insurance1,425 1,264 1,421 12.74% 0.28%
Other income2,688 2,305 2,856 16.62% (5.88)%
Subtotal before loss on investment securities49,416 46,821 50,344 5.54% (1.84)%
Net loss on investment securities (1) N/M (100.00)%
Total noninterest income$49,416 $46,821 $50,343 5.54% (1.84)%



Noninterest Expense % Change
Q3 Q3 Q2 Q3 17 vs. Q3 17 vs.
(dollars in thousands)2017 2016 2017 Q3 16 Q2 17
Salaries and benefits$43,467 $40,497 $44,834 7.33% (3.05)%
Occupancy expense6,635 6,656 6,658 (0.32)% (0.35)%
Furniture and equipment3,710 3,199 3,563 15.97% 4.13%
Acquisition-related expenses466 969 1,281 (51.91)% (63.62)%
Other expenses19,908 19,612 21,783 1.51% (8.61)%
Total noninterest expense$74,186 $70,933 $78,119 4.59% (5.03)%


Segment Results

$ Change
(in thousands) Q3 Q3 Q2 Q3 17 vs. Q3 17 vs.
Segment Net Income (Loss) 2017 2016 2017 Q3 16 Q2 17
Banking $22,569 $18,276 $21,546 $4,293 $1,023
Realty 3,445 4,815 3,204 (1,370) 241
Insurance 1,136 1,085 1,463 51 (327)
Total net income $27,150 $24,176 $26,213 $2,974 $937


Third Quarter 2017 Compared to Third Quarter 2016

Banking
Net income for the three months ended September 30, 2017 for the Banking segment was $22.57 million, increasing $4.29 million from comparative 2016, as net interest income climbed by $4.18 million primarily due to an increase in earning assets, partially offset by interest expense related to the issuance of subordinated notes in July 2017. Also contributing to the variance was a decrease in the provision for loan losses of $0.99 million and an increase in noninterest income of $0.70 million, which included increases in wealth management income, service charges and bank-owned life insurance income. Additionally, noninterest expenses declined by $0.12 million, as the decreases in acquisition-related expenses and marketing costs were partially offset by increases in personnel costs.

Realty
For the three months ended September 30, 2017, the Realty segment net income was $3.45 million as compared to $4.82 million in third quarter 2016. The variance was driven by increased noninterest expenses of $2.42 million, including an increase in personnel costs of $1.22 million, primarily due to the Deep Creek acquisition. Additionally, lower production volumes led to a decrease in residential mortgage banking income. The decrease was mostly offset by an increase in property management fees of $3.56 million, or 81.21%, also related to the Deep Creek acquisition. Additionally, net interest and other income decreased by $0.72 million, as the reduction in production volume led to lower average mortgage loans held for sale.

Insurance
The Insurance segment had net income of $1.14 million for the three months ended September 30, 2017, an increase of $0.05 million compared to third quarter 2016. The increase in net income was primarily driven by growth in property and casualty insurance and employee benefit insurance lines, partially offset by an increase in operating costs.

Third Quarter 2017 Compared to Second Quarter 2017

Banking
Earnings increased by $1.02 million, or 4.75%, from the second quarter of 2017 as noninterest expense decreased by $3.43 million and the provision for loan losses saw a decrease of $0.62 million. The decrease in noninterest expense was driven by decreases in personnel costs of $1.88 million, advertising and marketing expenses of $0.58 million, and acquisition-related expenses of $0.58 million. These factors were partially offset by a decrease in net interest income of $3.34 million due to a combination of a decrease in accretion of purchase accounting marks and increased interest expense related to the issuance of subordinated notes in July 2017.

Realty
Net income in the Realty segment increased by $0.24 million from the linked quarter ended June 30, 2017. The increase was primarily a result of a seasonal increase in our resort property management businesses, which saw an increase in property management fee income of $2.65 million. The increase was partially offset by decreases in our residential mortgage banking and real estate brokerage lines of business.

Insurance
Net income decreased $0.33 million from the second quarter of 2017 driven by a reduction in contingency and bonus revenue of $0.77 million related to bonus income received by our employee benefits lines in second quarter 2017. Additionally, commissions from travel insurance saw a seasonal decrease of $0.19 million, but were offset by an increases in property and casualty commissions of $0.50 million.

Balance Sheet

At September 30, 2017, total Bank assets reached $8.61 billion, an increase of $784.65 million, or 10.02%, over September 30, 2016.

Loans

% Change
Q3 Q3 Q2 Q3 17 vs. Q3 17 vs.
(dollars in thousands)2017 2016 2017 Q3 16 Q2 17
Construction and land development$880,655 $820,453 $888,566 7.34% (0.89)%
Commercial real estate - investment related properties1,336,277 1,283,619 1,339,270 4.10% (0.22)%
Commercial real estate - owner occupied966,986 905,870 956,333 6.75% 1.11%
Multifamily real estate185,323 206,623 206,894 (10.31)% (10.43)%
1-4 family residential real estate1,239,886 1,208,001 1,227,389 2.64% 1.02%
Commercial and industrial business loans1,084,555 1,033,797 1,110,822 4.91% (2.36)%
Consumer loans and other216,797 193,279 219,787 12.17% (1.36)%
Total$5,910,479 $5,651,642 $5,949,061 4.58% (0.65)%

The Bank’s loan portfolio ended the period at $5.91 billion representing an increase of 4.58%, or $258.84 million, from the prior year, and a decrease of $38.58 million, or 0.65%, from June 30, 2017.

Deposits

% Change
Q3 Q3 Q2 Q3 17 vs. Q3 17 vs.
(dollars in thousands)2017 2016 2017 Q3 16 Q2 17
Noninterest-bearing demand$2,212,047 $1,974,395 $2,219,406 12.04% (0.33)%
Interest-bearing:
Demand and money market accounts2,253,746 2,207,962 2,292,978 2.07% (1.71)%
Savings320,028 315,477 318,714 1.44% 0.41%
Certificates of deposits1,762,641 1,649,113 1,764,671 6.88% (0.12)%
Total$6,548,462 $6,146,947 $6,595,769 6.53% (0.72)%

The Bank continued to experience solid deposit growth with total deposits increasing to $6.55 billion, up $401.51 million, or 6.53%, from September 30, 2016. The Bank saw continued growth in noninterest-bearing demand deposits, which ended the quarter at $2.21 billion, a 12.04% increase from the prior year. Noninterest-bearing deposits represented 33.78% of total deposits at September 30, 2017.

Capital Ratios

Q3 Q3 Q2
2017 2016 2017
Common Equity Tier 1 12.36% 11.74% 11.98%
Tier 1 12.40% 11.81% 12.03%
Total 16.71% 12.42% 12.68%
Tier 1 Leverage Ratio 10.14% 10.18% 10.43%

The Bank’s total equity at September 30, 2017 rose to $1.14 billion, an increase of $61.97 million, or 5.74%, from September 30, 2016. 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 12.36%, 12.40%, 16.71%, 10.14%, respectively. All ratios exceed the current regulatory standards for well capitalized status.

Asset Quality

(in thousands)9/30/2017 6/30/2017 3/31/2017 12/31/2016 9/30/2016
Nonperforming loans$8,768 $9,645 $11,538 $13,099 $11,337
Former bank premises3,619 2,798 2,798 3,494
Foreclosed property21,504 23,249 21,473 21,011 22,884
Total nonperforming assets$33,891 $35,692 $35,809 $37,604 $34,221
Quarterly net loans charged off$429 $384 $1,347 $485 $649
Year-to-date net loans charged off$2,160 $1,731 $1,347 $1,715 $1,230


Change
Q3 Q3 Q2 Q3 17 vs. Q3 17 vs.
(dollars in thousands) 2017 2016 2017 Q3 16 Q2 17
Total loans 90 days past due and still accruing $74 $ $206 $74 $(132)
Total loans 30-89 days past due $5,888 $6,707 $4,193 $(819) $1,695
Allowance for loan losses $44,398 $40,655 $44,131 $3,743 $267
Total performing TDRs $22,280 $28,345 $24,663 $(6,065) $(2,383)
Nonperforming loans to period end loans 0.15% 0.20% 0.16% (0.05) (0.01)
Nonperforming assets to period end assets 0.39% 0.44% 0.42% (0.05) (0.03)
Allowance for loan losses to period end loans 0.75% 0.72% 0.74% 0.03 0.01
Allowance for loan losses (originated) to originated period end loans 0.86% 0.91% 0.86% (0.05)
Net charge-offs to average loans (annualized) 0.03% 0.05% 0.03% (0.02)
Ratio of allowance for loan losses to nonperforming loans 5.06x 3.59x 4.58x 1.47x 0.48x

Continued strength in credit quality contributed to the Bank's financial results as net charge-offs totaled $0.43 million in the third quarter of 2017 compared to $0.65 million in the third quarter of 2016 and $0.38 million in the linked quarter. Total nonperforming assets were $33.89 million, or 0.39%, of Bank assets at September 30, 2017, compared to $34.22 million, or 0.44%, at September 30, 2016, and $35.69 million, or 0.42%, at June 30, 2017. The allowance for loan losses was $44.40 million, an increase from $40.66 million at September 30, 2016 and $44.13 million at June 30, 2017.

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 Wealth Management, Towne Insurance Agency, Towne Benefits, TowneBank Mortgage, TowneBank Commercial Mortgage, Berkshire Hathaway HomeServices Towne Realty, Towne 1031 Exchange, LLC, and Towne Vacations. Local decision-making is a hallmark of its hometown banking strategy that is delivered through the leadership of each group’s President and Board of Directors. With total assets of $8.61 billion as of September 30, 2017, TowneBank is one of the largest banks headquartered in Virginia.

On April 27, 2017, TowneBank announced the signing of a definitive agreement to acquire Paragon Commercial Corporation (“Paragon”) and its wholly-owned bank subsidiary, Paragon Commercial Bank. Founded in Raleigh, North Carolina in 1999, Paragon Commercial Bank provides banking services through highly responsive professionals, an extensive courier service, online and mobile technologies, free worldwide ATM access and a select number of strategically placed offices in Raleigh, Cary and Charlotte, North Carolina. Pending customary regulatory and shareholder approvals, the merger is scheduled to close in January 2018. Based on financial data as of June 30, 2017, the combined company would have total assets of $10.1 billion, gross loans of $7.3 billion and total deposits of $7.8 billion.

Non-GAAP Financial Measures:
This press release contains financial information determined by methods other than in accordance with GAAP. The Company's management uses these non-GAAP financial measures in its analysis of the Company's performance. These measures typically adjust GAAP performance measures to exclude the effects of the amortization of intangibles and include the tax benefit associated with revenue items that are tax-exempt, as well as adjust income available to common shareholders for certain significant activities or transactions that are infrequent in nature. Management believes presentations of these non-GAAP financial measures provide useful supplemental information that is essential to a proper understanding of the operating results of the Company’s core businesses. These non-GAAP disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. Reconciliations of GAAP to non-GAAP disclosures are included as tables at the end of this release.

Forward-Looking Statements:
Certain statements contained in this release constitute forward-looking statements within the meaning of U.S. federal securities laws. These forward-looking statements speak only as of the date of this release, are based on current expectations, and involve a number of assumptions. These include statements regarding TowneBank’s future economic performance, financial condition, prospects, growth, strategies and expectations, and objectives of management, and are generally identified by the use of words such as “believe,” “expect,” “intend,” “anticipate,” “estimate,” or “project” or similar expressions. TowneBank intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and is including this statement for purposes of these safe harbor provisions. You should not place undue reliance on forward-looking statements, which are subject to assumptions that are subject to change. TowneBank’s ability to predict results, or the actual effect of future plans or strategies, is inherently uncertain. These forward-looking statements are subject to a number of factors and uncertainties that could cause actual results to differ from those indicated or implied in the forward-looking statements and such differences may be material. Factors which could have a material effect on the operations and future prospects of TowneBank include but are not limited to: changes in interest rates, general economic and business conditions; legislative/regulatory changes; the monetary and fiscal policies of the U.S. government, including policies of the U.S. Treasury and the Board of Governors of the Federal Reserve System; the quality and composition of TowneBank’s loan and securities portfolios; demand for loan products; deposit flows; competition; demand for financial services in TowneBank’s market area; implementation of new technologies and the ability to develop and maintain secure and reliable electronic systems; changes in the securities markets; changes in accounting principles, policies and guidelines; TowneBank’s ability to complete and successfully integrate the business of Paragon Commercial Bank in the expected timeframe, if at all, and to achieve expected revenue synergies and cost savings from the merger; and other risk factors detailed from time to time in filings made by TowneBank with the Federal Deposit Insurance Corporation (the “FDIC”). TowneBank undertakes no obligation to update or clarify these forward-looking statements, whether as a result of new information, future events or otherwise.

Additional Information About the Merger and Where to Find It:
This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval. In connection with the merger, Paragon will file with the Securities and Exchange Commission (“SEC”) a preliminary proxy statement. Paragon will deliver a definitive proxy statement/prospectus to its stockholders seeking approval of the merger and related matters. In addition, each of TowneBank and Paragon may file other relevant documents concerning the proposed merger with the FDIC and SEC.

Paragon, TowneBank and their respective directors and executive officers may be deemed to be participants in the solicitation of proxies from Paragon’s stockholders in connection with the proposed merger. Information about the directors and executive officers of Paragon and TowneBank and other persons who may be deemed participants in the solicitation, including their interests in the merger, will be included in the definitive proxy statement/prospectus when it becomes available. Additional information about Paragon’s executive officers and directors can be found in Paragon’s final prospectus filed with the SEC on June 17, 2016. Additional information regarding TowneBank’s executive officers and directors can be found in TowneBank’s definitive proxy statement in connection with its 2017 Annual Meeting of Stockholders filed with the FDIC on April 21, 2017. You may obtain free copies of each document from Paragon by directing a request by telephone or mail to Paragon Commercial Corporation, 3535 Glenwood Avenue, Raleigh, North Carolina 27612, Attention: Investor Relations (telephone: (919) 788-7770), or by accessing Paragon’s website at https://www.paragonbank.com under “About Us-Investor Relations.” You may obtain free copies of each document from TowneBank by directing a request by telephone or mail to TowneBank, 6001 Harbour View Boulevard, Suffolk, Virginia 23425, Attention: Investor Relations (telephone: (757) 638-6794), or by accessing TowneBank’s website at https://townebank.com under “Investor Relations.” The information on TowneBank’s and Paragon’s websites is not, and shall not be deemed to be, a part of this release or incorporated into other filings either company makes with the FDIC or SEC. ###

TOWNEBANK
Selected Financial Highlights (unaudited)
(dollars in thousands, except per share data)
Increase/ % Increase/
Three Months Ended September 30,2017 2016 (Decrease) (Decrease)
Results of Operations:
Net interest income$65,923 $62,605 $3,318 5.30%
Noninterest income49,416 46,821 2,595 5.54%
Total Revenue115,339 109,426 5,913 5.40%
Acquisition-related expenses466 969 (503) (51.91)%
Noninterest expenses, excluding acquisition-related expenses73,720 69,964 3,756 5.37%
Provision for loan losses696 1,686 (990) (58.72)%
Income before income tax and noncontrolling interest40,457 36,807 3,650 9.92%
Provision for income tax expense11,862 10,974 888 8.09%
Net income28,595 25,833 2,762 10.69%
Net income attributable to noncontrolling interest(1,445) (1,657) 212 (12.79)%
Net income attributable to TowneBank27,150 24,176 2,974 12.30%
Net income available to common shareholders27,150 24,176 2,974 12.30%
Net income per common share - basic0.44 0.39 0.05 12.82%
Net income per common share - diluted0.44 0.39 0.05 12.82%
Period End Data:
Total assets$8,614,794 $7,830,142 $784,652 10.02%
Total assets - tangible8,304,142 7,525,817 778,325 10.34%
Earning assets7,785,167 7,033,535 751,632 10.69%
Loans (net of unearned income)5,910,479 5,651,642 258,837 4.58%
Allowance for loan losses44,398 40,655 3,743 9.21%
Goodwill and other intangibles310,652 304,325 6,327 2.08%
Nonperforming assets33,891 34,221 (330) (0.96)%
Noninterest bearing deposits2,212,047 1,974,395 237,652 12.04%
Interest bearing deposits4,336,415 4,172,552 163,863 3.93%
Total deposits6,548,462 6,146,947 401,515 6.53%
Total equity1,140,852 1,078,878 61,974 5.74%
Total equity - tangible830,199 774,553 55,646 7.18%
Common equity1,129,588 1,067,193 62,395 5.85%
Common equity - tangible818,936 762,868 56,068 7.35%
Book value per common share18.04 17.11 0.93 5.44%
Book value per common share - tangible13.08 12.23 0.85 6.95%
Daily Average Balances:
Total assets$8,570,019 $7,991,213 $578,806 7.24%
Total assets - tangible8,259,587 7,689,122 570,465 7.42%
Earning assets7,710,245 7,088,493 621,752 8.77%
Loans (net of unearned income), excluding nonaccrual loans5,897,169 5,583,711 313,458 5.61%
Allowance for loan losses44,198 40,004 4,194 10.48%
Goodwill and other intangibles310,432 302,091 8,341 2.76%
Noninterest bearing deposits2,173,920 1,959,025 214,895 10.97%
Interest bearing deposits4,365,820 4,219,316 146,504 3.47%
Total deposits6,539,740 6,178,341 361,399 5.85%
Total equity1,135,218 1,075,023 60,195 5.60%
Total equity - tangible824,787 772,932 51,855 6.71%
Common equity1,124,173 1,064,179 59,994 5.64%
Common equity - tangible813,741 762,088 51,653 6.78%
Key Ratios:
Return on average assets1.26% 1.20% 0.06% 5.00%
Return on average assets - tangible1.37% 1.32% 0.05% 3.79%
Return on average equity9.49% 8.95% 0.54% 6.03%
Return on average equity - tangible13.67% 13.09% 0.58% 4.43%
Return on average common equity9.58% 9.04% 0.54% 5.97%
Return on average common equity - tangible13.86% 13.27% 0.59% 4.45%
Net interest margin-fully tax equivalent (1)3.43% 3.55% (0.12)% (3.38)%
Net interest margin3.39% 3.51% (0.12)% (3.42)%
Average earning assets/total average assets89.97% 88.70% 1.27% 1.43%
Average loans/average deposits90.17% 90.38% (0.21)% (0.23)%
Average noninterest deposits/total average deposits33.24% 31.71% 1.53% 4.82%
Allowance for loan losses/period end loans0.75% 0.72% 0.03% 4.17%
Nonperforming assets to period end assets0.39% 0.44% (0.05)% (11.36)%
Period end equity/period end total assets13.24% 13.78% (0.54)% (3.92)%
Efficiency ratio64.32% 64.82% (0.50)% (0.77)%
(1) Presented on a tax-equivalent basis



TOWNEBANK
Selected Financial Highlights (unaudited)
(dollars in thousands, except per share data)
Increase/ % Increase/
Nine Months Ended September 30,2017 2016 (Decrease) (Decrease)
Results of Operations:
Net interest income$195,456 $156,724 $38,732 24.71%
Noninterest income144,645 115,704 28,941 25.01%
Total Revenue340,101 272,428 67,673 24.84%
Acquisition-related expenses1,743 19,817 (18,074) (91.20)%
Noninterest expenses, excluding acquisition-related expenses220,810 175,175 45,635 26.05%
Provision for loan losses4,557 3,526 1,031 29.24%
Income before income tax and noncontrolling interest112,991 73,910 39,081 52.88%
Provision for income tax expense33,488 21,538 11,950 55.48%
Net income79,503 52,372 27,131 51.80%
Net income attributable to noncontrolling interest(4,173) (4,118) (55) 1.34%
Net income attributable to TowneBank75,330 48,254 27,076 56.11%
Net income available to common shareholders75,330 48,254 27,076 56.11%
Net income per common share - basic1.21 0.88 0.33 37.50%
Net income per common share - diluted1.21 0.87 0.34 39.08%
Period End Data:
Total assets$8,614,794 $7,830,142 $784,652 10.02%
Total assets - tangible8,304,142 7,525,817 778,325 10.34%
Earning assets7,785,167 7,033,535 751,632 10.69%
Loans (net of unearned income)5,910,479 5,651,642 258,837 4.58%
Allowance for loan losses44,398 40,655 3,743 9.21%
Goodwill and other intangibles310,652 304,325 6,327 2.08%
Nonperforming assets33,891 34,221 (330) (0.96)%
Noninterest bearing deposits2,212,047 1,974,395 237,652 12.04%
Interest bearing deposits4,336,415 4,172,552 163,863 3.93%
Total deposits6,548,462 6,146,947 401,515 6.53%
Total equity1,140,852 1,078,878 61,974 5.74%
Total equity - tangible830,199 774,553 55,646 7.18%
Common equity1,129,588 1,067,193 62,395 5.85%
Common equity - tangible818,936 762,869 56,067 7.35%
Book value per common share18.04 17.11 0.93 5.44%
Book value per common share - tangible13.08 12.23 0.85 6.95%
Daily Average Balances:
Total assets$8,252,534 $6,949,985 $1,302,549 18.74%
Total assets - tangible7,945,700 6,722,029 1,223,671 18.20%
Earning assets7,434,268 6,211,263 1,223,005 19.69%
Loans (net of unearned income), excluding nonaccrual loans5,895,560 4,936,641 958,919 19.42%
Allowance for loan losses43,442 38,996 4,446 11.40%
Goodwill and other intangibles306,834 227,956 78,878 34.60%
Noninterest bearing deposits2,072,000 1,638,902 433,098 26.43%
Interest bearing deposits4,219,049 3,756,169 462,880 12.32%
Total deposits6,291,048 5,395,071 895,977 16.61%
Total equity1,114,725 922,272 192,453 20.87%
Total equity - tangible807,891 694,316 113,575 16.36%
Common equity1,103,590 912,502 191,088 20.94%
Common equity - tangible796,756 684,546 112,210 16.39%
Key Ratios:
Return on average assets1.22% 0.93% 0.29% 31.18%
Return on average assets - tangible1.33% 1.01% 0.32% 31.68%
Return on average equity9.04% 6.99% 2.05% 29.33%
Return on average equity - tangible13.09% 9.80% 3.29% 33.57%
Return on average common equity9.13% 7.06% 2.07% 29.32%
Return on average common equity - tangible13.28% 9.94% 3.34% 33.60%
Net interest margin-fully tax equivalent (1)3.55% 3.41% 0.14% 4.11%
Net interest margin3.52% 3.37% 0.15% 4.45%
Average earning assets/total average assets90.08% 89.37% 0.71% 0.79%
Average loans/average deposits93.71% 91.50% 2.21% 2.42%
Average noninterest deposits/total average deposits32.94% 30.38% 2.56% 8.43%
Allowance for loan losses/period end loans0.75% 0.72% 0.03% 4.17%
Nonperforming assets to period end assets0.39% 0.44% (0.05)% (11.36)%
Period end equity/period end total assets13.24% 13.78% (0.54)% (3.92)%
Efficiency ratio65.44% 71.58% (6.14)% (8.58)%
(1) Presented on a tax-equivalent basis


TOWNEBANK
Selected Financial Highlights (unaudited)
(dollars in thousands, except per share data)
September 30, June 30, Increase/ % Increase/
Three Months Ended2017 2017 (Decrease) (Decrease)
Results of Operations:
Net interest income$65,923 $69,253 $(3,330) (4.81)%
Noninterest income49,416 50,343 (927) (1.84)%
Total Revenue115,339 119,596 (4,257) (3.56)%
Acquisition-related expenses466 1,281 (815) (63.62)%
Noninterest expenses, excluding acquisition-related expenses73,720 76,838 (3,118) (4.06)%
Provision for loan losses696 1,320 (624) (47.27)%
Income before income tax and noncontrolling interest40,457 40,157 300 0.75%
Provision for income tax expense11,862 12,240 (378) (3.09)%
Net income28,595 27,917 678 2.43%
Net income attributable to noncontrolling interest(1,445) (1,704) 259 (15.20)%
Net income attributable to TowneBank27,150 26,213 937 3.57%
Net income available to common shareholders27,150 26,213 937 3.57%
Net income per common share - basic0.44 0.42 0.02 4.76%
Net income per common share - diluted0.44 0.42 0.02 4.76%
Period End Data:
Total assets$8,614,794 $8,427,042 $187,752 2.23%
Total assets - tangible8,304,142 8,118,730 185,412 2.28%
Earning assets7,785,167 7,590,796 194,371 2.56%
Loans (net of unearned income)5,910,479 5,949,061 (38,582) (0.65)%
Allowance for loan losses44,398 44,131 267 0.61%
Goodwill and other intangibles310,652 308,312 2,340 0.76%
Nonperforming assets33,891 35,692 (1,801) (5.05)%
Noninterest bearing deposits2,212,047 2,219,406 (7,359) (0.33)%
Interest bearing deposits4,336,415 4,376,363 (39,948) (0.91)%
Total deposits6,548,462 6,595,769 (47,307) (0.72)%
Total equity1,140,852 1,122,998 17,854 1.59%
Total equity - tangible830,199 814,686 15,513 1.90%
Common equity1,129,588 1,110,681 18,907 1.70%
Common equity - tangible818,936 802,369 16,567 2.06%
Book value per common share18.04 17.74 0.30 1.69%
Book value per common share - tangible13.08 12.81 0.27 2.11%
Daily Average Balances:
Total assets$8,570,019 $8,180,959 $389,060 4.76%
Total assets - tangible8,259,587 7,873,036 386,551 4.91%
Earning assets7,710,245 7,318,667 391,578 5.35%
Loans (net of unearned income), excluding nonaccrual loans5,897,169 5,926,336 (29,167) (0.49)%
Allowance for loan losses44,198 43,501 697 1.60%
Goodwill and other intangibles310,432 307,923 2,509 0.81%
Noninterest bearing deposits2,173,920 2,081,819 92,101 4.42%
Interest bearing deposits4,365,820 4,186,319 179,501 4.29%
Total deposits6,539,740 6,268,138 271,602 4.33%
Total equity1,135,218 1,115,008 20,210 1.81%
Total equity - tangible824,787 807,085 17,702 2.19%
Common equity1,124,173 1,103,813 20,360 1.84%
Common equity - tangible813,741 795,891 17,850 2.24%
Key Ratios:
Return on average assets1.26% 1.29% (0.03)% (2.33)%
Return on average assets - tangible1.37% 1.40% (0.03)% (2.14)%
Return on average equity9.49% 9.43% 0.06% 0.64%
Return on average equity - tangible13.67% 13.67% % %
Return on average common equity9.58% 9.53% 0.05% 0.52%
Return on average common equity - tangible13.86% 13.87% (0.01)% (0.07)%
Net interest margin-fully tax equivalent (1)3.43% 3.84% (0.41)% (10.68)%
Net interest margin3.39% 3.80% (0.41)% (10.79)%
Average earning assets/total average assets89.97% 89.46% 0.51% 0.57%
Average loans/average deposits90.17% 94.55% (4.38)% (4.63)%
Average noninterest deposits/total average deposits33.24% 33.21% 0.03% 0.09%
Allowance for loan losses/period end loans0.75% 0.74% 0.01% 1.35%
Nonperforming assets to period end assets0.39% 0.42% (0.03)% (7.14)%
Period end equity/period end total assets13.24% 13.33% (0.09)% (0.68)%
Efficiency ratio64.32% 65.32% (1.00)% (1.53)%
(1) 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
September 30, 2017 June 30, 2017 September 30, 2016
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$5,897,169 $69,679 4.69% $5,926,336 $72,167 4.88% $5,583,711 $65,245 4.65%
Taxable investment securities582,747 2,717 1.86% 597,231 2,801 1.88% 687,480 2,702 1.57%
Tax-exempt investment securities47,087 360 3.06% 48,560 370 3.05% 53,180 396 2.98%
Interest-bearing deposits870,480 2,745 1.25% 455,489 1,188 1.05% 287,672 (36) (0.05)%
Loans held for sale312,762 3,081 3.94% 291,051 2,879 3.96% 476,450 4,138 3.47%
Total earning assets7,710,245 78,582 4.04% 7,318,667 79,405 4.35% 7,088,493 72,445 4.07%
Less: allowance for loan losses(44,198) (43,501) (40,004)
Total nonearning assets903,972 905,793 942,724
Total assets$8,570,019 $8,180,959 $7,991,213
Liabilities and Equity:
Interest-bearing deposits
Demand and money market$2,284,995 $2,107 0.37% $2,235,869 $1,957 0.35% $2,216,987 $1,674 0.30%
Savings320,891 862 1.07% 318,323 815 1.03% 318,193 723 0.90%
Certificates of deposit1,759,934 4,841 1.09% 1,632,127 4,105 1.01% 1,684,136 3,512 0.83%
Total interest-bearing deposits4,365,820 7,810 0.71% 4,186,319 6,877 0.66% 4,219,316 5,909 0.56%
Borrowings554,147 1,770 1.25% 641,748 2,551 1.57% 523,018 3,309 2.48%
Subordinated capital debentures204,146 2,368 4.64%
Total interest-bearing liabilities5,124,113 11,948 0.93% 4,828,067 9,428 0.78% 4,742,334 9,218 0.77%
Demand deposits2,173,920 2,081,819 1,959,025
Other noninterest-bearing liabilities136,768 156,065 214,831
Total liabilities7,434,801 7,065,951 6,916,190
Shareholders’ equity1,135,218 1,115,008 1,075,023
Total liabilities and equity$8,570,019 $8,180,959 $7,991,213
Net interest income (tax-equivalent basis) $66,634 $69,977 $63,227
Reconcilement of Non-GAAP Financial Measures
Tax-equivalent basis adjustment (711) (724) (622)
Net interest income (GAAP) $65,923 $69,253 $62,605
Interest rate spread (1) 3.11% 3.57% 3.30%
Interest expense as a percent of average earning assets 0.61% 0.52% 0.52%
Net interest margin (tax equivalent basis) (2) 3.43% 3.84% 3.55%
Total cost of deposits 0.47% 0.44% 0.38%

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



TOWNEBANK
Average Balances, Yields and Rate Paid (unaudited)
(dollars in thousands)
Nine Months Ended Nine Months Ended Nine Months Ended September 30, 2017
September 30, 2017 September 30, 2016 Compared with September 30, 2016
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/ Increase Change due to
Balance Expense Rate Balance Expense Rate (Decrease) Rate Volume
Assets:
Loans (net of unearned income and deferred costs), excluding nonaccrual loans$5,895,560 $206,825 4.69% $4,936,641 $168,257 4.55% $38,568 $5,195 $33,373
Taxable investment securities602,272 8,360 1.85% 704,532 8,492 1.61% (132) 1,192 (1,324)
Tax-exempt investment securities48,701 1,106 3.03% 52,854 1,211 3.05% (105) (11) (94)
Interest-bearing deposits623,670 4,819 1.03% 280,900 658 0.31% 4,161 2,719 1,442
Loans held for sale264,065 7,687 3.88% 236,336 6,124 3.45% 1,563 802 761
Total earning assets7,434,268 228,797 4.11% 6,211,263 184,742 3.97% 44,055 9,897 34,158
Less: allowance for loan losses(43,442) (38,996)
Total nonearning assets861,708 777,718
Total assets$8,252,534 $6,949,985
Liabilities and Equity:
Interest-bearing deposits
Demand and money market$2,264,636 $5,929 0.35% $1,938,818 $4,300 0.30% $1,629 $846 $783
Savings319,847 2,435 1.02% 306,644 2,132 0.93% 303 209 94
Certificates of deposit1,634,566 12,326 1.01% 1,510,707 9,957 0.88% 2,369 1,514 855
Total interest-bearing deposits4,219,049 20,690 0.66% 3,756,169 16,389 0.58% 4,301 2,569 1,732
Borrowings639,180 8,125 1.68% 488,132 9,685 2.61% (1,560) (4,035) 2,475
Subordinated debentures68,796 2,368 4.59% 2,368 2,368
Total interest-bearing liabilities4,927,025 31,183 0.85% 4,244,301 26,074 0.82% 5,109 (1,466) 6,575
Demand deposits2,072,000 1,638,902
Other noninterest-bearing liabilities138,784 144,510
Total liabilities7,137,809 6,027,713
Shareholders’ equity1,114,725 922,272
Total liabilities and equity$8,252,534 $6,949,985
Net interest income (tax-
equivalent basis)
$197,614 $158,668 $38,946 $11,363 $27,583
Reconcilement of Non-GAAP Financial Measures
Tax-equivalent basis adjustment (2,158) (1,944) (214)
Net interest income (GAAP) $195,456 $156,724 $38,732
Interest rate spread (1) 3.27% 3.15%
Interest expense as a percent of average
earning assets
0.56% 0.56%
Net interest margin (tax equivalent basis) (2) 3.55% 3.41%
Total cost of deposits 0.44% 0.41%

(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)
September 30, December 31,
2017 2016 2016
(unaudited) (unaudited) (audited)
ASSETS
Cash and due from banks$647,728 $147,887 $130,967
Interest-bearing deposits in financial institutions5,055 6,891 5,581
Total Cash and Cash Equivalents652,783 154,778 136,548
Securities available for sale, at fair value831,483 704,418 812,974
Securities held to maturity, at amortized cost62,487 70,304 66,490
Federal Home Loan Bank stock, at amortized cost29,586 24,888 35,937
Total Securities923,556 799,610 915,401
Mortgage loans held for sale318,595 439,608 314,046
Loans, net of unearned income and deferred costs:
Real estate-residential 1-4 family1,239,886 1,208,001 1,215,823
Real estate-commercial2,303,263 2,189,489 2,251,312
Real estate-construction and development880,655 820,453 826,027
Real estate-multi-family185,323 206,623 222,791
Commercial1,084,555 1,033,797 1,089,539
Consumer and other loans216,797 193,279 201,729
Loans, net of unearned income and deferred costs5,910,479 5,651,642 5,807,221
Less: allowance for loan losses(44,398) (40,655) (42,001)
Net Loans5,866,081 5,610,987 5,765,220
Premises and equipment, net196,975 202,955 198,568
Goodwill270,901 264,578 264,910
Other intangible assets, net39,751 39,747 37,856
Bank-owned life insurance policies193,823 163,385 189,499
Other assets152,329 154,494 151,867
TOTAL ASSETS$8,614,794 $7,830,142 $7,973,915
LIABILITIES AND EQUITY
Deposits:
Noninterest-bearing demand$2,212,047 $1,974,395 $1,947,312
Interest-bearing:
Demand and money market accounts2,253,746 2,207,962 2,263,894
Savings320,028 315,477 319,611
Certificates of deposit1,762,641 1,649,113 1,504,380
Total Deposits6,548,462 6,146,947 6,035,197
Advances from the Federal Home Loan Bank527,072 427,655 687,511
Subordinated debt, net247,128
Repurchase agreements and other borrowings23,195 31,927 32,540
Total Borrowings797,395 459,582 720,051
Other liabilities128,086 144,735 132,109
TOTAL LIABILITIES7,473,943 6,751,264 6,887,357
Preferred stock
Authorized and unissued shares - 2,000,000
Common stock, $1.667 par: 90,000,000 shares authorized
62,619,857; 62,387,564; and 62,492,168 shares issued at
September 30, 2017 and 2016 and December 31, 2016, respectively104,387 104,000 104,174
Capital surplus748,444 743,223 745,411
Retained earnings279,165 218,631 229,503
Common stock issued to deferred compensation trust, at cost
723,304; 683,833; and 692,431 shares at
September 30, 2017 and 2016 and December 31, 2016, respectively(12,304) (10,969) (11,168)
Deferred compensation trust12,304 10,969 11,168
Accumulated other comprehensive income (loss)(2,408) 1,339 (3,986)
TOTAL SHAREHOLDERS’ EQUITY1,129,588 1,067,193 1,075,102
Noncontrolling interest11,263 11,685 11,456
TOTAL EQUITY1,140,851 1,078,878 1,086,558
TOTAL LIABILITIES AND EQUITY$8,614,794 $7,830,142 $7,973,915


TOWNEBANK
Consolidated Statements of Income (unaudited)
(dollars in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
INTEREST INCOME:
Loans, including fees$68,969 $64,623 $204,667 $166,313
Investment securities3,076 3,099 9,466 9,703
Interest-bearing deposits in financial institutions and federal funds sold2,745 (36) 4,819 658
Mortgage loans held for sale3,081 4,137 7,687 6,124
Total interest income77,871 71,823 226,639 182,798
INTEREST EXPENSE:
Deposits7,810 5,909 20,690 16,389
Advances from the Federal Home Loan Bank1,750 3,276 8,044 9,606
Subordinated capital debentures2,368 2,368
Repurchase agreements and other borrowings, net of capitalized interest20 33 81 79
Total interest expense11,948 9,218 31,183 26,074
Net interest income65,923 62,605 195,456 156,724
PROVISION FOR LOAN LOSSES696 1,686 4,557 3,526
Net interest income after provision for loan losses65,227 60,919 190,899 153,198
NONINTEREST INCOME:
Residential mortgage banking income, net19,087 21,430 58,314 40,696
Insurance commissions and other title fees and income, net12,116 11,258 39,818 36,918
Real estate brokerage and property management income, net10,042 6,647 22,664 17,591
Service charges on deposit accounts2,670 2,552 7,785 7,012
Credit card merchant fees, net1,388 1,365 3,804 3,373
Bank owned life insurance1,425 1,264 4,321 3,616
Other income2,688 2,305 7,940 6,498
Loss on investment securities (1)
Total noninterest income49,416 46,821 144,645 115,704
NONINTEREST EXPENSE:
Salaries and employee benefits43,467 40,497 128,509 100,776
Occupancy6,635 6,656 19,977 16,831
Furniture and equipment3,710 3,199 10,616 7,937
Other expenses20,374 20,581 63,451 69,448
Total noninterest expense74,186 70,933 222,553 194,992
Income before income tax expense & noncontrolling interest40,457 36,807 112,991 73,910
Provision for income tax expense11,862 10,974 33,488 21,538
Net income$28,595 $25,833 $79,503 $52,372
Net income attributable to noncontrolling interest(1,445) (1,657) (4,173) (4,118)
Net income attributable to TowneBank$27,150 $24,176 $75,330 $48,254
Net income available to common shareholders$27,150 $24,176 $75,330 $48,254
Per common share information
Basic earnings$0.44 $0.39 $1.21 $0.88
Diluted earnings$0.44 $0.39 $1.21 $0.87
Cash dividends declared$0.14 $0.13 $0.41 $0.38


TOWNEBANK
Consolidated Statements of Comprehensive Income
(dollars in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
(unaudited) (unaudited) (unaudited) (unaudited)
Net income$28,595 $25,833 $79,503 $52,372
Other comprehensive income (loss)
Unrealized gains on securities
Unrealized holding gains (losses) arising during the period(305) (516) 2,428 6,294
Deferred tax benefit (expense)106 180 (851) (2,203)
Realized losses reclassified into earnings 1
Net unrealized gains (losses)(199) (336) 1,578 4,091
Pension and postretirement benefit plans
Actuarial gain (loss)143 (252) 109
Deferred tax benefit (expense)(49) 90 (38)
Amortization of prior service costs41 110 133 263
Deferred tax expense(14) (38) (46) (91)
Amortization of actuarial (gain) loss39 (2) 117 (2)
Deferred tax benefit (expense)(14) 1 (42) 1
Change in retirement plans, net of tax146 71 242
Other comprehensive income (loss), net of tax(53) (265) 1,578 4,333
Comprehensive income$28,542 $25,568 $81,081 $56,705



TOWNEBANK
Consolidated Balance Sheets - Five Quarter Trend
(dollars in thousands, except share data)
September 30, June 30, March 31, December 31, September 30,
2017 2017 2017 2016 2016
(unaudited) (unaudited) (unaudited) (audited) (unaudited)
ASSETS
Cash and due from banks$647,728 $468,455 $420,192 $130,967 $147,887
Interest-bearing deposits in financial institutions5,055 5,071 5,335 5,581 6,891
Total Cash and Cash Equivalents652,783 473,526 425,527 136,548 154,778
Securities available for sale, at fair value831,483 700,354 720,667 812,974 704,418
Securities held to maturity, at amortized cost62,487 63,937 65,117 66,490 70,304
Federal Home Loan Bank stock, at amortized cost29,586 29,586 36,402 35,937 24,888
Total Securities923,556 793,877 822,186 915,401 799,610
Mortgage loans held for sale318,595 388,523 214,047 314,046 439,451
Loans, net of unearned income and deferred costs:5,910,479 5,949,061 5,913,080 5,807,221 5,651,642
Less: allowance for loan losses(44,398) (44,131) (43,195) (42,001) (40,655)
Net Loans5,866,081 5,904,930 5,869,885 5,765,220 5,610,987
Premises and equipment, net196,975 199,926 198,664 198,568 202,955
Goodwill270,901 268,246 264,910 264,910 264,578
Other intangible assets, net39,751 40,066 37,052 37,856 39,747
Bank-owned life insurance policies193,823 192,339 190,917 189,499 163,385
Other assets152,329 165,609 151,598 151,867 154,651
TOTAL ASSETS$8,614,794 $8,427,042 $8,174,786 $7,973,915 $7,830,142
LIABILITIES AND EQUITY
Deposits:
Noninterest-bearing demand$2,212,047 $2,219,406 $2,052,598 $1,947,312 $1,974,395
Interest-bearing:
Demand and money market accounts2,253,746 2,292,978 2,270,025 2,263,894 2,207,962
Savings320,028 318,714 320,104 319,611 315,477
Certificates of deposit1,762,641 1,764,671 1,548,045 1,504,380 1,649,113
Total Deposits6,548,462 6,595,769 6,190,772 6,035,197 6,146,947
Advances from the Federal Home Loan Bank527,072 527,219 687,366 687,511 427,655
Subordinated debt, net247,128
Repurchase agreements and other borrowings23,195 28,571 35,318 32,540 31,927
Total Borrowings797,395 555,790 722,684 720,051 459,582
Other liabilities128,086 152,485 160,085 132,109 144,735
TOTAL LIABILITIES7,473,943 7,304,044 7,073,541 6,887,357 6,751,264
Preferred stock
Authorized shares - 2,000,000
Common stock, $1.667 par value104,387 104,386 104,307 104,174 104,000
Capital surplus748,444 747,867 746,289 745,411 743,223
Retained earnings279,165 260,783 243,337 229,503 218,631
Common stock issued to deferred compensation trust, at cost(12,304) (11,492) (11,294) (11,168) (10,969)
Deferred compensation trust12,304 11,492 11,294 11,168 10,969
Accumulated other comprehensive income (loss)(2,408) (2,355) (4,173) (3,986) 1,339
TOTAL SHAREHOLDERS’ EQUITY1,129,588 1,110,681 1,089,760 1,075,102 1,067,193
Noncontrolling interest11,263 12,317 11,485 11,456 11,685
TOTAL EQUITY1,140,851 1,122,998 1,101,245 1,086,558 1,078,878
TOTAL LIABILITIES AND EQUITY$8,614,794 $8,427,042 $8,174,786 $7,973,915 $7,830,142


TOWNEBANK
Consolidated Statements of Income - Five Quarter Trend (unaudited)
(dollars in thousands, except per share data)
Three Months Ended
September 30, June 30, March 31, December 31, September 30,
2017 2017 2017 2016 2016
INTEREST INCOME:
Loans, including fees$68,969 $71,443 $64,255 $65,151 $64,623
Investment securities3,076 3,171 3,218 3,152 3,099
Interest-bearing deposits in financial institutions and federal funds sold2,745 1,188 887 487 (36)
Mortgage loans held for sale3,081 2,879 1,727 3,028 4,137
Total Interest Income77,871 78,681 70,087 71,818 71,823
INTEREST EXPENSE:
Deposits7,810 6,877 6,003 5,928 5,909
Advances from the Federal Home Loan Bank1,750 2,521 3,772 3,546 3,276
Subordinated capital debentures2,368
Repurchase agreements and other borrowings20 30 31 193 33
Total Interest Expense11,948 9,428 9,806 9,667 9,218
Net Interest Income65,923 69,253 60,281 62,151 62,605
PROVISION FOR LOAN LOSSES696 1,320 2,541 1,831 1,686
Net Interest Income after Provision for Loan Losses65,227 67,933 57,740 60,320 60,919
NONINTEREST INCOME:
Residential mortgage banking income, net19,087 21,594 17,632 18,096 21,430
Insurance commissions and other title fees and income, net12,116 12,902 14,800 9,823 11,258
Real estate brokerage and property management income, net10,042 7,629 4,993 2,925 6,647
Service charges on deposit accounts2,670 2,644 2,472 2,535 2,552
Credit card merchant fees, net1,388 1,298 1,118 1,135 1,365
Bank owned life insurance1,425 1,421 1,474 2,377 1,264
Other income2,688 2,856 2,397 2,621 2,305
Net gain (loss) on investment securities (1) 6
Total Noninterest Income49,416 50,343 44,886 39,518 46,821
NONINTEREST EXPENSE:
Salaries and employee benefits43,467 44,834 40,208 43,071 40,497
Occupancy expense6,635 6,658 6,684 6,885 6,656
Furniture and equipment3,710 3,563 3,343 3,378 3,199
Other expenses20,374 23,064 20,013 19,500 20,581
Total Noninterest Expense74,186 78,119 70,248 72,834 70,933
Income before income tax expense and noncontrolling interest40,457 40,157 32,378 27,004 36,807
Provision for income tax expense11,862 12,240 9,386 7,160 10,974
Net income28,595 27,917 22,992 19,844 25,833
Net income attributable to noncontrolling interest(1,445) (1,704) (1,024) (848) (1,657)
Net income attributable to TowneBank$27,150 $26,213 $21,968 $18,996 $24,176
Net income available to common shareholders$27,150 $26,213 $21,968 $18,996 $24,176
Per common share information
Basic earnings$0.44 $0.42 $0.35 $0.31 $0.39
Diluted earnings$0.44 $0.42 $0.35 $0.31 $0.39
Basic weighted average shares outstanding62,210,834 62,145,045 62,075,983 61,963,948 61,908,316
Diluted weighted average shares outstanding62,410,591 62,364,260 62,262,789 62,175,705 62,067,832
Cash dividends declared$0.14 $0.14 $0.13 $0.13 $0.13



TOWNEBANK
Banking Segment Financial Information
(dollars in thousands)
Increase/(Decrease)
Three Months Ended September 30, 2017 September 30, 2017
September 30, June 30,
2017
September 30, 2016 June 30, 2017
2017 2016 Amount Percent Amount Percent
Revenue
Net interest income$63,094 $58,919 $66,434 $4,175 7.09% $(3,340) (5.03)%
Service charges on deposit accounts2,670 2,552 2,644 118 4.62% 26 0.98%
Credit card merchant fees1,388 1,365 1,297 23 1.68% 91 7.02%
Other income3,259 2,701 3,362 558 20.66% (103) (3.06)%
Total noninterest income7,317 6,618 7,303 699 10.56% 14 0.19%
Total revenue70,411 65,537 73,737 4,874 7.44% (3,326) (4.51)%
Provision for loan losses696 1,686 1,320 (990) (58.72)% (624) (47.27)%
Expenses
Salaries and employee benefits21,643 20,509 23,519 1,134 5.53% (1,876) (7.98)%
Occupancy expense3,992 4,197 3,828 (205) (4.88)% 164 4.28%
Furniture and equipment2,434 2,358 2,372 76 3.22% 62 2.61%
Advertising and marketing624 922 1,207 (298) (32.32)% (583) (48.30)%
Charitable contributions1,380 919 1,647 461 50.16% (267) (16.21)%
Outside processing1,113 1,280 1,112 (167) (13.05)% 1 0.09%
Foreclosed property expenses186 157 141 29 18.47% 45 31.91%
FDIC and other insurance953 1,224 1,131 (271) (22.14)% (178) (15.74)%
Professional fees750 965 748 (215) (22.28)% 2 0.27%
Telephone and postage922 962 963 (40) (4.16)% (41) (4.26)%
Other expenses4,550 5,178 5,305 (628) (12.13)% (755) (14.23)%
Total expenses38,547 38,671 41,973 (124) (0.32)% (3,426) (8.16)%
Income before income tax, corporate allocation and noncontrolling interest31,168 25,180 30,444 5,988 23.78% 724 2.38%
Corporate allocation400 439 410 (39) (8.88)% (10) (2.44)%
Income before income tax provision and noncontrolling interest31,568 25,619 30,854 5,949 23.22% 714 2.31%
Provision for income tax expense9,002 7,325 9,307 1,677 22.89% (305) (3.28)%
Net income22,566 18,294 21,547 4,272 23.35% 1,019 4.73%
Noncontrolling interest3 (18) (1) 21 N/M 4 N/M
Net income attributable to TowneBank$22,569 $18,276 $21,546 $4,293 23.49% $1,023 4.75%
Efficiency ratio54.75% 59.01% 56.92% (4.26)% (7.22)% (2.17)% (3.81)%


TOWNEBANK
Banking Segment Financial Information
(dollars in thousands)
Nine Months Ended Increase/(Decrease)
September 30, 2017 over 2016
2017 2016 Amount Percent
Net interest income$187,972 $151,630 $36,342 23.97%
Service charges on deposit accounts7,785 7,012 773 11.02%
Credit card merchant fees3,804 3,373 431 12.78%
Other income9,728 7,377 2,351 31.87%
Total noninterest income21,317 17,762 3,555 20.01%
Total revenue209,289 169,392 39,897 23.55%
Provision for loan losses4,557 3,526 1,031 29.24%
Salaries and employee benefits65,503 55,140 10,363 18.79%
Occupancy expense11,947 11,261 686 6.09%
Furniture and equipment7,080 6,070 1,010 16.64%
Advertising and marketing2,873 2,729 144 5.28%
Charitable contributions4,340 3,182 1,158 36.39%
Outside processing3,379 3,052 327 10.71%
Foreclosed property expenses457 727 (270) (37.14)%
FDIC and other insurance3,071 3,395 (324) (9.54)%
Professional fees2,779 2,900 (121) (4.17)%
Telephone and postage2,790 2,423 367 15.15%
Other expenses14,651 29,949 (15,298) (51.08)%
Total expenses118,870 120,828 (1,958) (1.62)%
Income before income tax and
corporate allocation
85,862 45,038 40,824 90.64%
Corporate allocation1,295 1,054 241 22.87%
Income before income tax provision and noncontrolling interest87,157 46,092 41,065 89.09%
Provision for income tax expense25,074 12,377 12,697 102.59%
Net income62,083 33,715 28,368 84.14%
Noncontrolling interest (18) 18 N/M
Net income attributable to TowneBank$62,083 $33,697 $28,386 84.24%
Efficiency ratio56.80% 71.33% (14.53)% (20.37)%


TOWNEBANK
Realty Segment Financial Information
(dollars in thousands)
Increase/(Decrease)
Three Months Ended September 30, 2017 September 30, 2017
September 30, June 30, September 30, 2016 June 30, 2017
2017 2016 2017 Amount Percent Amount Percent
Revenue
Residential mortgage brokerage income, net$19,196 $21,692 $21,730 $(2,496) (11.51)% $(2,534) (11.66)%
Real estate brokerage income, net2,103 2,267 2,337 (164) (7.23)% (234) (10.01)%
Title insurance and settlement fees509 562 582 (53) (9.43)% (73) (12.54)%
Property management fees, net7,939 4,381 5,293 3,558 81.21% 2,646 49.99%
Income from unconsolidated
subsidiary
214 283 250 (69) (24.38)% (36) (14.40)%
Net interest and other income3,242 3,964 3,229 (722) (18.21)% 13 0.40%
Total revenue33,203 33,149 33,421 54 0.16% (218) (0.65)%
Expenses
Salaries and employee benefits15,421 14,198 15,220 1,223 8.61% 201 1.32%
Occupancy expense2,045 1,922 2,269 123 6.40% (224) (9.87)%
Furniture and equipment1,036 762 999 274 35.96% 37 3.70%
Amortization of intangible assets718 559 718 159 28.44% %
Other expenses6,967 6,325 7,495 642 10.15% (528) (7.04)%
Total expenses26,187 23,766 26,701 2,421 10.19% (514) (1.93)%
Income before income tax, corporate allocation and noncontrolling interest7,016 9,383 6,720 (2,367) (25.23)% 296 4.40%
Corporate allocation(267) (278) (266) 11 (3.96)% (1) 0.38%
Income before income tax provision and noncontrolling interest6,749 9,105 6,454 (2,356) (25.88)% 295 4.57%
Provision for income tax expense2,115 2,921 1,889 (806) (27.59)% 226 11.96%
Net income4,634 6,184 4,565 (1,550) (25.06)% 69 1.51%
Noncontrolling interest(1,189) (1,369) (1,361) 180 (13.15)% 172 (12.64)%
Net income attributable to TowneBank$3,445 $4,815 $3,204 $(1,370) (28.45)% $241 7.52%
Efficiency ratio78.87% 71.69% 79.89% 7.18% 10.02% (1.02)% (1.28)%


TOWNEBANK
Realty Segment Financial Information
(dollars in thousands)
Nine Months Ended Increase/(Decrease)
September 30, 2017 over 2016
2017 2016 Amount Percent
Residential mortgage banking income, net$58,701 $41,492 $17,209 41.48%
Real estate brokerage income, net5,899 6,072 (173) (2.85)%
Title insurance and settlement fees1,446 1,461 (15) (1.03)%
Property management fees, net16,765 11,519 5,246 45.54%
Income from unconsolidated subsidiary588 663 (75) (11.31)%
Net interest and other income8,672 5,895 2,777 47.11%
Total revenue92,071 67,102 24,969 37.21%
Salaries and employee benefits44,349 28,155 16,194 57.52%
Occupancy expense6,277 3,988 2,289 57.40%
Furniture and equipment2,904 1,306 1,598 122.36%
Amortization of intangible assets1,994 1,264 730 57.75%
Other expenses20,441 13,382 7,059 52.75%
Total expenses75,965 48,095 27,870 57.95%
Income before income tax, corporate allocation and noncontrolling interest16,106 19,007 (2,901) (15.26)%
Corporate allocation(841) (570) (271) 47.54%
Income before income tax provision and noncontrolling interest15,265 18,437 (3,172) (17.20)%
Provision for income tax4,631 5,829 (1,198) (20.55)%
Net income10,634 12,608 (1,974) (15.66)%
Noncontrolling interest(3,061) (2,994) (67) 2.24%
Net income attributable to TowneBank$7,573 $9,614 $(2,041) (21.23)%
Efficiency ratio82.51% 71.67% 10.84% 15.12%


TOWNEBANK
Insurance Segment Financial Information
(dollars in thousands)
Increase/(Decrease)
Three Months Ended September 30, 2017 September 30, 2017
September 30, June 30, September 30, 2016 June 30, 2017
2017 2016 2017 Amount Percent Amount Percent
Commission and fee income
Property and casualty$9,768 $9,052 $9,271 $716 7.91% $497 5.36%
Employee benefits3,132 2,947 3,280 185 6.28% (148) (4.51)%
Travel insurance970 926 1,159 44 4.75% (189) (16.31)%
Specialized benefit services165 154 158 11 7.14% 7 4.43%
Total commissions and fees14,035 13,079 13,868 956 7.31% 167 1.20%
Contingency and bonus revenue180 61 948 119 195.08% (768) (81.01)%
Other income67 82 76 (15) (18.29)% (9) (11.84)%
Total revenue14,282 13,222 14,892 1,060 8.02% (610) (4.10)%
Employee commission expense2,557 2,482 2,454 75 3.02% 103 4.20%
Revenue, net of commission expense11,725 10,740 12,438 985 9.17% (713) (5.73)%
Salaries and employee benefits6,403 5,790 6,095 613 10.59% 308 5.05%
Occupancy expense599 537 562 62 11.55% 37 6.58%
Furniture and equipment240 78 192 162 207.69% 48 25.00%
Amortization of intangible assets675 706 704 (31) (4.39)% (29) (4.12)%
Other expenses1,535 1,385 1,892 150 10.83% (357) (18.87)%
Total operating expenses9,452 8,496 9,445 956 11.25% 7 0.07%
Income before income tax, corporate allocation and noncontrolling interest2,273 2,244 2,993 29 1.29% (720) (24.06)%
Corporate allocation(133) (161) (144) 28 (17.39)% 11 (7.64)%
Income before income tax provision and noncontrolling interest2,140 2,083 2,849 57 2.74% (709) (24.89)%
Provision for income tax expense745 728 1,044 17 2.34% (299) (28.64)%
Net income1,395 1,355 1,805 40 2.95% (410) (22.71)%
Noncontrolling interest(259) (270) (342) 11 (4.07)% 83 (24.27)%
Net income attributable to TowneBank$1,136 $1,085 $1,463 $51 4.70% $(327) (22.35)%
Efficiency ratio80.61% 79.11% 75.94% 1.50% 1.90% 4.67% 6.15%


TOWNEBANK
Insurance Segment Financial Information
(dollars in thousands)
Nine Months Ended Increase/(Decrease)
September 30, 2017 over 2016
2017 2016 Amount Percent
Net commission and fee income
Property and casualty$27,496 $25,930 $1,566 6.04%
Employee benefits9,386 8,753 633 7.23%
Travel insurance3,756 3,546 210 5.92%
Specialized benefit services488 459 29 6.32%
Total net commissions and fees41,126 38,688 2,438 6.30%
Contingency and bonus revenue4,668 3,941 727 18.45%
Other income231 208 23 11.06%
Total revenues46,025 42,837 3,188 7.44%
Employee commission expense7,284 6,903 381 5.52%
Revenue, net of commission expense38,741 35,934 2,807 7.81%
Salaries and employee benefits18,658 17,481 1,177 6.73%
Occupancy expense1,753 1,582 171 10.81%
Furniture and equipment632 562 70 12.46%
Amortization of intangible assets2,077 2,083 (6) (0.29)%
Other expenses4,598 4,361 237 5.43%
Total operating expenses27,718 26,069 1,649 6.33%
Income before income tax, corporate allocation and noncontrolling interest11,023 9,865 1,158 11.74%
Corporate allocation(454) (484) 30 (6.20)%
Income before income tax provision and noncontrolling interest10,569 9,381 1,188 12.66%
Provision for income tax3,783 3,332 451 13.54%
Net income6,786 6,049 737 12.18%
Noncontrolling interest(1,112) (1,106) (6) 0.54%
Net income attributable to TowneBank$5,674 $4,943 $731 14.79%
Efficiency ratio71.55% 72.55% (1.00)% (1.38)%


TOWNEBANK
Reconcilement of Non-GAAP Financial Measures
Three Months Ended Nine Months Ended
September 30, September 30, June 30, September 30, September 30,
2017 2016 2017 2017 2016
Return on average assets (GAAP)1.26% 1.20% 1.29% 1.22% 0.93%
Impact of excluding average goodwill and other intangibles and amortization0.11% 0.12% 0.11% 0.11% 0.08%
Return on average tangible assets (non-GAAP)1.37% 1.32% 1.40% 1.33% 1.01%
Return on average equity (GAAP)9.49% 8.95% 9.43% 9.04% 6.99%
Impact of excluding average goodwill and other intangibles and amortization4.18% 4.14% 4.24% 4.05% 2.81%
Return on average tangible equity (non-GAAP)13.67% 13.09% 13.67% 13.09% 9.80%
Return on average common equity (GAAP)9.58% 9.04% 9.53% 9.13% 7.06%
Impact of excluding average goodwill and other intangibles and amortization4.28% 4.23% 4.34% 4.15% 2.88%
Return on average tangible common equity (non-GAAP)13.86% 13.27% 13.87% 13.28% 9.94%
Book value (GAAP)$18.04 $17.11 $17.74 $18.04 $17.11
Impact of excluding average goodwill and other intangibles and amortization4.96 4.88 4.93 4.96 4.88
Tangible book value (non-GAAP)$13.08 $12.23 $12.81 $13.08 $12.23


TOWNEBANK
Reconcilement of Non-GAAP Financial Measures
(dollars in thousands, except per share data)
Reconcilement of GAAP Earnings to Operating Earnings Excluding Certain Items Affecting Comparability Three Months Ended
September 30, June 30, March 31, December 31, September 30,
2017 2017 2017 2016 2016
Net income (GAAP) $27,150 $26,213 $21,968 $18,996 $24,176
Purchase accounting corrections (3,889)
Acquisition-related expenses 466 1,281 (5) (707) 969
Total charges 466 (2,608) (5) (707) 969
Income tax expense (benefit) (117) 1,167 75 264 (267)
Total charges, net of taxes 349 (1,441) 70 (443) 702
Operating earnings, excluding certain items affecting comparability (non-GAAP) $27,499 $24,772 $22,038 $18,553 $24,878
Weighted average diluted shares 62,410,591 62,364,260 62,262,789 62,175,705 62,067,832
Diluted EPS (GAAP) $0.44 $0.42 $0.35 $0.31 $0.39
Diluted EPS, excluding certain items affecting comparability (non-GAAP) $0.44 $0.40 $0.35 $0.30 $0.40
Average assets $8,570,019 $8,180,959 $8,000,366 $7,965,438 $7,991,213
Average tangible equity $824,787 807,085 $791,433 $783,789 $772,932
Return on average assets, excluding certain items affecting comparability (non-GAAP) 1.27% 1.21% 1.12% 0.93% 1.24%
Return on average tangible equity, excluding certain items affecting comparability (non-GAAP) 13.84% 12.96% 11.91% 10.04% 13.45%
Efficiency ratio, excluding certain items affecting comparability (Non-GAAP) 63.92% 66.41% 66.80% 72.34% 63.94%


TOWNEBANK
Reconcilement of Non-GAAP Financial Measures
(dollars in thousands, except per share data)
Reconcilement of GAAP Earnings to Operating Earnings Excluding Certain Items Affecting Comparability Nine months ended
September 30, September 30,
2017 2016
Net income (GAAP) $75,330 $48,254
Purchase accounting adjustments (3,889)
Acquisition-related expenses 1,743 19,817
Total charges (2,146) 19,817
Income tax expense (benefit) 1,125 (6,476)
Total charges, net of taxes (1,021) 13,341
Operating earnings, excluding certain items affecting comparability (non-GAAP) $74,309 $61,595
Weighted average diluted shares 62,368,929 55,238,139
Diluted EPS (GAAP) $1.21 $0.87
Diluted EPS, excluding certain items affecting comparability (non-GAAP) $1.19 $1.12
Average assets $8,252,534 $6,949,985
Average tangible equity $807,891 $694,316
Return on average assets, excluding certain items affecting comparability (non-GAAP) 1.20% 1.18%
Return on average tangible equity, excluding certain items affecting comparability (non-GAAP) 12.92% 12.36%
Efficiency ratio, excluding certain items affecting comparability (non-GAAP) 65.68% 64.30%


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 Investor Relations Officer and CSO, 757-638-6813

Source:TowneBank