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

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

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

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

    Three Months Ended   Three Months Ended
    June 30, 2016   June 30, 2015
(dollars in thousands, except per share amounts)   Net Income   Diluted
Earnings Per
Share		   Net Income   Diluted
Earnings Per
Share
Net income, excluding after-tax merger-related expenses (Non-GAAP)   $ 18,517     $ 0.36     $ 18,052     $ 0.35  
Less: After tax acquisition-related expenses   (12,258 )   (0.24 )   (240 )   —  
Net income (GAAP)   $ 6,259     $ 0.12     $ 17,812     $ 0.35  
                 
    Six Months Ended   Six Months Ended
    June 30, 2016   June 30, 2015
(dollars in thousands, except per share amounts)   Net Income   Diluted
Earnings Per
Share		   Net Income   Diluted
Earnings Per
Share
Net income, excluding after-tax merger-related expenses (Non-GAAP)   $ 36,717     $ 0.71     $ 32,860     $ 0.64  
Less: After tax acquisition-related expenses   (12,639 )   (0.24 )   (510 )   (0.01 )
Net income (GAAP)   $ 24,078     $ 0.47     $ 32,350     $ 0.63  
                 
                 
Core and other non-GAAP measures are defined in the "Reconcilement of Non-GAAP Measures"
 

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

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

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

Second Quarter 2016 Performance Highlights

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

Second Quarter 2016 Earnings Compared to Second Quarter 2015

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

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

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

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

Second Quarter 2016 Earnings Compared to First Quarter 2016

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

Performance Highlights

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

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

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

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

Noninterest Income             % Change
  Q2   Q2   Q1   Q2 16 vs.   Q2 16 vs.
(dollars in thousands) 2016   2015   2016   Q2 15   Q1 16
Residential mortgage banking income, net $ 12,148     $ 10,251     $ 7,118     18.51 %   70.67 %
Real estate brokerage and property management, net 6,116     4,584     4,827     33.42 %   26.70 %
Insurance commissions and other title fees and  income, net 11,627     9,885     14,033     17.62 %   (17.15 )%
Service charges on deposit accounts 2,284     2,326     2,176     (1.81 )%   4.96 %
Credit card merchant fees, net 1,113     566     895     96.64 %   24.36 %
Other income 3,180     3,421     3,366     (7.04 )%   (5.53 )%
Subtotal before gain on investments 36,468     31,033     32,415     17.51 %   12.50 %
Net gain on investment properties —     1,933     —     (100.00 )%   N/M  
Net gain on investment securities —     119     —     (100.00 )%   N/M  
Total noninterest income $ 36,468     $ 33,085     $ 32,415     10.23 %   12.50 %
                                   
Noninterest Expense             % Change
  Q2   Q2   Q1   Q2 16 vs.   Q2 16 vs.
(dollars in thousands) 2016   2015   2016   Q2 15   Q1 16
Salaries and benefits $ 30,093     $ 26,544     $ 30,187     13.37 %   (0.31 )%
Occupancy expense 5,157     4,856     5,017     6.20 %   2.79 %
Furniture and equipment 2,381     2,369     2,357     0.51 %   1.02 %
Other expenses 15,833     14,928     14,186     6.06 %   11.61 %
Core noninterest expense 53,464     48,697     51,747     9.79 %   3.32 %
Acquisition-related expenses 18,435     370     414     N/M      N/M  
Total noninterest expense $ 71,899     $ 49,067     $ 52,161     46.53 %   37.84 %
                                   

Segment Results

The following table presents our segment results:

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

Second Quarter 2016 Compared to Second Quarter 2015

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

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

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

Second Quarter 2016 Compared to First Quarter 2016

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

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

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

Balance Sheet

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

Loans

              % Change
  Q2   Q2   Q1   Q2 16 vs.   Q2 16 vs.
(dollars in thousands) 2016   2015   2016   Q2 15   Q1 16
Construction and land development $ 824,609     $ 554,053     $ 635,992     48.83 %   29.66 %
Commercial real estate - investment
related properties		 1,221,488     987,945     998,082     23.64 %   22.38 %
Commercial real estate - owner occupied 896,620     760,622     764,230     17.88 %   17.32 %
Multifamily real estate 171,501     137,378     160,246     24.84 %   7.02 %
1-4 family residential real estate 1,183,818     948,138     988,432     24.86 %   19.77 %
Commercial and industrial business loans 1,075,736     732,936     852,005     46.77 %   26.26 %
Consumer loans and other 186,177     107,055     153,273     73.91 %   21.47 %
Total $ 5,559,949     $ 4,228,127     $ 4,552,260     31.50 %   22.14 %
                                   

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

Deposits

              % Change
  Q2   Q2   Q1   Q2 16 vs.   Q2 16 vs.
(dollars in thousands) 2016   2015   2016   Q2 15   Q1 16
Noninterest-bearing demand $ 1,950,816     $ 1,363,551     $ 1,449,660     43.07 %   34.57 %
Interest-bearing:                  
Demand and money market accounts 2,174,154     1,680,038     1,769,414     29.41 %   22.87 %
Savings 317,071     300,203     302,373     5.62 %   4.86 %
Certificates of deposits 1,744,238     1,342,860     1,433,679     29.89 %   21.66 %
Total $ 6,186,279     $ 4,686,652     $ 4,955,126     32.00 %   24.85 %
                                   

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

Capital Ratios

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

The Bank’s total equity at June 30, 2016 rose to $1.06 billion, an increase of $258.66 million, or 32.22%, from June 30, 2015.  Total risk-based capital remained strong as total risk-based capital, Tier 1 capital, Tier 1 leverage ratios, and common equity Tier 1 capital ratios were 12.50%, 11.89%, 12.36%, 11.82%, respectively.  All ratios exceed the current regulatory standards for well capitalized status.

Asset Quality

                   
(in thousands) 6/30/2016   3/31/2016   12/31/2015   9/30/2015   6/30/2015
                   
Nonperforming loans $ 10,580     $ 7,944     $ 8,670     $ 8,477     $ 7,455  
                   
Foreclosed property 25,707     29,740     34,420     39,509     46,154  
                   
Total nonperforming assets $ 36,287     $ 37,684     $ 43,090     $ 47,986     $ 53,609  
                   
Quarterly net loans charged off
(recovered)		 $ 241     $ 340     $ (156 )   $ 69     $ 339  
                   
Year-to-date net loans charged off $ 581     $ 340     $ 585     $ 741     $ 672  
                Change
    Q2   Q2   Q1   Q2 16 vs.   Q2 16 vs.
(dollars in thousands)   2016   2015   2016   Q2 15   Q1 16
Total loans 90 days past due and still accruing   $ —     $ 277     $ —     $ (277 )   $ —  
Total loans 30-89 days past due   $ 5,041     $ 5,283     $ 12,055     $ (242 )   $ (7,014 )
Allowance for loan losses   $ 39,618     $ 37,290     $ 37,760     $ 2,328     $ 1,858  
Total performing TDRs   $ 28,184     $ 31,714     $ 24,955     $ (3,530 )   $ 3,229  
                     
Nonperforming loans to period end loans   0.19 %   0.18 %   0.17 %   0.01 %   0.02 %
Nonperforming assets to period end assets   0.46 %   0.89 %   0.59 %   (0.43 )%   (0.13 )%
Allowance for loan losses to period end loans   0.71 %   0.88 %   0.83 %   (0.17 )%   (0.12 )%
Allowance for loan losses (originated) to originated period end loans   0.90 %   1.00 %   0.92 %   (0.10 )%   (0.02 )%
Net charge-offs (recoveries) to average loans (annualized)   0.02 %   0.03 %   0.03 %   (0.01 )%   (0.01 )%
Ratio of allowance for loan losses to nonperforming loans   3.74x    5.00x    4.75x    (1.26)x    (1.01)x 
                     

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

About TowneBank:
As one of the top community banks in Virginia and North Carolina, TowneBank operates 37 banking offices serving Chesapeake, Chesterfield County, Glen Allen, Hampton, James City County, Mechanicsville, Newport News, Norfolk, Portsmouth, Richmond, Suffolk, Virginia Beach, Williamsburg, and York County in Virginia, along with Moyock, Grandy, Camden County, Southern Shores, Corolla and Nags Head in North Carolina. Towne also offers a full range of financial services through its controlled divisions and subsidiaries that include Towne Investment Group, Towne Insurance Agency, TFA Benefits, TowneBank Mortgage, TowneBank Commercial Mortgage, Berkshire Hathaway HomeServices Towne Realty, Towne 1031 Exchange, LLC, and Beach Properties of Hilton Head. Local decision-making is a hallmark of its hometown banking strategy that is delivered through the leadership of each group’s President and Board of Directors.  With total assets of $7.94 billion as of June 30, 2016, TowneBank is one of the largest banks headquartered in Virginia.

 
TOWNEBANK
Selected Financial Highlights (unaudited)
(dollars in thousands, except per share data)
 
              Increase/    % Increase/
Three months ended June 30, 2016   2015    (Decrease)    (Decrease)
                 
Results of Operations:              
  Net interest income $ 47,784     $ 44,884     $ 2,900     6.46 %
  Noninterest income (1) 36,468     31,033     5,435     17.51 %
  Gain on investment securities —     119     (119 )   (100.00 )%
  Gain on investment properties —     1,933     (1,933 )   (100.00 )%
  Total Revenue 84,252     77,969     6,283     8.06 %
  Acquisition-related expenses 18,435     370     18,065     N/M  
  Noninterest expenses, excluding acquisition-related expenses 53,464     48,697     4,767     9.79 %
  Provision for loan losses 2,099     1,723     376     21.82 %
  Income before income tax and noncontrolling interest 10,254     27,179     (16,925 )   (62.27 )%
  Provision for income tax expense 2,375     8,201     (5,826 )   (71.04 )%
  Net income 7,879     18,978     (11,099 )   (58.48 )%
  Net income attributable to noncontrolling interest (1,620 )   (1,166 )   (454 )   38.94 %
  Net income attributable to TowneBank 6,259     17,812     (11,553 )   (64.86 )%
  Net income available to common shareholders 6,259     17,812     (11,553 )   (64.86 )%
  Net income per common share - basic 0.12     0.35     (0.23 )   (65.71 )%
  Net income per common share - diluted 0.12     0.35     (0.23 )   (65.71 )%
Period End Data:              
  Total assets $ 7,940,741     $ 6,055,181     $ 1,885,560     31.14 %
  Total assets - tangible 7,641,740     5,879,975     1,761,765     29.96 %
  Earning assets (2) 7,310,561     5,576,243     1,734,318     31.10 %
  Loans (net of unearned income) 5,559,949     4,228,127     1,331,822     31.50 %
  Allowance for loan losses 39,618     37,290     2,328     6.24 %
  Goodwill and other intangibles 299,000     175,207     123,793     70.66 %
  Nonperforming assets 36,287     53,609     (17,322 )   (32.31 )%
  Noninterest bearing deposits 1,950,816     1,363,551     587,265     43.07 %
  Interest bearing deposits 4,235,463     3,323,101     912,362     27.46 %
  Total deposits 6,186,279     4,686,652     1,499,627     32.00 %
  Total equity 1,061,548     802,891     258,657     32.22 %
  Total equity - tangible 762,548     627,685     134,863     21.49 %
  Common equity 1,050,360     794,018     256,342     32.28 %
  Common equity - tangible 751,360     618,812     132,548     21.42 %
  Book value per common share 16.84     15.40     1.44     9.35 %
  Book value per common share - tangible 12.05     12.00     0.05     0.42 %
Daily Average Balances:              
  Total assets $ 6,534,063     $ 5,900,816     $ 633,247     10.73 %
  Total assets - tangible 6,339,815     5,724,957     614,858     10.74 %
  Earning assets (2) 6,025,033     5,407,516     617,517     11.42 %
  Loans (net of unearned income), excluding nonaccrual loans 4,702,825     4,161,304     541,521     13.01 %
  Allowance for loan losses 38,419     36,854     1,565     4.25 %
  Goodwill and other intangibles 194,248     175,858     18,390     10.46 %
  Noninterest bearing deposits 1,538,370     1,307,075     231,295     17.70 %
  Interest bearing deposits 3,544,493     3,241,276     303,217     9.35 %
  Total deposits 5,082,863     4,548,351     534,512     11.75 %
  Total equity 859,938     800,369     59,569     7.44 %
  Total equity - tangible 665,690     624,511     41,179     6.59 %
  Common equity 850,393     791,915     58,478     7.38 %
  Common equity - tangible 656,145     616,057     40,088     6.51 %
Key Ratios:              
  Return on average assets 0.39 %   1.21 %   (0.82 )%   (67.77 )%
  Return on average assets - tangible 0.44 %   1.28 %   (0.84 )%   (65.63 )%
  Return on average equity 2.93 %   8.93 %   (6.00 )%   (67.19 )%
  Return on average equity - tangible 4.19 %   11.77 %   (7.58 )%   (64.40 )%
  Return on average common equity 2.96 %   9.02 %   (6.06 )%   (67.18 )%
  Return on average common equity - tangible 4.25 %   11.93 %   (7.68 )%   (64.38 )%
  Net interest margin-fully tax equivalent (2)(3) 3.36 %   3.52 %   (0.16 )%   (4.55 )%
  Net interest margin (2) 3.27 %   3.43 %   (0.16 )%   (4.66 )%
  Average earning assets/total average assets 92.21 %   91.64 %   0.57 %   0.62 %
  Average loans/average deposits 92.52 %   91.49 %   1.03 %   1.13 %
  Average noninterest deposits/total average deposits 30.27 %   28.74 %   1.53 %   5.32 %
  Allowance for loan losses/period end loans 0.71 %   0.88 %   (0.17 )%   (19.32 )%
  Nonperforming assets to period end assets 0.46 %   0.89 %   (0.43 )%   (48.31 )%
  Period end equity/period end total assets 13.37 %   13.26 %   0.11 %   0.83 %
  Efficiency ratio (1) 85.34 %   64.63 %   20.71 %   32.04 %
                 
(1) Excludes gain on investment securities and properties
(2) Includes bank-owned life insurance
(3) Presented on a tax-equivalent basis
TOWNEBANK
Selected Financial Highlights (unaudited)
(dollars in thousands, except per share data)
 
             Increase/   % Increase/
Six Months Ended June 30, 2016   2015   (Decrease)   (Decrease)
                 
Results of Operations:              
  Net interest income $ 94,120     $ 88,440     $ 5,680     6.42 %
  Noninterest income (1) 68,882     59,799     9,083     15.19 %
  Gain on investment securities —     169     (169 )   (100.00 )%
  Gain on investment properties —     1,933     (1,933 )   (100.00 )%
  Total Revenue 163,002     150,341     12,661     8.42 %
  Acquisition-related expenses 18,849     784     18,065     N/M  
  Noninterest expenses, excluding acquisition-related expenses 105,211     98,723     6,488     6.57 %
  Provision for loan losses 1,840     2,045     (205 )   (10.02 )%
  Income before income tax and noncontrolling interest 37,102     48,789     (11,687 )   (23.95 )%
  Provision for income tax expense 10,563     14,586     (4,023 )   (27.58 )%
  Net income 26,539     34,203     (7,664 )   (22.41 )%
  Net income attributable to noncontrolling interest (2,461 )   (1,853 )   (608 )   32.81 %
  Net income attributable to TowneBank 24,078     32,350     (8,272 )   (25.57 )%
  Preferred stock dividends —     13     (13 )   (100.00 )%
  Net income available to common shareholders 24,078     32,337     (8,259 )   (25.54 )%
  Net income per common share - basic 0.47     0.64     (0.17 )   (26.56 )%
  Net income per common share - diluted 0.47     0.63     (0.16 )   (25.40 )%
Period End Data:              
  Total assets $ 7,940,741     $ 6,055,181     $ 1,885,560     31.14 %
  Total assets - tangible 7,641,740     5,879,975     1,761,765     29.96 %
  Earning assets (2) 7,310,561     5,576,243     1,734,318     31.10 %
  Loans (net of unearned income) 5,559,949     4,228,127     1,331,822     31.50 %
  Allowance for loan losses 39,618     37,290     2,328     6.24 %
  Goodwill and other intangibles 299,000     175,207     123,793     70.66 %
  Nonperforming assets 36,287     53,609     (17,322 )   (32.31 )%
  Noninterest bearing deposits 1,950,816     1,363,551     587,265     43.07 %
  Interest bearing deposits 4,235,463     3,323,101     912,362     27.46 %
  Total deposits 6,186,279     4,686,652     1,499,627     32.00 %
  Total equity 1,061,548     802,891     258,657     32.22 %
  Total equity - tangible 762,548     627,685     134,863     21.49 %
  Common equity 1,050,360     794,018     256,342     32.28 %
  Common equity - tangible 751,360     618,812     132,548     21.42 %
  Book value per common share 16.84     15.40     1.44     9.35 %
  Book value per common share - tangible 12.05     12.00     0.05     0.42 %
Daily Average Balances:              
  Total assets $ 6,423,650     $ 5,865,372     $ 558,278     9.52 %
  Total assets - tangible 6,233,169     5,684,147     549,022     9.66 %
  Earning assets (2) 5,920,207     5,349,362     570,845     10.67 %
  Loans (net of unearned income), excluding nonaccrual loans 4,609,551     4,114,156     495,395     12.04 %
  Allowance for loan losses 38,487     36,453     2,034     5.58 %
  Goodwill and other intangibles 190,481     181,224     9,257     5.11 %
  Noninterest bearing deposits 1,477,081     1,281,690     195,391     15.24 %
  Interest bearing deposits 3,522,050     3,245,034     277,016     8.54 %
  Total deposits 4,999,131     4,526,724     472,407     10.44 %
  Total equity 845,058     791,152     53,906     6.81 %
  Total equity - tangible 654,577     609,928     44,649     7.32 %
  Common equity 835,830     780,014     55,816     7.16 %
  Common equity - tangible 645,349     598,790     46,559     7.78 %
Key Ratios:              
  Return on average assets 0.75 %   1.11 %   (0.36 )%   (32.43 )%
  Return on average assets - tangible 0.82 %   1.19 %   (0.37 )%   (31.09 )%
  Return on average equity 5.73 %   8.25 %   (2.52 )%   (30.55 )%
  Return on average equity - tangible 7.81 %   11.04 %   (3.23 )%   (29.26 )%
  Return on average common equity 5.79 %   8.36 %   (2.57 )%   (30.74 )%
  Return on average common equity - tangible 7.92 %   11.24 %   (3.32 )%   (29.54 )%
  Net interest margin-fully tax equivalent (2)(3) 3.36 %   3.52 %   (0.16 )%   (4.55 )%
  Net interest margin (2) 3.28 %   3.43 %   (0.15 )%   (4.37 )%
  Average earning assets/total average assets 92.16 %   91.20 %   0.96 %   1.05 %
  Average loans/average deposits 92.21 %   90.89 %   1.32 %   1.45 %
  Average noninterest deposits/total average deposits 29.55 %   28.31 %   1.24 %   4.38 %
  Allowance for loan losses/period end loans 0.71 %   0.88 %   (0.17 )%   (19.32 )%
  Nonperforming assets to period end assets 0.46 %   0.89 %   (0.43 )%   (48.31 )%
  Period end equity/period end total assets 13.37 %   13.26 %   0.11 %   0.83 %
  Efficiency ratio (1) 76.11 %   67.13 %   8.98 %   13.38 %
                 
(1) Excludes gain on investment securities and properties
(2) Includes bank-owned life insurance
(3) Presented on a tax-equivalent basis
TOWNEBANK
Selected Financial Highlights (unaudited)
(dollars in thousands, except per share data)
 
    June 30,   March 31,     Increase/    % Increase/
Three Months Ended 2016   2016    (Decrease)    (Decrease)
                 
Results of Operations:              
  Net interest income $ 47,784     $ 46,336     $ 1,448     3.13 %
  Noninterest income (1) 36,468     32,415     4,053     12.50 %
  Total Revenue 84,252     78,751     5,501     6.99 %
  Acquisition-related expenses 18,435     414     18,021     N/M  
  Noninterest expenses, excluding acquisition-related expenses 53,464     51,747     1,717     3.32 %
  Provision for loan losses 2,099     (259 )   2,358     (910.42 )%
  Income before income tax and noncontrolling interest 10,254     26,849     (16,595 )   (61.81 )%
  Provision for income tax expense 2,375     8,188     (5,813 )   (70.99 )%
  Net income 7,879     18,661     (10,782 )   (57.78 )%
  Net income attributable to noncontrolling interest (1,620 )   (842 )   (778 )   92.40 %
  Net income attributable to TowneBank 6,259     17,819     (11,560 )   (64.87 )%
  Net income available to common shareholders 6,259     17,819     (11,560 )   (64.87 )%
  Net income per common share - basic 0.12     0.35     (0.23 )   (65.71 )%
  Net income per common share - diluted 0.12     0.35     (0.23 )   (65.71 )%
Period End Data:              
  Total assets $ 7,940,741     $ 6,365,169     $ 1,575,572     24.75 %
  Total assets - tangible 7,641,740     6,178,224     1,463,516     23.69 %
  Earning assets (2) 7,310,561     5,896,763     1,413,798     23.98 %
  Loans (net of unearned income) 5,559,949     4,552,260     1,007,689     22.14 %
  Allowance for loan losses 39,618     37,760     1,858     4.92 %
  Goodwill and other intangibles 299,000     186,945     112,055     59.94 %
  Nonperforming assets 36,287     37,684     (1,397 )   (3.71 )%
  Noninterest bearing deposits 1,950,816     1,449,660     501,156     34.57 %
  Interest bearing deposits 4,235,463     3,505,466     729,997     20.82 %
  Total deposits 6,186,279     4,955,126     1,231,153     24.85 %
  Total equity 1,061,548     836,003     225,545     26.98 %
  Total equity - tangible 762,548     649,058     113,490     17.49 %
  Common equity 1,050,360     826,875     223,485     27.03 %
  Common equity - tangible 751,360     639,930     111,430     17.41 %
  Book value per common share 16.84     16.00     0.84     5.25 %
  Book value per common share - tangible 12.05     12.38     (0.33 )   (2.67 )%
Daily Average Balances:              
  Total assets $ 6,534,063     $ 6,313,238     $ 220,825     3.50 %
  Total assets - tangible 6,339,815     6,126,524     213,291     3.48 %
  Earning assets (2) 6,025,033     5,815,383     209,650     3.61 %
  Loans (net of unearned income), excluding nonaccrual loans 4,702,825     4,516,277     186,548     4.13 %
  Allowance for loan losses 38,419     38,555     (136 )   (0.35 )%
  Goodwill and other intangibles 194,248     186,714     7,534     4.04 %
  Noninterest bearing deposits 1,538,370     1,415,793     122,577     8.66 %
  Interest bearing deposits 3,544,493     3,499,607     44,886     1.28 %
  Total deposits 5,082,863     4,915,400     167,463     3.41 %
  Total equity 859,938     830,178     29,760     3.58 %
  Total equity - tangible 665,690     643,464     22,226     3.45 %
  Common equity 850,393     821,268     29,125     3.55 %
  Common equity - tangible 656,145     634,554     21,591     3.40 %
Key Ratios:              
  Return on average assets 0.39 %   1.14 %   (0.75 )%   (65.79 )%
  Return on average assets - tangible 0.44 %   1.21 %   (0.77 )%   (63.64 )%
  Return on average equity 2.93 %   8.63 %   (5.70 )%   (66.05 )%
  Return on average equity - tangible 4.19 %   11.56 %   (7.37 )%   (63.75 )%
  Return on average common equity 2.96 %   8.73 %   (5.77 )%   (66.09 )%
  Return on average common equity - tangible 4.25 %   11.72 %   (7.47 )%   (63.74 )%
  Net interest margin-fully tax equivalent (2)(3) 3.36 %   3.37 %   (0.01 )%   (0.30 )%
  Net interest margin (2) 3.27 %   3.29 %   (0.02 )%   (0.61 )%
  Average earning assets/total average assets 92.21 %   92.11 %   0.10 %   0.11 %
  Average loans/average deposits 92.52 %   91.88 %   0.64 %   0.70 %
  Average noninterest deposits/total average deposits 30.27 %   28.80 %   1.47 %   5.10 %
  Allowance for loan losses/period end loans 0.71 %   0.83 %   (0.12 )%   (14.46 )%
  Nonperforming assets to period end assets 0.46 %   0.59 %   (0.13 )%   (22.03 )%
  Period end equity/period end total assets 13.37 %   13.13 %   0.24 %   1.83 %
  Efficiency ratio (1) 85.34 %   66.24 %   19.10 %   28.83 %
                 
(1) Excludes gain on investment securities
(2) Includes bank-owned life insurance
(3) Presented on a tax-equivalent basis
TOWNEBANK
Average Balances, Yields and Rate Paid (unaudited)
(dollars in thousands)
 
  Three Months Ended   Three Months Ended   Three Months Ended
  June 30, 2016   March 31, 2016   June 30, 2015
    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 $ 4,702,825   $ 52,232   4.47 %   $ 4,516,277   $ 50,781   4.52 %   $ 4,161,304   $ 48,730   4.70 %
Taxable investment securities 671,792   2,734   1.63 %   754,514   3,055   1.62 %   818,000   2,825   1.38 %
Tax-exempt investment securities 52,398   405   3.09 %   52,979   410   3.09 %   63,255   496   3.14 %
Interest-bearing deposits 289,698   364   0.51 %   265,256   330   0.50 %   87,709   56   0.25 %
Loans held for sale 156,425   1,294   3.31 %   76,503   693   3.62 %   131,305   1,161   3.54 %
Bank-owned life insurance 151,895   1,817   4.81 %   149,854   1,802   4.84 %   145,943   2,044   5.62 %
Total earning assets 6,025,033   58,846   3.93 %   5,815,383   57,071   3.95 %   5,407,516   55,312   4.10 %
Less: allowance for loan losses (38,419 )       (38,555 )       (36,854 )    
                       
Total nonearning assets 547,449         536,410         530,154      
                       
Total assets $ 6,534,063         $ 6,313,238         $ 5,900,816      
                       
Liabilities and Equity:                      
Interest-bearing deposits                      
Demand and money market $ 1,813,502   $ 1,298   0.29 %   $ 1,782,908   $ 1,328   0.30 %   $ 1,646,075   $ 1,144   0.28 %
Savings 301,542   709   0.95 %   300,070   700   0.94 %   301,020   692   0.92 %
Certificates of deposit 1,429,449   3,260   0.92 %   1,416,629   3,185   0.90 %   1,294,181   2,606   0.81 %
Total interest-bearing deposits 3,544,493   5,267   0.60 %   3,499,607   5,213   0.60 %   3,241,276   4,442   0.55 %
Borrowings 469,939   3,190   2.69 %   468,798   3,185   2.69 %   460,993   3,382   2.90 %
Total interest-bearing liabilities 4,014,432   8,457   0.85 %   3,968,405   8,398   0.85 %   3,702,269   7,824   0.85 %
Demand deposits 1,538,370         1,415,793         1,307,075      
Other noninterest-bearing liabilities 121,323         98,862         91,103      
Total liabilities 5,674,125         5,483,060         5,100,447      
                       
Shareholders’ equity 859,938         830,178         800,369      
                       
Total liabilities and equity $ 6,534,063         $ 6,313,238         $ 5,900,816      
                       
Net interest income (tax-equivalent basis)   $ 50,389         $ 48,673         $ 47,488    
Reconcilement of Non-GAAP Financial Measures                          
Bank-owned life insurance   (1,817 )       (1,802 )       (2,044 )  
Tax-equivalent basis adjustment   (788 )       (535 )       (560 )  
Net interest income (GAAP)   $ 47,784         $ 46,336         $ 44,884    
                       
Interest rate spread (1)     3.08 %       3.10 %       3.26 %
Interest expense as a percent of average earning assets         0.56 %       0.58 %       0.58 %
Net interest margin (tax equivalent basis) (2)         3.36 %       3.37 %       3.52 %
Total cost of deposits     0.42 %       0.43 %       0.39 %
                       

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

TOWNEBANK
Average Balances, Yields and Rate Paid (unaudited)
(dollars in thousands)
 
  Six Months Ended   Six Months Ended   Six Months Ended June 30, 2016
  June 30, 2016   June 30, 2015   Compared with June 30, 2015
    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 $ 4,609,551   $ 103,012   4.49 %   $ 4,114,156   $ 96,619   4.74 %   $ 6,394   $ (26,189 ) $ 32,583  
Taxable investment securities 713,152   5,790   1.62 %   783,896   5,626   1.44 %   164   2,502   (2,338 )
Tax-exempt investment securities 52,689   814   3.09 %   65,024   1,032   3.17 %   (218 ) (26 ) (192 )
Interest-bearing deposits 277,477   694   0.50 %   144,962   181   0.25 %   513   268   245  
Loans held for sale 116,464   1,987   3.41 %   98,093   1,726   3.52 %   261   (327 ) 588  
Bank-owned life insurance 150,874   3,619   4.82 %   143,231   3,797   5.35 %   (178 ) (1,178 ) 1,000  
Total earning assets 5,920,207   115,916   3.94 %   5,349,362   108,981   4.11 %   6,936   (24,950 ) 31,886  
Less: allowance for loan losses (38,487 )       (36,453 )            
                       
Total nonearning assets $ 541,930         $ 552,463              
                       
Total assets $ 6,423,650         $ 5,865,372              
                       
Liabilities and Equity:                      
Interest-bearing deposits                      
Demand and money market $ 1,798,205   $ 2,626   0.29 %   $ 1,640,794   $ 2,255   0.28 %   $ 371   $ 142   $ 229  
Savings 300,806   1,409   0.94 %   303,007   1,375   0.92 %   34   92   (58 )
Certificates of deposit 1,423,039   6,445   0.91 %   1,301,233   5,236   0.81 %   1,209   685   524  
Total interest-bearing deposits 3,522,050   10,480   0.60 %   3,245,034   8,866   0.55 %   1,614   919   695  
Borrowings 469,368   6,375   2.69 %   454,134   6,770   2.96 %   (394 ) (1,606 ) 1,212  
Total interest-bearing liabilities 3,991,418   16,855   0.85 %   3,699,168   15,636   0.85 %   1,220   (687 ) 1,907  
Demand deposits 1,477,081         1,281,690              
Other noninterest-bearing liabilities 110,093         93,362              
Total liabilities 5,578,592         5,074,220              
                       
Shareholders’ equity 845,058         791,152              
                       
Total liabilities and equity $ 6,423,650         $ 5,865,372              
                       
Net interest income (tax-equivalent basis)   $ 99,061         $ 93,345       $ 5,716   $ (24,263 ) $ 29,979  
Reconcilement of Non-GAAP Financial Measures                  
Bank-owned life insurance   (3,619 )       (3,797 )     178      
Tax-equivalent basis adjustment   (1,322 )       (1,108 )     (214 )    
Net interest income (GAAP)   $ 94,120         $ 88,440       $ 5,680      
                       
Interest rate spread (1)     3.09 %       3.26 %        
Interest expense as a percent of average earning assets     0.57 %       0.59 %        
Net interest margin (tax equivalent basis) (2)     3.36 %       3.52 %        
Total cost of deposits     0.42 %       0.39 %        
                       
(1) Interest spread is the average yield earned on earning assets less the average rate paid on interest bearing liabilities.  Fully tax equivalent.
(2) Net interest margin is net interest income expressed as a percentage of average earning assets.  Fully tax equivalent.
TOWNEBANK
Consolidated Balance Sheets
(dollars in thousands, except share data)
 
  June 30,   December 31,
  2016   2015   2015
  (unaudited)   (audited)
ASSETS          
Cash and due from banks $ 188,183     $ 184,099     $ 250,836  
Interest-bearing deposits in financial institutions 33,777     1,011     1,001  
Federal funds sold 14     —     —  
Total Cash and Cash Equivalents 221,974     185,110     251,837  
Securities available for sale, at fair value 812,375     759,425     723,489  
Securities held to maturity, at amortized cost 65,728     80,195     69,045  
Federal Home Loan Bank stock, at amortized cost 28,008     24,058     23,691  
Total Securities 906,111     863,678     816,225  
Mortgage loans held for sale 474,978     165,994     102,346  
Loans, net of unearned income and deferred costs:          
Real estate - residential 1-4 family 1,183,818     948,138     973,331  
Real estate - commercial 2,118,108     1,748,567     1,784,393  
Real estate - construction and land development 824,609     554,053     598,875  
Real estate - multifamily 171,501     137,378     167,371  
Commercial and industrial business 1,075,736     732,936     857,036  
Consumer and other loans 186,177     107,055     138,387  
Loans, net of unearned income and deferred costs 5,559,949     4,228,127     4,519,393  
Less:  Allowance for loan losses (39,618 )   (37,290 )   (38,359 )
Net Loans 5,520,331     4,190,837     4,481,034  
Premises and equipment, net 202,333     172,492     173,695  
Goodwill 257,485     153,191     154,842  
Other intangible assets, net 41,515     22,016     26,153  
Bank-owned life insurance policies 164,933     146,729     149,452  
Other assets 151,081     155,134     140,990  
TOTAL ASSETS $ 7,940,741     $ 6,055,181     $ 6,296,574  
           
LIABILITIES AND EQUITY          
Liabilities          
Deposits:          
Noninterest-bearing demand $ 1,950,816     $ 1,363,551     $ 1,393,264  
Interest-bearing:          
Demand and money market accounts 2,174,154     1,680,038     1,824,226  
Savings 317,071     300,203     300,408  
Certificates of deposit 1,744,238     1,342,860     1,396,129  
Total Deposits 6,186,279     4,686,652     4,914,027  
Advances from the Federal Home Loan Bank 500,798     437,584     429,080  
Repurchase agreements and other borrowings 44,008     35,737     37,434  
Total Borrowings 544,806     473,321     466,514  
Other liabilities 148,108     92,317     95,839  
TOTAL LIABILITIES 6,879,193     5,252,290     5,476,380  
Shareholders’ Equity          
Preferred stock:          
Authorized and unissued shares - 2,000,000 —     —     —  
Common stock, $1.667 par: 90,000,000 shares authorized          
62,365,197; 51,551,312; and 51,605,521 shares issued at          
June 30, 2016 and 2015 and December 31, 2015, respectively 103,963     85,936     86,026  
Capital surplus 742,228     532,646     535,094  
Retained earnings 202,565     175,145     192,795  
Common stock issued to deferred compensation trust, at cost          
674,899; 651,738; and 648,350 shares at          
June 30, 2016 and 2015 and December 31, 2015, respectively (10,785 )   (10,110 )   (10,172 )
Deferred compensation trust 10,785     10,110     10,172  
Accumulated other comprehensive income (loss) 1,604     291     (2,994 )
TOTAL SHAREHOLDERS’ EQUITY 1,050,360     794,018     810,921  
Noncontrolling interests 11,188     8,873     9,273  
TOTAL EQUITY 1,061,548     802,891     820,194  
TOTAL LIABILITIES AND EQUITY $ 7,940,741     $ 6,055,181     $ 6,296,574  
TOWNEBANK
Consolidated Statements of Income (unaudited)
(dollars in thousands, except per share data)
 
  Three Months Ended   Six Months Ended
  June 30,   June 30,
  2016   2015   2016   2015
INTEREST INCOME:              
Loans, including fees $ 51,444     $ 48,170     $ 101,690     $ 95,511  
Investment securities 3,139     3,321     6,604     6,658  
Interest-bearing deposits in financial institutions and federal funds sold 364     56     694     181  
Mortgage loans held for sale 1,294     1,161     1,987     1,726  
Total Interest Income 56,241     52,708     110,975     104,076  
               
INTEREST EXPENSE:              
Deposits 5,267     4,442     10,480     8,866  
Advances from the Federal Home Loan Bank 3,158     3,365     6,321     6,739  
Repurchase agreements and other borrowings 32     17     54     31  
Total Interest Expense 8,457     7,824     16,855     15,636  
               
Net Interest Income 47,784     44,884     94,120     88,440  
               
PROVISION FOR LOAN LOSSES 2,099     1,723     1,840     2,045  
               
Net Interest Income after Provision for Loan Losses 45,685     43,161     92,280     86,395  
               
NONINTEREST INCOME:              
Residential mortgage banking income, net 12,148     10,251     19,266     18,694  
Real estate brokerage and property management income, net 6,116     4,584     10,943     8,539  
Insurance commissions and other title fees and income, net 11,627     9,885     25,660     20,934  
Service charges on deposit accounts 2,284     2,326     4,460     4,523  
Credit card merchant fees, net 1,113     566     2,008     998  
Other income 3,180     5,354     6,545     8,044  
Net gain on investment securities —     119     —     169  
Total Noninterest Income 36,468     33,085     68,882     61,901  
               
NONINTEREST EXPENSE:              
Salaries and employee benefits 30,093     26,544     60,279     54,223  
Occupancy expense 5,157     4,856     10,174     9,786  
Furniture and equipment 2,381     2,369     4,739     4,738  
Other expenses 34,268     15,298     48,868     30,760  
Total Noninterest Expense 71,899     49,067     124,060     99,507  
               
Income before income tax expense and noncontrolling interest 10,254     27,179     37,102     48,789  
               
Provision for income tax expense 2,375     8,201     10,563     14,586  
               
Net income 7,879     18,978     26,539     34,203  
               
Net income attributable to noncontrolling interest (1,620 )   (1,166 )   (2,461 )   (1,853 )
               
Net income attributable to TowneBank $ 6,259     $ 17,812     $ 24,078     $ 32,350  
               
Preferred stock dividends —     —     —     13  
               
Net income available to common shareholders $ 6,259     $ 17,812     $ 24,078     $ 32,337  
               
Per common share information              
Basic earnings $ 0.12     $ 0.35     $ 0.47     $ 0.64  
Diluted earnings $ 0.12     $ 0.35     $ 0.47     $ 0.63  
Cash dividends declared $ 0.13     $ 0.12     $ 0.25     $ 0.23  
TOWNEBANK
Consolidated Statements of Comprehensive Income (unaudited)
(dollars in thousands)
 
  Three Months Ended   Six Months Ended
  June 30,   June 30,
  2016   2015   2016   2015
Net income $ 7,879     $ 18,978     $ 26,539     $ 34,203  
               
Other comprehensive income (loss)              
               
Unrealized gains (losses) on securities              
Unrealized holding gains (losses) arising during the period 2,329     (3,200 )   6,809     (286 )
Deferred tax benefit (expense) (815 )   1,120     (2,383 )   100  
Realized gains reclassified into earnings —     —     —     (49 )
Deferred tax benefit —     —     —     17  
Net unrealized gains (losses) 1,514     (2,080 )   4,426     (218 )
               
Pension and postretirement benefit plans              
Actuarial gains —     —     109     —  
Deferred tax expense —     —     (38 )   —  
Amortization of prior service costs 115     —     153     —  
Deferred tax expense (40 )   —     (53 )   —  
Amortization of net actuarial loss (2 )   18     2     78  
Deferred tax benefit (expense) 1     (6 )   (1 )   (27 )
Change in defined benefit retirement plan, net of tax 74     12     172     51  
               
Other comprehensive income (loss), net of tax 1,588     (2,068 )   4,598     (167 )
               
Comprehensive income $ 9,467     $ 16,910     $ 31,137     $ 34,036  
TOWNEBANK
Consolidated Balance Sheets - Five Quarter Trend
(dollars in thousands, except share data)
 
                   
  June 30,   March 31,   December 31,   September 30,   June 30,
  2016   2016   2015   2015   2015
  (unaudited)   (unaudited)   (audited)   (unaudited)   (unaudited)
ASSETS                  
Cash and due from banks $ 188,183     $ 195,161     $ 250,836     $ 284,625     $ 184,099  
Interest-bearing deposits in financial institutions 33,777     1,006     1,001     1,000     1,011  
Federal funds sold 14     —     —     —     —  
Total Cash and Cash Equivalents 221,974     196,167     251,837     285,625     185,110  
Securities available for sale, at fair value 812,375     821,551     723,489     542,634     759,425  
Securities held to maturity, at amortized cost 65,728     66,921     69,045     75,154     80,195  
Federal Home Loan Bank stock, at amortized cost 28,008     23,903     23,691     24,058     24,058  
Total Securities 906,111     912,375     816,225     641,846     863,678  
Mortgage loans held for sale 474,978     97,491     102,346     99,330     165,994  
Loans, net of unearned income and deferred costs: 5,559,949     4,552,260     4,519,393     4,367,039     4,228,127  
Less: allowance for loan losses (39,618 )   (37,760 )   (38,359 )   (37,351 )   (37,290 )
Net Loans 5,520,331     4,514,500     4,481,034     4,329,688     4,190,837  
Premises and equipment, net 202,333     178,154     173,695     172,940     172,492  
Goodwill 257,485     157,659     154,842     152,438     153,191  
Other intangible assets, net 41,515     29,286     26,153     23,080     22,016  
Bank-owned life insurance policies 164,933     150,623     149,452     147,949     146,729  
Other assets 151,081     128,914     140,990     320,995     155,134  
TOTAL ASSETS $ 7,940,741     $ 6,365,169     $ 6,296,574     $ 6,173,891     $ 6,055,181  
LIABILITIES AND EQUITY                  
Deposits:                  
Noninterest-bearing demand $ 1,950,816     $ 1,449,660     $ 1,393,264     $ 1,445,978     $ 1,363,551  
Interest-bearing:                  
Demand and money market accounts 2,174,154     1,769,414     1,824,226     1,676,623     1,680,038  
Savings 317,071     302,373     300,408     295,952     300,203  
Certificates of deposit 1,744,238     1,433,679     1,396,129     1,369,325     1,342,860  
Total Deposits 6,186,279     4,955,126     4,914,027     4,787,878     4,686,652  
Advances from the Federal Home Loan Bank 500,798     428,940     429,080     437,282     437,584  
Repurchase agreements and other borrowings 44,008     39,442     37,434     33,784     35,737  
Total Borrowings 544,806     468,382     466,514     471,066     473,321  
Other liabilities 148,108     105,658     95,839     98,878     92,317  
TOTAL LIABILITIES 6,879,193     5,529,166     5,476,380     5,357,822     5,252,290  
Preferred stock                  
Authorized and unissued shares - 2,000,000 —     —     —     —     —  
                   
Common stock, $1.667 par value 103,963     86,151     86,026     85,985     85,936  
Capital surplus 742,228     536,294     535,094     533,609     532,646  
Retained earnings 202,565     204,413     192,795     186,522     175,145  
Common stock issued to deferred compensation trust, at cost (10,785 )   (10,288 )   (10,172 )   (10,151 )   (10,110 )
Deferred compensation trust 10,785     10,288     10,172     10,151     10,110  
Accumulated other comprehensive income (loss) 1,604     17     (2,994 )   1,036     291  
TOTAL SHAREHOLDERS’ EQUITY 1,050,360     826,875     810,921     807,152     794,018  
Noncontrolling interest 11,188     9,128     9,273     8,917     8,873  
TOTAL EQUITY 1,061,548     836,003     820,194     816,069     802,891  
TOTAL LIABILITIES AND EQUITY $ 7,940,741     $ 6,365,169     $ 6,296,574     $ 6,173,891     $ 6,055,181  
TOWNEBANK
Consolidated Statements of Income - Five Quarter Trend (unaudited)
(dollars in thousands, except per share data)
                   
           
  Three Months Ended
  June 30,   March 31,   December 31,   September 30,   June 30,
  2016   2016   2015   2015   2015
INTEREST INCOME:                  
Loans, including fees $ 51,444     $ 50,247     $ 50,319     $ 48,906     $ 48,170  
Investment securities 3,139     3,464     3,415     3,728     3,321  
Interest-bearing deposits in financial institutions and federal funds sold 364     330     212     107     56  
Mortgage loans held for sale 1,294     693     865     1,246     1,161  
Total Interest Income 56,241     54,734     54,811     53,987     52,708  
INTEREST EXPENSE:                  
Deposits 5,267     5,213     5,119     4,881     4,442  
Advances from the Federal Home Loan Bank 3,158     3,163     3,326     3,422     3,365  
Repurchase agreements and other borrowings 32     22     35     14     17  
Total Interest Expense 8,457     8,398     8,480     8,317     7,824  
Net Interest Income 47,784     46,336     46,331     45,670     44,884  
                   
PROVISION FOR LOAN LOSSES 2,099     (259 )   852     130     1,723  
Net Interest Income after Provision for Loan Losses 45,685     46,595     45,479     45,540     43,161  
NONINTEREST INCOME:                  
Residential mortgage banking income, net 12,148     7,118     7,255     8,262     10,251  
Real estate brokerage and property management income, net 6,116     4,827     2,438     5,349     4,584  
Insurance commissions and other title fees and income, net 11,627     14,033     8,997     9,710     9,885  
Service charges on deposit accounts 2,284     2,176     2,254     2,388     2,326  
Credit card merchant fees, net 1,113     895     767     823     566  
Other income 3,180     3,366     3,368     3,036     5,354  
Net gain on investment securities —     —     —     736     119  
Total Noninterest Income 36,468     32,415     25,079     30,304     33,085  
NONINTEREST EXPENSE:                  
Salaries and employee benefits 30,093     30,187     30,826     28,910     26,544  
Occupancy expense 5,157     5,017     5,156     4,703     4,856  
Furniture and equipment 2,381     2,357     2,390     2,211     2,369  
Other expenses 34,268     14,600     14,371     14,082     15,298  
Total Noninterest Expense 71,899     52,161     52,743     49,906     49,067  
Income before income tax expense and noncontrolling interest 10,254     26,849     17,815     25,938     27,179  
Provision for income tax expense 2,375     8,188     4,846     7,444     8,201  
Net income 7,879     18,661     12,969     18,494     18,978  
Net income attributable to noncontrolling interest (1,620 )   (842 )   (503 )   (928 )   (1,166 )
Net income attributable to TowneBank $ 6,259     $ 17,819     $ 12,466     $ 17,566     $ 17,812  
Preferred stock dividends —     —     —     —     —  
Net income available to common shareholders $ 6,259     $ 17,819     $ 12,466     $ 17,566     $ 17,812  
Per common share information                  
Basic earnings $ 0.12     $ 0.35     $ 0.24     $ 0.34     $ 0.35  
Diluted earnings $ 0.12     $ 0.35     $ 0.24     $ 0.34     $ 0.35  
Basic weighted average shares outstanding 51,994,473     51,290,010     51,267,447     51,153,205     51,089,051  
Diluted weighted average shares outstanding 52,116,772     51,392,857     51,440,440     51,263,382     51,151,512  
Cash dividends declared $ 0.13     $ 0.12     $ 0.12     $ 0.12     $ 0.12  
TOWNEBANK
Insurance Segment Financial Information
(dollars in thousands)
 
                   
      Increase/(Decrease)
  Three Months Ended   June 30, 2016   June 30, 2016
  June 30,   March 31,   June 30, 2015   March 31, 2016
  2016   2015   2016   Amount   Percent   Amount   Percent
Commission and fee income                          
Property and casualty $ 8,815     $ 7,945     $ 8,263     $ 870     10.95 %   $ 552     6.68 %
Employee benefits 2,907     2,505     2,721     402     16.05 %   186     6.84 %
Travel insurance 1,163     910     1,456     253     27.80 %   (293 )   (20.12 )%
Specialized benefit services 152     135     153     17     12.59 %   (1 )   (0.65 )%
Total commissions and fees 13,037     11,495     12,593     1,542     13.41 %   444     3.53 %
                           
Contingency and bonus revenue 445     391     3,411     54     13.81 %   (2,966 )   (86.95 )%
Other income 52     47     77     5     10.64 %   (25 )   (32.47 )%
Total revenue $ 13,534     $ 11,933     $ 16,081     $ 1,601     13.42 %   $ (2,547 )   (15.84 )%
                           
Employee commission expense 2,254     2,325     2,168     (71 )   (3.05 )%   86     3.97 %
Revenue, net of commission expense $ 11,280     $ 9,608     $ 13,913     $ 1,672     17.40 %   $ (2,633 )   (18.92 )%
                           
Salaries and employee benefits 5,723     4,734     5,968     989     20.89 %   (245 )   (4.11 )%
Occupancy expense 517     480     529     37     7.71 %   (12 )   (2.27 )%
Furniture and equipment 259     225     224     34     15.11 %   35     15.63 %
Amortization of intangible assets 692     540     685     152     28.15 %   7     1.02 %
Other expenses 1,586     1,424     1,390     162     11.38 %   196     14.10 %
Total operating expenses 8,777     7,403     8,796     1,374     18.56 %   (19 )   (0.22 )%
Income before income tax provision and noncontrolling interest $ 2,503     $ 2,205     $ 5,117     $ 298     13.51 %   $ (2,614 )   (51.08 )%
Plus: Acquisition related expenses 277     176     76     101     57.39 %   201     264.47 %
Plus: Amortization of intangible assets 692     540     685     152     28.15 %   7     1.02 %
Operating earnings before income taxes (non-GAAP) $ 3,472     $ 2,921     $ 5,878     $ 551     18.86 %   $ (2,406 )   (40.93 )%
                           
TOWNEBANK
Insurance Segment Financial Information
(dollars in thousands)
 
       
  Six Months Ended   Increase/(Decrease)
  June 30,   2016 over 2015
  2016   2015   Amount   Percent
Net commission and fee income              
Property and casualty $ 16,961     $ 14,410     $ 2,551     17.70 %
Employee benefits 5,806     5,223     583     11.16 %
Travel insurance 2,619     2,041     578     28.32 %
Specialized benefit services 305     268     37     13.81 %
Total commissions and fees 25,691     21,942     3,749     17.09 %
               
Contingency and bonus revenue 3,796     2,849     947     33.24 %
Other income 129     95     34     35.79 %
Total revenues $ 29,616     $ 24,886     $ 4,730     19.01 %
               
Employee commission expense 4,421     4,349     72     1.66 %
Revenue, net of commission expense $ 25,195     $ 20,537     $ 4,658     22.68 %
               
Salaries and employee benefits $ 11,692     $ 9,528     $ 2,164     22.71 %
Occupancy expense 1,045     936     109     11.65 %
Furniture and equipment 483     466     17     3.65 %
Amortization of intangible assets 1,377     1,066     311     29.17 %
Other expenses 2,976     2,667     309     11.59 %
Total operating expenses 17,573     14,663     2,910     19.85 %
Income before income tax provision and noncontrolling interest $ 7,622     $ 5,874     $ 1,748     29.76 %
Plus: Acquisition related expenses 354     356     (2 )   (0.56 )%
Plus: Amortization of intangible assets 1,377     1,066     311     29.17 %
Operating earnings before income taxes (non-GAAP) $ 9,353     $ 7,296     $ 2,057     28.19 %
               
TOWNEBANK
Purchase Price Allocation - Monarch
(dollars in thousands)
       
       
Fair value of assets acquired:      
Cash and cash equivalents     $ 67,457  
Securities available for sale     20,818  
Securities held to maturity     283,528  
Net loans     818,119  
Bank premise and equipment     23,998  
Core deposit intangible     13,210  
Other assets     59,352  
Total assets     $ 1,286,482  
       
Fair value of liabilities assumed:      
Deposits     $ 1,061,620  
Long-term borrowings     82,046  
Other liabilities     20,978  
Total liabilities     $ 1,164,644  
       
Net identifiable assets acquired     $ 121,838  
Goodwill     100,606  
Net assets acquired     $ 222,444  
       
Purchase Price:      
Company common shares issued     10,487,069  
Purchase price per share of Company’s common stock     $ 21.21  
Common stock issued     $ 222,431  
Cash exchanged for fractional shares     13  
Fair value of total consideration transferred     $ 222,444  
           
TOWNEBANK
Reconcilement of Non-GAAP Financial Measures
                     
                     
    Three Months Ended   Six Months Ended
    June 30,   June 30,   December 31,   June 30,   June 30,
    2016   2015   2015   2016   2015
                     
Return on average assets (GAAP basis)   0.39 %   1.21 %   0.78 %   0.75 %   1.11 %
Impact of excluding average goodwill and other intangibles and amortization   0.05 %   0.07 %   0.07 %   0.07 %   0.08 %
Return on average tangible assets (Non-GAAP)   0.44 %   1.28 %   0.85 %   0.82 %   1.19 %
                     
Return on average equity (GAAP basis)   2.93 %   8.93 %   6.00 %   5.73 %   8.25 %
Impact of excluding average goodwill and other intangibles and amortization   1.26 %   2.84 %   2.11 %   2.08 %   2.79 %
Return on average tangible equity (Non-GAAP)   4.19 %   11.77 %   8.11 %   7.81 %   11.04 %
                     
Return on average common equity (GAAP basis)   2.96 %   9.02 %   6.07 %   5.79 %   8.36 %
Impact of excluding average goodwill and other intangibles and amortization   1.29 %   2.91 %   2.15 %   2.13 %   2.88 %
Return on average tangible common equity (Non-GAAP)   4.25 %   11.93 %   8.22 %   7.92 %   11.24 %
                     
Book value (GAAP basis)   $ 16.84     15.40     $ 15.71     $ 16.84     $ 15.40  
Impact of excluding average goodwill and other intangibles and amortization   (4.79 )   (3.40 )   (3.50 )   (4.79 )   (3.40 )
Tangible book value   $ 12.05     $ 12.00     $ 12.21     $ 12.05     $ 12.00  
                     
TOWNEBANK
Reconcilement of Non-GAAP Financial Measures
(dollars in thousands)
                     
                     
    Three Months Ended
    June 30,   March 31,   December 31,   September 30,   June 30,
Reconcilement of GAAP Earnings to Core Operating Earnings   2016   2016   2015   2015   2015
                     
Net income available to common shareholders (GAAP)   $ 6,259     $ 17,819     $ 12,466     $ 17,566     $ 17,812  
                     
Acquisition-related expenses   18,435     414     285     243     370  
                     
Non-core charges   18,435     414     285     243     370  
Income tax (expense) benefit   (6,177 )   (33 )   (100 )   (85 )   (130 )
Non-core charges, net of taxes   12,258     381     185     158     240  
Core operating earnings (non-GAAP)   $ 18,517     $ 18,200     $ 12,651     $ 17,724     $ 18,052  
                     
Weighted average diluted shares   52,116,772     51,392,857     51,440,440     51,263,382     51,151,512  
                     
Diluted EPS (GAAP)   $ 0.12     $ 0.35     $ 0.24     $ 0.34     $ 0.35  
Core diluted EPS (non-GAAP)   $ 0.36     $ 0.35     $ 0.25     $ 0.35     $ 0.35  
                     
Average assets   $ 6,534,063     $ 6,313,238     $ 6,305,571     $ 6,115,681     $ 5,900,816  
Average tangible equity   $ 665,690     $ 643,464     $ 638,855     $ 637,179     $ 624,511  
                     
Core return on average tangible assets (non-GAAP)   1.14 %   1.16 %   0.80 %   1.15 %   1.23 %
Core return on average tangible equity (non-GAAP)   11.60 %   11.80 %   8.23 %   11.35 %   11.92 %
TOWNEBANK
Reconcilement of Non-GAAP Financial Measures
(dollars in thousands)
         
         
    Six Months Ended
    June 30,   June 30,
Reconcilement of GAAP Earnings to Core Operating Earnings   2016   2015
         
Net income available to common shareholders (GAAP)   $ 24,078     $ 32,337  
         
Acquisition-related expenses   18,849     784  
         
Non-core charges   18,849     784  
Income tax (expense) benefit   (6,210 )   (274 )
Non-core charges, net of taxes   12,639     510  
Core operating earnings (non-GAAP)   $ 36,717     $ 32,847  
         
Weighted average diluted shares   51,711,472     50,936,409  
         
Diluted EPS (GAAP)   $ 0.47     $ 0.63  
Core diluted EPS (non-GAAP)   $ 0.71     $ 0.64  
         
Average assets   $ 6,423,650     $ 5,865,372  
Average tangible equity   $ 654,577     $ 609,928  
         
Core return on average tangible assets (non-GAAP)   1.15 %   1.13 %
Core return on average tangible equity (non-GAAP)   11.70 %   11.21 %