TowneBank Reports Full Year and Fourth Quarter Financial Results for 2017

SUFFOLK, Va., Jan. 25, 2018 (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, 2017. Earnings for the fourth quarter were $12.33 million, or $0.20 per diluted share, versus $19.0 million, or $0.31 per diluted share, in fourth quarter 2016. Earnings in the fourth quarter of 2017 included an expense of $10.11 million related to the Tax Cuts and Jobs Act of 2017 and after-tax acquisition-related expenses of $0.43 million. The impact from tax legislation on fourth quarter 2017 earnings was primarily attributable to revaluation of deferred tax assets at the lower statutory tax rate.

Excluding merger-related expenses and adjustments related to tax reform, earnings for the quarter ended December 31, 2017 were $22.87 million (non-GAAP) compared to $18.55 million (non-GAAP) in 2016. Fully diluted earnings per share, excluding merger-related expenses and adjustments related to tax reform, were $0.37 (non-GAAP) compared to $0.30 (non-GAAP) for 2016.

Earnings for the full year period were a record $87.66 million, as compared to the $67.25 million reported in 2016, representing a 30.35% increase. Fully diluted earnings per share were $1.41 per share compared to $1.18 per share for 2016.

Excluding merger-related expenses, purchase accounting adjustments, and adjustments related to tax reform, earnings for the year ended December 31, 2017 were $97.18 million (non-GAAP) compared to $80.15 million (non-GAAP) in 2016. Fully diluted earnings per share, excluding the above-mentioned items, were $1.56 (non-GAAP) compared to $1.41 (non-GAAP) for 2016.

The Bank’s quarterly dividend was increased to $0.14 per share beginning in the second quarter of 2017 resulting in total dividends of $0.55 per share for 2017, an increase of 7.8% over 2016. On an annualized basis, the current annual dividend rate is $0.56 per share.

“We are pleased to report our 18th consecutive year of record annual earnings,” said G. Robert Aston, Jr., Chairman and Chief Executive Officer. “With 20.09% revenue growth, representing an increase of $75.14 million, and a return on average assets of 1.05%, our financial performance has enabled us to reward our shareholders while building a strong pathway to the future. Our closing on the affiliation with Paragon Bank is scheduled to occur on January 26, 2018 and will provide a substantial entry into the robust Raleigh and Charlotte, North Carolina markets where where Paragon recorded loan growth of over 20% last year.”

The following items affected comparability of our fourth quarter 2017 earnings (in thousands):

Three Months Ended Three Months Ended
December 31, 2017 December 31, 2016
(dollars in thousands, except per share amounts) Net Income Diluted
Earnings
Per Share
Net Income Diluted
Earnings
Per Share
Net income (GAAP) $12,333 $0.20 $18,996 $0.31
After tax acquisition-related expenses 428 0.01 (443) (0.01)
Income tax expense related to tax reform legislation 10,112 0.16
Net income, excluding certain items affecting comparability (Non-GAAP) $22,873 $0.37 $18,553 $0.30

2017 Performance Highlights

• Total revenues were $449.24 million, an increase of $75.14 million, or 20.09% from 2016

  • Taxable equivalent net interest margin was 3.51%, including accretion of 15 basis points, compared to 3.44%, including accretion of 11 basis points, for 2016
  • Property management fee revenue increased $6.81 million or 53.73%
  • Residential mortgage banking income increased $17.06 million, or 29.02%
  • Insurance segment total revenue increased 10.44% to $60.20 million

• Loans held for investment increased $139.74 million, or 2.41%, from December 31, 2016

• Total deposits were $6.45 billion, an increase of $413.02 million, or 6.84%, from 2016

  • Noninterest bearing deposits increased by 10.79%, to $2.16 billion, representing 33.46% of total deposits
  • Total cost of deposits increased to 0.45% at December 31, 2017 from 0.40% at December 31, 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 7 basis points to net interest margin
  • Treated as Tier 2 capital for regulatory purposes at December 31, 2017

• Asset quality showed continued strength

  • Nonperforming assets declined to $28.09 million, or 0.33% of total assets compared to $37.60 million, or 0.47%, at December 31, 2016
  • Nonperforming loans were 0.08% of period end loans
  • Foreclosed property decreased to $19.82 million

• Strategic acquisitions

  • On April 11, 2017, the Company acquired Railey Mountain Lake Vacations, LLC, an independent resort property management company at Deep Creek Lake, Maryland
  • On April 27, 2017, the Company announced the signing of agreement to acquire Paragon Commercial Corporation (“Paragon”) and its wholly owned bank subsidiary, Paragon Commercial Bank, a Raleigh, North Carolina-based bank with three banking offices servicing Raleigh, Cary, and Charlotte, North Carolina. The acquisition will close on January 26, 2018
  • On August 1, 2017, the Company acquired W.A. Moore & Company, an independent insurance agency in Greenville, North Carolina

• The Bank remained well-capitalized

  • Common equity tier 1 capital ratio of 12.19%
  • Tier 1 leverage capital ratio of 10.17%
  • Tier 1 risk-based capital ratio of 12.23%
  • Total risk-based capital ratio of 16.48%

Fourth Quarter 2017 Earnings Compared to Fourth Quarter 2016

Net income for the fourth quarter was $12.33 million, or $0.20 per diluted share, versus $19.0 million, or $0.31 per diluted share, in 2016. Excluding merger-related expenses and adjustments related to tax reform, earnings were $22.87 million (non-GAAP) compared to $18.55 million (non-GAAP) in 2016, reflecting growth in net interest income and noninterest income as compared to the prior year period.

Performance Highlights

• Total revenues were $109.14 million, a $7.47 million, or 7.35%, increase from fourth quarter 2016

  • Taxable equivalent net interest margin was 3.41%, including accretion of 9 basis points, compared to 3.52%, including accretion of 11 basis points in fourth quarter 2016
  • Property management fee revenue increased $1.57 million, or 134.82%
  • Insurance segment total revenue increased $2.50 million to $14.18 million

Net Interest Income
Net interest income increased to $65.66 million, a $3.51 million, or 5.65%, increase from fourth quarter 2016. The primary driver was the growth in average earning assets, which increased $604.12 million, or 8.48%, while tax-equivalent net interest margin decreased to 3.41% in the current quarter from 3.52% in fourth quarter 2016. The subordinated note issuance in July 2017 resulted in additional interest expense of $2.88 million in fourth quarter 2017 and a temporary reduction of 15 basis points to net interest margin, as the Company continues the process of leveraging the proceeds into earning assets. Accretion income added $1.47 million, or 9 basis points, to margin in the current quarter as compared to $2.34 million, or 15 basis points, in the fourth quarter of 2016.

Noninterest Income
Noninterest income, excluding gains or losses on investment securities, was $43.48 million for the fourth quarter of 2017, an increase of $3.96 million, or 10.02%, from the fourth quarter of 2016. In our Realty segment, residential mortgage banking income decreased $0.83 million, or 4.54%, from the fourth quarter of 2016 primarily due to lower production volumes. Mortgage production was $837.32 million in fourth quarter 2017, a decrease from fourth quarter 2016 production of $1.01 billion. Insurance commissions and other title fees increased $2.29 million, or 23.33%, primarily due to an increase in contingent commission revenue combined with the acquisition of an insurance agency in August 2017. Additionally, real estate brokerage and property management income increased $1.90 million, or 64.89%, from fourth quarter 2016 primarily due to our acquisition of a resort property management company in second quarter 2017.

Noninterest Expense
Noninterest expense increased by $0.83 million, or 1.13%, from the fourth quarter of 2016. The predominant driver was an increase in noninterest expense of $2.30 million related to the Deep Creek and insurance agency acquisitions, mainly in salaries and benefits expense. The decrease was partially offset by lower salaries and benefits expense primarily due to a decrease in profit sharing expense, which included a reversal of $0.65 million due to a change in estimate of previously accrued employee incentive compensation unearned for the full year.

Fourth Quarter 2017 Earnings Compared to Third Quarter 2017

Net income for the fourth quarter was $12.33 million, or $0.20 per diluted share, versus $27.15 million, or $0.44 per diluted share, in third quarter 2017. Excluding merger-related expenses and adjustments related to tax reform, earnings were $22.87 million (non-GAAP) compared to $27.50 million (non-GAAP) in third quarter 2017, primarily reflecting the seasonality in our Realty segment.

Performance Highlights

• Total revenues were $109.14 million compared to $115.34 million in the third quarter of 2017

  • Taxable equivalent net interest margin was 3.41%, including accretion of 9 basis points, compared to 3.43%, including accretion of 12 basis points, in the third quarter of 2017
  • Noninterest income decreased $5.94 million due to seasonality in our Insurance and Realty segments
  • Noninterest expense decreased $0.53 million, or 0.71%

• Total loans held for investment increased $36.49 million, or 2.43% on an annualized basis, from September 30, 2017

Net Interest Income
On a linked quarter basis, net interest income decreased slightly by $0.26 million or 0.39%, in fourth quarter 2017 versus third quarter 2017, while tax-equivalent net interest margin was 3.41% versus 3.43% for the third quarter of 2017. The decrease in net interest income was primarily due to higher time deposit costs and interest expense on the newly issued subordinated notes, combined with seasonally lower loans held for sale average balances. The decrease was partially offset by higher interest income from loans and investment securities. Accretion income added $1.47 million, or 9 basis points, to margin in the current quarter, as compared to $2.36 million, or 12 basis points, in the linked quarter.

Noninterest Income
In comparison to the third quarter of 2017, noninterest income decreased $5.94 million, or 12.02%. Residential mortgage banking income decreased by $1.55 million, or 8.12%, from the third quarter of 2017 primarily due to a seasonal decrease in mortgage production of $110.34 million, from $947.66 million in third quarter 2017 to $837.32 million in fourth quarter 2017. A decrease of $5.22 million in real estate brokerage and property management income from the linked quarter reflected the seasonal nature of those businesses. Insurance commission income was flat as a seasonal decrease in insurance policy renewals was offset by an increase in contingent commission revenue.

Noninterest Expense
Noninterest expense decreased by $0.53 million, or 0.71%, from the third quarter of 2017. The primary driver was a decrease in salaries and benefits expenses of $0.99 million, primarily due to a reduction in profit sharing expense, which was partially offset by an increase in expenses related to employee retirement plans.

Noninterest Income % Change
Q4 Q4 Q3 Q4 17 vs. Q4 17 vs.
(dollars in thousands)2017 2016 2017 Q4 16 Q3 17
Residential mortgage banking income, net$17,537 $18,096 $19,087 (3.09)% (8.12)%
Insurance commissions and other title fees and income, net12,115 9,823 12,116 23.33% (0.01)%
Real estate brokerage and property management, net4,823 2,925 10,042 64.89% (51.97)%
Service charges on deposit accounts2,809 2,535 2,670 10.81% 5.21%
Credit card merchant fees, net1,204 1,135 1,388 6.08% (13.26)%
Bank owned life insurance1,941 2,377 1,425 (18.34)% 36.21%
Other income3,048 2,621 2,688 16.29% 13.39%
Subtotal before gain on investment securities43,477 39,512 49,416 10.03% (12.02)%
Net gain on investment securities 6 N/M N/M
Total noninterest income$43,477 $39,518 $49,416 10.02% (12.02)%


Noninterest Expense % Change
Q4 Q4 Q3 Q4 17 vs. Q4 17 vs.
(dollars in thousands)2017 2016 2017 Q4 16 Q3 17
Salaries and benefits$42,480 $43,071 $43,467 (1.37)% (2.27)%
Occupancy expense6,878 6,885 6,635 (0.10)% 3.66%
Furniture and equipment3,456 3,378 3,710 2.31% (6.85)%
Acquisition-related expenses526 (707) 466 (174.40)% 12.88%
Other expenses20,320 20,207 19,908 0.56% 2.07%
Total noninterest expense$73,660 $72,834 $74,186 1.13% (0.71)%


Segment Results
$ Change
(in thousands) Q4 Q4 Q3 Q4 17 vs. Q4 17 vs.
Segment Net Income (Loss) 2017 2016 2017 Q4 16 Q3 17
Banking $11,530 $17,931 $22,569 $(6,401) $(11,039)
Realty (224) 673 3,445 (897) (3,669)
Insurance 1,027 392 1,136 635 (109)
Total net income $12,333 $18,996 $27,150 $(6,663) $(14,817)

Fourth Quarter 2017 Compared to Fourth Quarter 2016

Banking
Net income for the three months ended December 31, 2017 for the Banking segment was $11.53 million, decreasing $6.40 million, or 35.70%, from comparative 2016. This reduction in net income was primarily due to a significant increase of $12.96 million in the provision for income tax expense, mostly due to the tax reform legislation. Partially offsetting this increase was a rise in net interest income of $3.55 million due to an increase in earning assets and a slight increase in noninterest income of $0.53 million. A reduction in the provision for loan losses of $0.93 million and a decrease in noninterest expenses of $1.53 million also partially offset the decrease in net income.

Realty
For the three months ended December 31, 2017, the Realty segment results decreased to a loss of $0.22 million from income of $0.67 million for fourth quarter 2016. The reduction was driven by a decrease in residential mortgage banking income of $0.83 million, or 4.54%, an increase in total expenses of $1.13 million, and increase of $0.81 million in the provision for income tax expense. The Deep Creek acquisition resulted in an increase in property management fees of $1.57 million and an increase in noninterest expense of $1.74 million.

Insurance
The Insurance segment had net income of $1.03 million for the three months ended December 31, 2017, an increase of $0.64 million compared to fourth quarter 2016. The increase in net income was driven by higher property and casualty insurance commission income and contingency and bonus revenue.

Fourth Quarter 2017 Compared to Third Quarter 2017

Banking
Earnings decreased by $11.04 million, or 48.91% from the third quarter of 2017 as an increase in revenue was overcome by an increase in the provision for income tax expense of $10.51 million, primarily related to the tax reform legislation, and an increase in noninterest expense of $1.44 million.

Realty
Net income in the Realty segment decreased by $3.67 million from the linked quarter ended September 30, 2017, due to seasonal decreases in the Bank's mortgage, real estate brokerage, and resort property management businesses. The seasonal decrease in revenue was partially offset by a decline in operating expenses during the current quarter.

Insurance
Net income decreased slightly by $0.11 million from the third quarter of 2017 due to an increase in operating expenses during the current quarter. The increase was mostly offset by higher net revenues as an increase in contingent commission revenue was only partially offset by the seasonal decrease in fourth quarter policy renewals.

Balance Sheet

At December 31, 2017, total Bank assets reached $8.52 billion, an increase of $0.55 billion, or 6.88%, over December 31, 2016.

Loans

% Change
Q4 Q4 Q3 Q4 17 vs. Q4 17 vs.
(dollars in thousands)2017 2016 2017 Q4 16 Q3 17
Construction and land development$930,426 $826,027 $880,655 12.64% 5.65%
Commercial real estate - investment related properties1,344,774 1,322,466 1,336,277 1.69% 0.64%
Commercial real estate - owner occupied938,767 928,846 966,986 1.07% (2.92)%
Multifamily real estate198,720 222,791 185,323 (10.80)% 7.23%
1-4 family residential real estate1,217,349 1,215,823 1,239,886 0.13% (1.82)%
Commercial and industrial business loans1,087,157 1,089,539 1,084,555 (0.22)% 0.24%
Consumer loans and other229,772 201,729 216,797 13.90% 5.98%
Total$5,946,965 $5,807,221 $5,910,479 2.41% 0.62%

The Bank’s loan portfolio ended the period at $5.95 billion representing an increase of 2.41%, or $139.74 million, from December 31, 2016, and an increase of $36.49 million, or 0.62%, from September 30, 2017.

Deposits

% Change
Q4 Q4 Q3 Q4 17 vs. Q4 17 vs.
(dollars in thousands)2017 2016 2017 Q4 16 Q3 17
Noninterest-bearing demand$2,157,338 $1,947,312 $2,212,047 10.79% (2.47)%
Interest-bearing:
Demand and money market accounts2,225,211 2,263,894 2,253,746 (1.71)% (1.27)%
Savings315,889 319,611 320,028 (1.16)% (1.29)%
Certificates of deposits1,749,782 1,504,380 1,762,641 16.31% (0.73)%
Total$6,448,220 $6,035,197 $6,548,462 6.84% (1.53)%

The Bank experienced solid deposit growth with total deposits increasing to $6.45 billion, up $0.41 billion, or 6.84%, from December 31, 2016. The Bank saw continued growth in noninterest-bearing demand deposits, which ended the year at $2.16 billion, a 10.79% increase from the prior year. Noninterest-bearing deposits represented 33.46% of total deposits at December 31, 2017.

Capital Ratios

Q4 Q4 Q3
2017 2016 2017
Common Equity Tier 1 12.19% 11.75% 12.36%
Tier 1 12.23% 11.82% 12.40%
Total 16.48% 12.44% 16.71%
Tier 1 Leverage Ratio 10.17% 10.44% 10.14%
Note - Current quarter regulatory capital information is preliminary.

The Bank’s total equity at December 31, 2017 rose to $1.14 billion, an increase of $55.95 million, or 5.15%, from December 31, 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 12.19%, 12.23%, 16.48%, 10.17%, respectively. All ratios exceed the current regulatory standards for well capitalized status.

Asset Quality

(in thousands)12/31/2017 9/30/2017 6/30/2017 3/31/2017 12/31/2016
Nonperforming loans$4,807 $8,768 $9,645 $11,538 $13,099
Former bank premises3,469 3,619 2,798 2,798 3,494
Foreclosed property19,818 21,504 23,249 21,473 21,011
Total nonperforming assets$28,094 $33,891 $35,692 $35,809 $37,604
Quarterly net loans charged off (recovered)$136 $429 $384 $1,347 $485
Year-to-date net loans charged off$2,296 $2,160 $1,731 $1,347 $1,715


Change
Q4 Q4 Q3 Q4 2017 vs. Q4 2017 vs.
(dollars in thousands) 2017 2016 2017 Q4 2016 Q3 2017
Total loans 90 days past due and still accruing $103 $76 $74 $27 $29
Total loans 30-89 days past due $5,962 $10,459 $5,888 $(4,497) $74
Allowance for loan losses $45,131 $42,001 $44,398 $3,130 $733
Total performing TDRs $24,832 $31,351 $22,280 $(6,519) $2,552
Nonperforming loans to period end loans 0.08% 0.23% 0.15% (0.15) (0.07)
Nonperforming assets to period end assets 0.33% 0.47% 0.39% (0.14) (0.06)
Allowance for loan losses to period end loans 0.76% 0.72% 0.75% 0.04 0.01
Allowance for loan losses (originated) to originated period end loans 0.86% 0.87% 0.86% (0.01)
Net charge-offs (recoveries) to average loans (annualized) 0.01% 0.03% 0.03% (0.02) (0.02)
Ratio of allowance for loan losses to nonperforming loans 9.39x
3.21x
5.06x
6.18x
4.33x

Continued strength in credit quality contributed to the Bank's financial results as net charge-offs totaled $0.14 million in the fourth quarter of 2017 compared to $0.49 million in the fourth quarter of 2016 and $0.43 million in the linked quarter. Total nonperforming assets were $28.09 million, or 0.33%, of Bank assets at December 31, 2017, as compared to $37.60 million, or 0.47%, at December 31, 2016, and $33.89 million, or 0.39%, at September 30, 2017. The allowance for loan losses was $45.13 million, increased from $42.0 million at December 31, 2016 and $44.40 million at September 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 $8.52 billion as of December 31, 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. All customary regulatory and shareholder approvals have been obtained and the merger is scheduled to close in January 2018. Based on financial data as of September 30, 2017, the combined company would have total assets of $10.4 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 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:
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.


TOWNEBANK
Selected Financial Highlights (unaudited)
(dollars in thousands, except per share data)
Increase/ % Increase/
Three Months Ended December 31,2017 2016 (Decrease) (Decrease)
Results of Operations:
Net interest income$65,664 $62,151 $3,513 5.65%
Noninterest income43,477 39,518 3,959 10.02%
Total Revenue109,141 101,669 7,472 7.35%
Acquisition-related expenses526 (707) 1,233 (174.40)%
Noninterest expenses, excluding acquisition-related expenses73,134 73,541 (407) (0.55)%
Provision for loan losses869 1,831 (962) (52.54)%
Income before income tax and noncontrolling interest34,612 27,004 7,608 28.17%
Provision for income tax expense21,325 7,160 14,165 197.84%
Net income13,287 19,844 (6,557) (33.04)%
Net income attributable to noncontrolling interest(954) (848) (106) 12.50%
Net income attributable to TowneBank12,333 18,996 (6,663) (35.08)%
Net income available to common shareholders12,333 18,996 (6,663) (35.08)%
Net income per common share - basic0.20 0.31 (0.11) (35.48)%
Net income per common share - diluted0.20 0.31 (0.11) (35.48)%
Period End Data:
Total assets$8,522,176 $7,973,915 $548,261 6.88%
Total assets - tangible8,213,358 7,671,149 542,209 7.07%
Earning assets7,706,747 7,157,391 549,356 7.68%
Loans (net of unearned income)5,946,965 5,807,221 139,744 2.41%
Allowance for loan losses45,131 42,001 3,130 7.45%
Goodwill and other intangibles308,819 302,766 6,053 2.00%
Nonperforming assets28,094 37,605 (9,511) (25.29)%
Noninterest bearing deposits2,157,338 1,947,312 210,026 10.79%
Interest bearing deposits4,290,882 4,087,885 202,997 4.97%
Total deposits6,448,220 6,035,197 413,023 6.84%
Total equity1,142,505 1,086,558 55,947 5.15%
Total equity - tangible833,686 783,792 49,894 6.37%
Common equity1,131,240 1,075,102 56,138 5.22%
Common equity - tangible822,421 772,337 50,084 6.48%
Book value per common share18.06 17.20 0.86 5.00%
Book value per common share - tangible13.13 12.36 0.77 6.23%
Daily Average Balances:
Total assets$8,579,705 $7,965,438 $614,267 7.71%
Total assets - tangible8,269,760 7,661,845 607,915 7.93%
Earning assets7,729,862 7,125,742 604,120 8.48%
Loans (net of unearned income), excluding nonaccrual loans5,920,302 5,705,832 214,470 3.76%
Allowance for loan losses44,704 41,188 3,516 8.54%
Goodwill and other intangibles309,946 303,593 6,353 2.09%
Noninterest bearing deposits2,162,271 1,961,902 200,369 10.21%
Interest bearing deposits4,336,175 4,137,806 198,369 4.79%
Total deposits6,498,446 6,099,708 398,738 6.54%
Total equity1,149,888 1,087,382 62,506 5.75%
Total equity - tangible839,942 783,789 56,153 7.16%
Common equity1,138,936 1,076,277 62,659 5.82%
Common equity - tangible828,991 772,683 56,308 7.29%
Key Ratios:
Return on average assets (1)0.57% 0.95% (0.38)% (40.00)%
Return on average assets - tangible (1)0.65% 1.05% (0.40)% (38.10)%
Return on average equity (1)4.26% 6.95% (2.69)% (38.71)%
Return on average equity - tangible (1)6.39% 10.27% (3.88)% (37.78)%
Return on average common equity (1)4.30% 7.02% (2.72)% (38.75)%
Return on average common equity - tangible (1)6.47% 10.42% (3.95)% (37.91)%
Net interest margin-fully tax equivalent (2)3.41% 3.52% (0.11)% (3.13)%
Net interest margin3.37% 3.47% (0.10)% (2.88)%
Average earning assets/total average assets90.09% 89.46% 0.63% 0.70%
Average loans/average deposits91.10% 93.54% (2.44)% (2.61)%
Average noninterest deposits/total average deposits33.27% 32.16% 1.11% 3.45%
Allowance for loan losses/period end loans0.76% 0.72% 0.04% 5.56%
Nonperforming assets to period end assets0.33% 0.47% (0.14)% (29.79)%
Period end equity/period end total assets13.41% 13.63% (0.22)% (1.61)%
Efficiency ratio67.49% 71.64% (4.15)% (5.79)%
(1) Annualized
(2) Presented on a tax-equivalent basis


TOWNEBANK
Selected Financial Highlights (unaudited)
(dollars in thousands, except per share data)
Increase/ % Increase/
Twelve Months Ended December 31,2017 2016 (Decrease) (Decrease)
Results of Operations:
Net interest income$261,121 $218,876 $42,245 19.30%
Noninterest income188,121 155,222 32,899 21.19%
Total Revenue449,242 374,098 75,144 20.09%
Acquisition-related expenses2,268 19,111 (16,843) (88.13)%
Noninterest expenses, excluding acquisition-related expenses293,946 248,717 45,229 18.18%
Provision for loan losses5,426 5,357 69 1.29%
Income before income tax and noncontrolling interest147,602 100,913 46,689 46.27%
Provision for income tax expense54,813 28,698 26,115 91.00%
Net income92,789 72,215 20,574 28.49%
Net income attributable to noncontrolling interest(5,126) (4,965) (161) 3.24%
Net income attributable to TowneBank87,663 67,250 20,413 30.35%
Net income available to common shareholders87,663 67,250 20,413 30.35%
Net income per common share - basic1.41 1.18 0.23 19.49%
Net income per common share - diluted1.41 1.18 0.23 19.49%
Period End Data:
Total assets$8,522,176 $7,973,915 $548,261 6.88%
Total assets - tangible8,213,358 7,671,149 542,209 7.07%
Earning assets7,706,747 7,157,391 549,356 7.68%
Loans (net of unearned income)5,946,965 5,807,221 139,744 2.41%
Allowance for loan losses45,131 42,001 3,130 7.45%
Goodwill and other intangibles308,819 302,766 6,053 2.00%
Nonperforming assets28,094 37,605 (9,511) (25.29)%
Noninterest bearing deposits2,157,338 1,947,312 210,026 10.79%
Interest bearing deposits4,290,882 4,087,885 202,997 4.97%
Total deposits6,448,220 6,035,197 413,023 6.84%
Total equity1,142,505 1,086,558 55,947 5.15%
Total equity - tangible833,686 783,792 49,894 6.37%
Common equity1,131,240 1,075,102 56,138 5.22%
Common equity - tangible822,421 772,337 50,084 6.48%
Book value per common share18.06 17.20 0.86 5.00%
Book value per common share - tangible13.13 12.36 0.77 6.23%
Daily Average Balances:
Total assets$8,334,999 $7,205,236 $1,129,763 15.68%
Total assets - tangible8,027,381 6,958,267 1,069,114 15.36%
Earning assets7,517,473 6,442,385 1,075,088 16.69%
Loans (net of unearned income), excluding nonaccrual loans5,901,797 5,129,990 771,807 15.05%
Allowance for loan losses43,760 39,547 4,213 10.65%
Goodwill and other intangibles307,618 246,968 60,650 24.56%
Noninterest bearing deposits2,094,753 1,720,093 374,660 21.78%
Interest bearing deposits4,248,571 3,852,100 396,471 10.29%
Total deposits6,343,324 5,572,192 771,132 13.84%
Total equity1,123,588 963,775 159,813 16.58%
Total equity - tangible815,969 716,807 99,162 13.83%
Common equity1,112,499 953,669 158,830 16.65%
Common equity - tangible804,881 706,701 98,180 13.89%
Key Ratios:
Return on average assets1.05% 0.93% 0.12% 12.90%
Return on average assets - tangible1.15% 1.02% 0.13% 12.75%
Return on average equity7.80% 6.98% 0.82% 11.75%
Return on average equity - tangible11.35% 9.93% 1.42% 14.30%
Return on average common equity7.88% 7.05% 0.83% 11.77%
Return on average common equity - tangible11.51% 10.07% 1.44% 14.30%
Net interest margin-fully tax equivalent (1)3.51% 3.44% 0.07% 2.03%
Net interest margin3.47% 3.40% 0.07% 2.06%
Average earning assets/total average assets90.19% 89.46% 0.73% 0.82%
Average loans/average deposits93.04% 92.06% 0.98% 1.06%
Average noninterest deposits/total average deposits33.02% 30.87% 2.15% 6.96%
Allowance for loan losses/period end loans0.76% 0.72% 0.04% 5.56%
Nonperforming assets to period end assets0.33% 0.47% (0.14)% (29.79)%
Period end equity/period end total assets13.41% 13.63% (0.22)% (1.61)%
Efficiency ratio65.94% 71.59% (5.65)% (7.89)%
(1) 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 Ended2017 2017 (Decrease) (Decrease)
Results of Operations:
Net interest income$65,664 $65,923 $(259) (0.39)%
Noninterest income43,477 49,416 (5,939) (12.02)%
Total Revenue109,141 115,339 (6,198) (5.37)%
Acquisition-related expenses526 466 60 12.88%
Noninterest expenses, excluding acquisition-related expenses73,134 73,720 (586) (0.79)%
Provision for loan losses869 696 173 24.86%
Income before income tax and noncontrolling interest34,612 40,457 (5,845) (14.45)%
Provision for income tax expense21,325 11,862 9,463 79.78%
Net income13,287 28,595 (15,308) (53.53)%
Net income attributable to noncontrolling interest(954) (1,445) 491 (33.98)%
Net income attributable to TowneBank12,333 27,150 (14,817) (54.57)%
Net income available to common shareholders12,333 27,150 (14,817) (54.57)%
Net income per common share - basic0.20 0.44 (0.24) (54.55)%
Net income per common share - diluted0.20 0.44 (0.24) (54.55)%
Period End Data:
Total assets$8,522,176 $8,614,794 $(92,618) (1.08)%
Total assets - tangible8,213,358 8,304,142 (90,784) (1.09)%
Earning assets7,706,747 7,785,167 (78,420) (1.01)%
Loans (net of unearned income)5,946,965 5,910,479 36,486 0.62%
Allowance for loan losses45,131 44,398 733 1.65%
Goodwill and other intangibles308,819 310,652 (1,833) (0.59)%
Nonperforming assets28,094 33,891 (5,797) (17.10)%
Noninterest bearing deposits2,157,338 2,212,047 (54,709) (2.47)%
Interest bearing deposits4,290,882 4,336,415 (45,533) (1.05)%
Total deposits6,448,220 6,548,462 (100,242) (1.53)%
Total equity1,142,505 1,140,852 1,653 0.14%
Total equity - tangible833,686 830,199 3,487 0.42%
Common equity1,131,240 1,129,588 1,652 0.15%
Common equity - tangible822,421 818,936 3,485 0.43%
Book value per common share18.06 18.04 0.02 0.11%
Book value per common share - tangible13.13 13.08 0.05 0.38%
Daily Average Balances:
Total assets$8,579,705 $8,570,019 $9,686 0.11%
Total assets - tangible8,269,760 8,259,587 10,173 0.12%
Earning assets7,729,862 7,710,245 19,617 0.25%
Loans (net of unearned income), excluding nonaccrual loans5,920,302 5,897,169 23,133 0.39%
Allowance for loan losses44,704 44,198 506 1.14%
Goodwill and other intangibles309,946 310,432 (486) (0.16)%
Noninterest bearing deposits2,162,271 2,173,920 (11,649) (0.54)%
Interest bearing deposits4,336,175 4,365,820 (29,645) (0.68)%
Total deposits6,498,403 6,539,740 (41,337) (0.63)%
Total equity1,149,888 1,135,218 14,670 1.29%
Total equity - tangible839,942 824,787 15,155 1.84%
Common equity1,138,936 1,124,173 14,763 1.31%
Common equity - tangible828,991 813,741 15,250 1.87%
Key Ratios:
Return on average assets (1)0.57% 1.26% (0.69)% (54.76)%
Return on average assets - tangible (1)0.65% 1.37% (0.72)% (52.55)%
Return on average equity (1)4.26% 9.49% (5.23)% (55.11)%
Return on average equity - tangible (1)6.39% 13.67% (7.28)% (53.26)%
Return on average common equity (1)4.30% 9.58% (5.28)% (55.11)%
Return on average common equity - tangible (1)6.47% 13.86% (7.39)% (53.32)%
Net interest margin-fully tax equivalent (2)3.41% 3.43% (0.02)% (0.58)%
Net interest margin3.37% 3.39% (0.02)% (0.59)%
Average earning assets/total average assets90.09% 89.97% 0.12% 0.13%
Average loans/average deposits91.10% 90.17% 0.93% 1.03%
Average noninterest deposits/total average deposits33.27% 33.24% 0.03% 0.09%
Allowance for loan losses/period end loans0.76% 0.75% 0.01% 1.33%
Nonperforming assets to period end assets0.33% 0.39% (0.06)% (15.38)%
Period end equity/period end total assets13.41% 13.24% 0.17% 1.28%
Efficiency ratio67.49% 64.32% 3.17% 4.93%
(1) Annualized
(2) 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, 2017 September 30, 2017 December 31, 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$5,920,302 $70,044 4.69% $5,897,169 $69,679 4.69% $5,705,832 $66,061 4.61%
Taxable investment securities657,297 3,237 1.97% 582,747 2,717 1.86% 666,936 2,762 1.66%
Tax-exempt investment securities46,825 361 3.09% 47,087 360 3.06% 52,199 390 2.99%
Interest-bearing deposits812,741 2,662 1.30% 870,480 2,745 1.25% 352,418 487 0.55%
Loans held for sale292,697 2,874 3.93% 312,762 3,081 3.94% 348,357 3,028 3.48%
Total earning assets7,729,862 79,178 4.06% 7,710,245 78,582 4.04% 7,125,742 72,728 4.06%
Less: allowance for loan losses(44,704) (44,198) (41,188)
Total nonearning assets894,547 903,972 880,884
Total assets$8,579,705 $8,570,019 $7,965,438
Liabilities and Equity:
Interest-bearing deposits
Demand and money market$2,247,745 $2,091 0.37% $2,284,995 $2,107 0.37% $2,230,198 $1,742 0.31%
Savings320,218 870 1.08% 320,891 862 1.07% 316,211 728 0.92%
Certificates of deposit1,768,212 5,141 1.15% 1,759,934 4,841 1.09% 1,591,397 3,458 0.86%
Total interest-bearing deposits4,336,175 8,102 0.74% 4,365,820 7,810 0.71% 4,137,806 5,928 0.57%
Borrowings554,039 1,819 1.28% 554,147 1,770 1.25% 628,272 3,739 2.33%
Subordinated debentures247,152 2,880 4.66% 204,146 2,368 4.64%
Total interest-bearing liabilities5,137,366 12,801 0.99% 5,124,113 11,948 0.93% 4,766,078 9,667 0.81%
Demand deposits2,162,271 2,173,920 1,961,902
Other noninterest-bearing liabilities130,180 136,768 150,076
Total liabilities7,429,817 7,434,801 6,878,056
Shareholders’ equity1,149,888 1,135,218 1,087,382
Total liabilities and equity$8,579,705 $8,570,019 $7,965,438
Net interest income (tax-equivalent basis) $66,377 $66,634 $63,061
Reconcilement of Non-GAAP Financial Measures
Tax-equivalent basis adjustment (713) (711) (910)
Net interest income (GAAP) $65,664 $65,923 $62,151
Interest rate spread (1) 3.07% 3.11% 3.25%
Interest expense as a percent of average earning assets 0.66% 0.61% 0.54%
Net interest margin (tax equivalent basis) (2) 3.41% 3.43% 3.52%
Total cost of deposits 0.49% 0.47% 0.39%
(1) Interest spread is the average yield earned on earning assets less the average rate paid on interest-bearing liabilities. Fully tax equivalent.
(2) Net interest margin is net interest income expressed as a percentage of average earning assets. Fully tax equivalent.


TOWNEBANK
Average Balances, Yields and Rate Paid (unaudited)
(dollars in thousands)
Year Ended December 31,
2017
2016
2015
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$5,901,797 $276,869 4.69% $5,129,990 $234,318 4.57% $4,239,887 $196,868 4.64%
Taxable investment securities616,141 11,597 1.88% 695,082 11,254 1.62% 786,737 11,849 1.51%
Tax-exempt investment securities48,228 1,467 3.04% 52,689 1,601 3.04% 61,489 1,952 3.17%
Interest-bearing deposits680,026 7,481 1.10% 300,130 1,145 0.38% 188,546 499 0.26%
Mortgage loans held for sale271,281 10,561 3.89% 264,494 9,152 3.46% 104,222 3,836 3.68%
Total earning assets7,517,473 307,975 4.10% 6,442,385 257,470 4.00% 5,380,881 215,004 4.00%
Less: allowance for loan losses(43,760) (39,547) (37,194)
Total nonearning assets861,286 802,398 695,731
Total assets$8,334,999 $7,205,236 $6,039,418
Liabilities and Equity:
Interest-bearing deposits
Demand and money market$2,260,378 $8,020 0.35% $2,012,061 $6,043 0.30% $1,689,185 $4,721 0.28%
Savings319,940 3,305 1.03% 309,049 2,859 0.93% 300,620 2,755 0.92%
Certificates of deposit1,668,253 17,467 1.05% 1,530,990 13,414 0.88% 1,334,728 11,390 0.85%
Total interest-bearing deposits4,248,571 28,792 0.68% 3,852,100 22,316 0.58% 3,324,533 18,866 0.57%
FHLB advances and repurchase agreements617,720 9,942 1.61% 523,366 13,424 2.56% 463,153 13,565 2.93%
Subordinated capital debentures113,752 5,249 4.61% % %
Total interest-bearing liabilities4,980,043 43,983 0.88% 4,375,466 35,740 0.82% 3,787,686 32,431 0.86%
Noninterest-bearing liabilities
Demand deposits2,094,753 1,720,093 1,343,360
Other noninterest-bearing liabilities136,615 145,902 103,628
Total liabilities7,211,411 6,241,461 5,234,674
Shareholders' equity1,123,588 963,775 804,744
Total liabilities and equity$8,334,999 $7,205,236 $6,039,418
Net interest income (tax-equivalent basis) $263,992 $221,730 $182,573
Reconcilement of Non-GAAP Financial Measures
Tax-equivalent basis adjustment (2,871) (2,854) (2,131)
Net interest income (GAAP) $261,121 $218,876 $180,442
Interest rate spread (1) 3.22% 3.17% 3.14%
Interest expense as a percent of average earning assets 0.59% 0.55% 0.60%
Net interest margin (tax-equivalent basis) (2) 3.51% 3.44% 3.39%
Total cost of deposits 0.45% 0.40% 0.40%
(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)
2017 2016
(unaudited) (audited)
ASSETS
Cash and due from banks$500,408 $130,967
Interest-bearing deposits in financial institutions4,471 5,581
Total Cash and Cash Equivalents504,879 136,548
Securities available for sale, at fair value867,654 812,974
Securities held to maturity, at amortized cost61,304 66,490
Federal Home Loan Bank stock, at amortized cost29,595 35,937
Total Securities958,553 915,401
Mortgage loans held for sale313,256 314,046
Loans, net of unearned income and deferred costs:5,946,965 5,807,221
Less: allowance for loan losses(45,131) (42,001)
Net Loans5,901,834 5,765,220
Premises and equipment, net194,900 198,568
Goodwill270,250 264,910
Other intangible assets, net38,568 37,856
Bank-owned life insurance policies195,775 189,499
Other assets144,161 151,867
TOTAL ASSETS$8,522,176 $7,973,915
LIABILITIES AND EQUITY
Deposits:
Noninterest-bearing demand$2,157,338 $1,947,312
Interest-bearing:
Demand and money market accounts2,225,211 2,263,894
Savings315,889 319,611
Certificates of deposit1,749,782 1,504,380
Total Deposits6,448,220 6,035,197
Advances from the Federal Home Loan Bank526,923 687,511
Subordinated debt, net247,196
Repurchase agreements and other borrowings24,094 32,540
Total Borrowings798,213 720,051
Other liabilities133,238 132,109
TOTAL LIABILITIES7,379,671 6,887,357
Preferred stock
Authorized and unissued shares - 2,000,000
Common stock, $1.667 par value
Authorized shares - 90,000,000
Issued and outstanding shares 62,629,001 in 2017 and 64,492,168 in 2016104,403 104,174
Capital surplus749,801 745,411
Retained earnings282,729 229,503
Common stock issued to deferred compensation trust, at cost 729,919 shares in 2017 and 692,431 shares in 2016(12,524) (11,168)
Deferred compensation trust12,524 11,168
Accumulated other comprehensive loss(5,693) (3,986)
TOTAL SHAREHOLDERS’ EQUITY1,131,240 1,075,102
Noncontrolling interest11,265 11,456
TOTAL EQUITY1,142,505 1,086,558
TOTAL LIABILITIES AND EQUITY$8,522,176 $7,973,915


TOWNEBANK
Consolidated Statements of Income
(dollars in thousands, except per share data)
Three Months Ended Twelve months ended
December 31, December 31,
2017 2016 2017 2016
(unaudited) (unaudited) (unaudited) (audited)
INTEREST INCOME:
Loans, including fees$69,332 $65,151 $273,999 $231,464
Investment securities3,598 3,152 13,064 12,855
Interest-bearing deposits in financial institutions and federal funds sold2,661 487 7,480 1,145
Mortgage loans held for sale2,874 3,028 10,561 9,152
Total interest income78,465 71,818 305,104 254,616
INTEREST EXPENSE:
Deposits8,102 5,928 28,792 22,316
Advances from the Federal Home Loan Bank1,791 3,715 9,837 13,320
Subordinated debt2,880 5,249
Repurchase agreements and other borrowings28 24 105 104
Total interest expense12,801 9,667 43,983 35,740
Net interest income65,664 62,151 261,121 218,876
PROVISION FOR LOAN LOSSES869 1,831 5,426 5,357
Net interest income after provision for loan losses64,795 60,320 255,695 213,519
NONINTEREST INCOME:
Residential mortgage banking income, net17,537 18,096 75,851 58,792
Insurance commissions and other title fees and income, net12,115 9,823 51,933 46,741
Real estate brokerage and property management income, net4,823 2,925 27,487 20,515
Service charges on deposit accounts2,809 2,535 10,594 9,547
Credit card merchant fees, net1,204 1,135 5,008 4,508
Bank owned life insurance1,941 2,377 6,262 5,992
Other income3,048 2,621 10,987 9,121
Gain (loss) on investment securities 6 (1) 6
Total noninterest income43,477 39,518 188,121 155,222
NONINTEREST EXPENSE:
Salaries and employee benefits42,480 43,071 170,989 143,847
Occupancy6,878 6,885 26,855 23,717
Furniture and equipment3,456 3,378 14,072 11,315
Other expenses20,846 19,500 84,298 88,949
Total noninterest expense73,660 72,834 296,214 267,828
Income before income tax expense & noncontrolling interest34,612 27,004 147,602 100,913
Provision for income tax expense21,325 7,160 54,813 28,698
Net income$13,287 $19,844 $92,789 $72,215
Net income attributable to noncontrolling interest(954) (848) (5,126) (4,965)
Net income attributable to TowneBank$12,333 $18,996 $87,663 $67,250
Net income available to common shareholders$12,333 $18,996 $87,663 $67,250
Per common share information
Basic earnings$0.20 $0.31 $1.41 $1.18
Diluted earnings$0.20 $0.31 $1.41 $1.18
Cash dividends declared$0.14 $0.13 $0.55 $0.51


TOWNEBANK
Consolidated Statements of Comprehensive Income
(dollars in thousands)
Three Months Ended Twelve months ended
December 31, December 31,
2017 2016 2017 2016
(unaudited) (unaudited) (unaudited) (audited)
Net income$13,287 $19,844 $92,789 $72,215
Other comprehensive income (loss)
Unrealized losses on securities
Unrealized holding losses arising during the period(4,072) (8,294) (1,644) (2,000)
Deferred tax benefit1,426 2,903 575 700
Realized gains (losses) reclassified into earnings (6) 1 (6)
Deferred tax benefit 2 2
Net unrealized losses(2,646) (5,395) (1,068) (1,304)
Pension and postretirement benefit plans
Prior service costs(1,027) (1,027)
Deferred tax benefit359 359
Actuarial gain (losses)(148) (400) 323
Deferred tax benefit (expense)52 142 (113)
Amortization of prior service costs155 110 288 151
Deferred tax expense(54) (39) (100) (53)
Amortization of net actuarial (gain) loss39 (2) 156 7
Deferred tax benefit (expense)(14) 1 (56) (3)
Change in retirement plans, net of tax(638) 70 (638) 312
Other comprehensive loss, net of tax(3,284) (5,325) (1,706) (992)
Comprehensive income$10,003 $14,519 $91,083 $71,223


TOWNEBANK
Consolidated Balance Sheets - Five Quarter Trend
(dollars in thousands, except share data)
December 31, September 30, June 30, March 31, December 31,
2017 2017 2017 2017 2016
(unaudited) (unaudited) (unaudited) (unaudited) (audited)
ASSETS
Cash and due from banks$500,408 $647,728 $468,455 $420,192 $130,967
Interest-bearing deposits in financial institutions4,471 5,055 5,071 5,335 5,581
Total Cash and Cash Equivalents504,879 652,783 473,526 425,527 136,548
Securities available for sale, at fair value867,654 831,483 700,354 720,667 812,974
Securities held to maturity, at amortized cost61,304 62,487 63,937 65,117 66,490
Federal Home Loan Bank stock, at amortized cost29,595 29,586 29,586 36,402 35,937
Total Securities958,553 923,556 793,877 822,186 915,401
Mortgage loans held for sale313,256 318,595 388,523 214,047 314,046
Loans, net of unearned income and deferred costs:5,946,965 5,910,479 5,949,061 5,913,080 5,807,221
Less: allowance for loan losses(45,131) (44,398) (44,131) (43,195) (42,001)
Net Loans5,901,834 5,866,081 5,904,930 5,869,885 5,765,220
Premises and equipment, net194,900 196,975 199,926 198,664 198,568
Goodwill270,250 270,901 268,246 264,910 264,910
Other intangible assets, net38,568 39,751 40,066 37,052 37,856
Bank-owned life insurance policies195,775 193,823 192,339 190,917 189,499
Other assets144,161 152,329 165,609 151,598 151,867
TOTAL ASSETS$8,522,176 $8,614,794 $8,427,042 $8,174,786 $7,973,915
LIABILITIES AND EQUITY
Deposits:
Noninterest-bearing demand$2,157,338 $2,212,047 $2,219,406 $2,052,598 $1,947,312
Interest-bearing:
Demand and money market accounts2,225,211 2,253,746 2,292,978 2,270,025 2,263,894
Savings315,889 320,028 318,714 320,104 319,611
Certificates of deposit1,749,782 1,762,641 1,764,671 1,548,045 1,504,380
Total Deposits6,448,220 6,548,462 6,595,769 6,190,772 6,035,197
Advances from the Federal Home Loan Bank526,923 527,072 527,219 687,366 687,511
Subordinated debt, net247,196 247,128
Repurchase agreements and other borrowings24,094 23,195 28,571 35,318 32,540
Total Borrowings798,213 797,395 555,790 722,684 720,051
Other liabilities133,238 128,086 152,485 160,085 132,109
TOTAL LIABILITIES7,379,671 7,473,943 7,304,044 7,073,541 6,887,357
Preferred stock
Authorized shares - 2,000,000
Common stock, $1.667 par value104,403 104,387 104,386 104,307 104,174
Capital surplus749,801 748,444 747,867 746,289 745,411
Retained earnings282,729 279,165 260,783 243,337 229,503
Common stock issued to deferred compensation trust, at cost(12,524) (12,304) (11,492) (11,294) (11,168)
Deferred compensation trust12,524 12,304 11,492 11,294 11,168
Accumulated other comprehensive income (loss)(5,693) (2,408) (2,355) (4,173) (3,986)
TOTAL SHAREHOLDERS’ EQUITY1,131,240 1,129,588 1,110,681 1,089,760 1,075,102
Noncontrolling interest11,265 11,263 12,317 11,485 11,456
TOTAL EQUITY1,142,505 1,140,851 1,122,998 1,101,245 1,086,558
TOTAL LIABILITIES AND EQUITY$8,522,176 $8,614,794 $8,427,042 $8,174,786 $7,973,915


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,
2017 2017 2017 2017 2016
INTEREST INCOME:
Loans, including fees$69,332 $68,969 $71,443 $64,255 $65,151
Investment securities3,598 3,076 3,171 3,218 3,152
Interest-bearing deposits in financial institutions and federal funds sold2,661 2,745 1,188 887 487
Mortgage loans held for sale2,874 3,081 2,879 1,727 3,028
Total Interest Income78,465 77,871 78,681 70,087 71,818
INTEREST EXPENSE:
Deposits8,102 7,810 6,877 6,003 5,928
Advances from the Federal Home Loan Bank1,791 1,750 2,521 3,772 3,715
Subordinated debt2,880 2,368
Repurchase agreements and other borrowings28 20 30 31 24
Total Interest Expense12,801 11,948 9,428 9,806 9,667
Net Interest Income65,664 65,923 69,253 60,281 62,151
PROVISION FOR LOAN LOSSES869 696 1,320 2,541 1,831
Net Interest Income after Provision for Loan Losses64,795 65,227 67,933 57,740 60,320
NONINTEREST INCOME:
Residential mortgage banking income, net17,537 19,087 21,594 17,632 18,096
Insurance commissions and other title fees and income, net12,115 12,116 12,902 14,800 9,823
Real estate brokerage and property management income, net4,823 10,042 7,629 4,993 2,925
Service charges on deposit accounts2,809 2,670 2,644 2,472 2,535
Credit card merchant fees, net1,204 1,388 1,298 1,118 1,135
Bank owned life insurance1,941 1,425 1,421 1,474 2,377
Other income3,048 2,688 2,856 2,397 2,621
Net gain (loss) on investment securities (1) 6
Total Noninterest Income43,477 49,416 50,343 44,886 39,518
NONINTEREST EXPENSE:
Salaries and employee benefits42,480 43,467 44,834 40,208 43,071
Occupancy expense6,878 6,635 6,658 6,684 6,885
Furniture and equipment3,456 3,710 3,563 3,343 3,378
Other expenses20,846 20,374 23,064 20,013 19,500
Total Noninterest Expense73,660 74,186 78,119 70,248 72,834
Income before income tax expense and noncontrolling interest34,612 40,457 40,157 32,378 27,004
Provision for income tax expense21,325 11,862 12,240 9,386 7,160
Net income13,287 28,595 27,917 22,992 19,844
Net income attributable to noncontrolling interest(954) (1,445) (1,704) (1,024) (848)
Net income attributable to TowneBank$12,333 $27,150 $26,213 $21,968 $18,996
Net income available to common shareholders$12,333 $27,150 $26,213 $21,968 $18,996
Per common share information
Basic earnings$0.20 $0.44 $0.42 $0.35 $0.31
Diluted earnings$0.20 $0.44 $0.42 $0.35 $0.31
Basic weighted average shares outstanding62,239,028 62,210,834 62,145,045 62,075,983 61,963,948
Diluted weighted average shares outstanding62,462,629 62,410,591 62,364,260 62,262,789 62,175,705
Cash dividends declared$0.14 $0.14 $0.14 $0.13 $0.13


TOWNEBANK
Banking Segment Financial Information
(dollars in thousands)
Three Months Ended Increase/(Decrease)
December 31, September 30,
2017
December 31, 2017
December 31, 2016
December 31, 2017
September 30, 2017
2017 2016 Amount Percent Amount Percent
Revenue
Net interest income$63,031 $59,482 $63,094 $3,549 5.97% $(63) (0.10)%
Noninterest income
Service charges on deposit accounts2,809 2,535 2,670 274 10.81% 139 5.21%
Credit card merchant fees1,204 1,135 1,388 69 6.08% (184) (13.26)%
Other income4,318 4,125 3,259 193 4.68% 1,059 32.49%
Subtotal8,331 7,795 7,317 536 6.88% 1,014 13.86%
Gain on investment securities 6 N/M
N/M N/M
N/M
Total noninterest income8,331 7,801 7,317 530 6.79% 1,014 13.86%
Total revenue71,362 67,283 70,411 4,079 6.06% 951 1.35%
Provision for loan losses869 1,801 696 (932) (51.75)% 173 24.86%
Expenses
Salaries and employee benefits21,637 23,770 21,643 (2,133) (8.97)% (6) (0.03)%
Occupancy expense4,418 4,349 3,992 69 1.59% 426 10.67%
Furniture and equipment2,326 2,374 2,434 (48) (2.02)% (108) (4.44)%
Advertising and marketing774 749 624 25 3.34% 150 24.04%
Charitable contributions891 1,011 1,380 (120) (11.87)% (489) (35.43)%
Outside processing1,055 1,387 1,113 (332) (23.94)% (58) (5.21)%
Foreclosed property expenses296 609 186 (313) (51.40)% 110 59.14%
FDIC and other insurance668 848 953 (180) (21.23)% (285) (29.91)%
Professional fees1,912 1,181 750 731 61.90% 1,162 154.93%
Telephone and postage859 997 922 (138) (13.84)% (63) (6.83)%
Other expenses5,150 4,240 4,550 910 21.46% 600 13.19%
Total expenses39,986 41,515 38,547 (1,529) (3.68)% 1,439 3.73%
Income before income tax, corporate allocation and noncontrolling interest30,507 23,967 31,168 6,540 27.29% (661) (2.12)%
Corporate allocation533 519 400 14 2.70% 133 33.25%
Income before income tax provision and noncontrolling interest31,040 24,486 31,568 6,554 26.77% (528) (1.67)%
Provision for income tax expense(19,510) (6,546) (9,002) (12,964) 198.04% (10,508) 116.73%
Net income11,530 17,940 22,566 (6,410) (35.73)% (11,036) (48.91)%
Noncontrolling interest (9) 3 9 (100.00)% (3) (100.00)%
Net income attributable to TowneBank$11,530 $17,931 $22,569 $(6,401) (35.70)% $(11,039) (48.91)%


TOWNEBANK
Banking Segment Financial Information
(dollars in thousands)
Year Ended Increase/(Decrease)
December 31, 2017 over 2016
2017 2016 Amount Percent
Revenue
Net interest income$251,003 $211,112 $39,891 18.90%
Noninterest income
Service charges on deposit accounts10,594 9,547 1,047 10.97%
Credit card merchant fees5,008 4,508 500 11.09%
Other income14,046 11,503 2,543 22.11%
Subtotal29,648 25,558 4,090 16.00%
Gain (loss) on investment securities(1) 6 (7) (116.67)%
Total noninterest income29,647 25,564 4,083 15.97%
Total revenue280,650 236,676 43,974 18.58%
Provision for loan losses5,426 5,326 100 1.88%
Expenses
Salaries and employee benefits87,140 78,910 8,230 10.43%
Occupancy expense16,365 15,610 755 4.84%
Furniture and equipment9,406 8,445 961 11.38%
Advertising and marketing3,646 3,478 168 4.83%
Charitable contributions5,231 4,192 1,039 24.79%
Outside processing4,434 4,439 (5) (0.11)%
Foreclosed property expenses753 1,335 (582) (43.60)%
FDIC and other insurance3,739 4,243 (504) (11.88)%
Professional fees4,691 4,081 610 14.95%
Telephone and postage3,649 3,420 229 6.70%
Other expenses19,800 34,191 (14,391) (42.09)%
Total expenses158,854 162,344 (3,490) (2.15)%
Income before income tax expense, corporate allocation and noncontrolling interest116,370 69,006 47,364 68.64%
Corporate allocation1,828 1,573 255 16.21%
Income before income tax provision118,198 70,579 47,619 67.47%
Provision for income tax expense(44,584) (18,923) (25,661) 135.61%
Net income73,614 51,656 21,958 42.51%
Noncontrolling interest1 (28) 29 (103.57)%
Net income attributable to TowneBank$73,615 $51,628 $21,987 42.59%


TOWNEBANK
Realty Segment Financial Information
(dollars in thousands)
Three Months Ended December 31, 2017 December 31, 2017
December 31, September 30, December 31, 2016September 30, 2017
2017 2016 2017 Amount Percent Amount Percent
Revenue
Residential mortgage brokerage income, net$17,544 $18,378 $19,196 $(834) (4.54)% $(1,652) (8.61)%
Real estate brokerage income, net2,092 1,761 2,103 331 18.80% (11) (0.52)%
Title insurance and settlement fees431 422 509 9 2.13% (78) (15.32)%
Property management fees, net2,731 1,163 7,939 1,568 134.82% (5,208) (65.60)%
Income from unconsolidated subsidiary116 218 214 (102) (46.79)% (98) (45.79)%
Net interest and other income3,050 2,959 3,242 91 3.08% (192) (5.92)%
Total revenue25,964 24,901 33,203 1,063 4.27% (7,239) (21.80)%
Expenses
Salaries and employee benefits14,291 13,551 15,421 740 5.46% (1,130) (7.33)%
Occupancy expense1,894 2,002 2,045 (108) (5.39)% (151) (7.38)%
Furniture and equipment960 807 1,036 153 18.96% (76) (7.34)%
Amortization of intangible assets571 565 718 6 1.06% (147) (20.47)%
Other expenses6,247 5,909 6,967 338 5.72% (720) (10.33)%
Total expenses23,963 22,834 26,187 1,129 4.94% (2,224) (8.49)%
Income before income tax, corporate allocation, and noncontrolling interest2,001 2,067 7,016 (66) (3.19)% (5,015) (71.48)%
Corporate allocation(370) (364) (267) (6) 1.65% (103) 38.58%
Income before income tax provision and noncontrolling interest1,631 1,703 6,749 (72) (4.23)% (5,118) (75.83)%
Provision for income tax(1,160) (355) (2,115) (805) 226.76% 955 (45.15)%
Net income471 1,348 4,634 (877) (65.06)% (4,163) (89.84)%
Noncontrolling interest(695) (675) (1,189) (20) 2.96% 494 (41.55)%
Net income (loss) attributable to TowneBank$(224) $673 $3,445 $(897) (133.28)% $(3,669) (106.50)%


TOWNEBANK
Realty Segment Financial Information
(dollars in thousands)
Year Ended Increase/(Decrease)
December 31, 2017 over 2016
2017 2016 Amount Percent
Revenue
Residential mortgage banking income, net$76,245 $59,870 $16,375 27.35%
Real estate brokerage income, net7,991 7,833 158 2.02%
Title insurance and settlement fees1,877 1,883 (6) (0.32)%
Property management fees, net19,496 12,682 6,814 53.73%
Income from unconsolidated subsidiary704 881 (177) (20.09)%
Net interest and other income11,724 8,854 2,870 32.41%
Total revenue118,037 92,003 26,034 28.30%
Expenses
Salaries and employee benefits$58,639 $41,706 $16,933 40.60%
Occupancy expense8,171 5,989 2,182 36.43%
Furniture and equipment3,865 2,113 1,752 82.92%
Amortization of intangible assets2,566 1,829 737 40.30%
Other expenses26,688 19,292 7,396 38.34%
Total expenses99,929 70,929 29,000 40.89%
Income before income tax, corporate allocation, and noncontrolling interest18,108 21,074 (2,966) (14.07)%
Corporate allocation(1,210) (935) (275) 29.41%
Income before income tax provision and noncontrolling interest16,898 20,139 (3,241) (16.09)%
Provision for income tax(5,791) (6,184) 393 (6.36)%
Net income11,107 13,955 (2,848) (20.41)%
Noncontrolling interest(3,756) (3,669) (87) 2.37%
Net income attributable to TowneBank$7,351 $10,286 $(2,935) (28.53)%


TOWNEBANK
Insurance Segment Financial Information
(dollars in thousands)
Increase/(Decrease)
Three Months Ended December 31, 2017 December 31, 2017
December 31, September 30, December 31, 2016 September 30, 2017
2017 2016 2017 Amount Percent Amount Percent
Commission and fee income
Property and casualty$8,198 $7,614 $9,768 $584 7.67% $(1,570) (16.07)%
Employee benefits3,164 2,930 3,132 234 7.99% 32 1.02%
Travel insurance912 828 970 84 10.14% (58) (5.98)%
Specialized benefit services170 164 165 6 3.66% 5 3.03%
Total commissions and fees12,444 11,536 14,035 908 7.87% (1,591) (11.34)%
Contingency and bonus revenue1,654 67 180 1,587 N/M 1,474 818.89%
Other income80 71 67 9 12.68% 13 19.40%
Total revenue14,178 11,674 14,282 2,504 21.45% (104) (0.73)%
Employee commission expense2,362 2,221 2,557 141 6.35% (195) (7.63)%
Revenue, net of commission expense11,816 9,453 11,725 2,363 25.00% 91 0.78%
Salaries and employee benefits$6,552 $5,749 $6,403 $803 13.97% $149 2.33%
Occupancy expense566 535 599 31 5.79% (33) (5.51)%
Furniture and equipment169 196 240 (27) (13.78)% (71) (29.58)%
Amortization of intangible assets726 701 675 25 3.57% 51 7.56%
Other expenses1,698 1,304 1,535 394 30.21% 163 10.62%
Total operating expenses9,711 8,485 9,452 1,226 14.45% 259 2.74%
Income before income tax and noncontrolling interest2,105 968 2,273 1,137 117.46% (168) (7.39)%
Corporate allocation(164) (155) (133) (9) 5.81% (31) 23.31%
Income before income tax provision and noncontrolling interest1,941 813 2,140 1,128 138.75% (199) (9.30)%
Provision for income tax expense(655) (259) (745) (396) 152.90% 90 (12.08)%
Net income1,286 554 1,395 732 132.13% (109) (7.81)%
Noncontrolling interest(259) (162) (259) (97) 59.88% %
Net income attributable to TowneBank$1,027 $392 $1,136 $635 161.99% $(109) (9.60)%


TOWNEBANK
Insurance Segment Financial Information
(dollars in thousands)
Year Ended Increase/(Decrease)
December 31, 2017 over 2016
2017 2016 Amount Percent
Commission and fee income
Property and casualty$35,694 $33,544 $2,150 6.41%
Employee benefits12,551 11,683 868 7.43%
Travel insurance4,668 4,374 294 6.72%
Specialized benefit services657 623 34 5.46%
Total commissions and fees53,570 50,224 3,346 6.66%
Contingency and bonus revenue6,322 4,008 2,314 57.73%
Other income310 280 30 10.71%
Total revenue60,202 54,512 5,690 10.44%
Employee commission expense9,646 9,124 522 5.72%
Revenue, net of commission expense50,556 45,388 5,168 11.39%
Salaries and employee benefits25,209 23,231 1,978 8.51%
Occupancy expense2,319 2,117 202 9.54%
Furniture and equipment801 758 43 5.67%
Amortization of intangible assets2,803 2,784 19 0.68%
Other expenses6,299 5,665 634 11.19%
Total operating expenses37,431 34,555 2,876 8.32%
Income before income tax, corporate allocation and noncontrolling interest13,125 10,833 2,292 21.16%
Corporate allocation(618) (638) 20 (3.13)%
Income before income tax provision and noncontrolling interest12,507 10,195 2,312 22.68%
Provision for income tax expense(4,439) (3,591) (848) 23.61%
Net income8,068 6,604 1,464 22.17%
Noncontrolling interest(1,371) (1,268) (103) 8.12%
Net income attributable to TowneBank$6,697 $5,336 $1,361 25.51%


TOWNEBANK
Reconcilement of Non-GAAP Financial Measures:
Three Months Ended Twelve months ended
December 31, September 30, December 31, December 31,
2017 2017 2016 2017 2016
Return on average assets (GAAP basis)0.57% 1.26% 0.95% 1.05% 0.93%
Impact of excluding average goodwill and other intangibles and amortization0.08% 0.11% 0.10% 0.10% 0.09%
Return on average tangible assets (non-GAAP)0.65% 1.37% 1.05% 1.15% 1.02%
Return on average equity (GAAP basis)4.26% 9.49% 6.95% 7.80% 6.98%
Impact of excluding average goodwill and other intangibles and amortization2.13% 4.18% 3.32% 3.55% 2.95%
Return on average tangible equity (non-GAAP)6.39% 13.67% 10.27% 11.35% 9.93%
Return on average common equity (GAAP basis)4.30% 9.58% 7.02% 7.88% 7.05%
Impact of excluding average goodwill and other intangibles and amortization2.17% 4.28% 3.40% 3.63% 3.02%
Return on average tangible common equity (non-GAAP)6.47% 13.86% 10.42% 11.51% 10.07%
Book value (GAAP basis)$18.06 $18.04 $17.20 $18.06 $17.20
Impact of excluding average goodwill and other intangibles and amortization(4.93) (4.96) (4.84) (4.93) (4.84)
Tangible book value$13.13 $13.08 $12.36 $13.13 $12.36


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
December 31, September 30, June 30, March 31, December 31,
2017 2017 2017 2017 2016
Net income (GAAP) $12,333 $27,150 $26,213 $21,968 $18,996
Purchase accounting corrections (3,889)
Acquisition-related expenses 526 466 1,281 (5) (707)
Total charges 526 466 (2,608) (5) (707)
Income tax expense - tax reform legislation 10,112
Income tax expense (benefit) - other items (98) (117) 1,167 75 264
Total income tax expense (benefit) 10,014 (117) 1,167 75 264
Total charges, net of taxes 10,540 349 (1,441) 70 (443)
Operating earnings, excluding certain items affecting comparability (non-GAAP) $22,873 $27,499 $24,772 $22,038 $18,553
Weighted average diluted shares 62,462,629 62,410,561 62,364,260 62,262,789 62,175,705
Diluted EPS (GAAP) $0.20 $0.44 $0.42 $0.35 $0.31
Diluted EPS, excluding certain items affecting comparability (non-GAAP) $0.37 $0.44 $0.40 $0.35 $0.30
Average assets $8,579,705 $8,570,019 $8,180,959 $8,000,366 $7,965,438
Average tangible equity $839,942 $824,787 $807,085 $791,433 $783,789
Return on average assets, excluding certain items affecting comparability (non-GAAP) 1.06% 1.27% 1.21% 1.12% 0.93%
Return on average tangible equity, excluding certain items affecting comparability (non-GAAP) 11.37% 13.84% 12.96% 11.91% 10.04%
Efficiency ratio, excluding certain items affecting comparability (non-GAAP) 67.01% 63.92% 66.41% 66.80% 72.34%


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 Year Ended
December 31, December 31,
2017 2016
Net income (GAAP) $87,663 $67,250
Purchase accounting adjustments (3,889)
Acquisition-related expenses 2,268 19,111
Total charges (1,621) 19,111
Income tax expense - tax reform legislation 10,112
Income tax expense (benefit) - other items 1,027 (6,213)
Total income tax expense (benefit) 11,139 (6,213)
Total charges, net of taxes 9,518 12,898
Operating earnings, excluding certain items affecting comparability (non-GAAP) $97,181 $80,148
Weighted average diluted shares 62,394,282 56,983,305
Diluted EPS (GAAP) $1.41 $1.18
Diluted EPS, excluding certain items affecting comparability (non-GAAP) $1.56 $1.41
Average assets $8,334,999 $7,205,236
Average tangible equity $815,969 $716,807
Return on average assets, excluding certain items affecting comparability (non-GAAP) 1.17% 1.11%
Return on average tangible equity, excluding certain items affecting comparability (non-GAAP) 12.52% 11.73%
Efficiency ratio, excluding certain items affecting comparability (non-GAAP) 65.43% 66.48%

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