Hampton Roads based TowneBank (the “Bank” or “Company”) (NASDAQ:TOWN) today reported record financial results for the three and six months ended June 30, 2017.  Earnings for the quarter ended June 30, 2017 were $26.21 million compared to the $6.26 million for the same quarter in 2016.  Fully diluted earnings per share were $0.42 per share compared to $0.12 per share in second quarter 2016.  Earnings in the second quarter of 2016 included after-tax acquisition-related expenses of $12.26 million, mostly related to the Monarch Financial Holdings, Inc. (“Monarch”) merger, as compared to $1.09 million in the current quarter.

Excluding certain items affecting comparability, earnings for the quarter ended June 30, 2017 were $24.77 million (non-GAAP), or $0.40 (non-GAAP) per diluted share, compared to $18.52 million (non-GAAP), or $0.36 (non-GAAP) per diluted share, for the same quarter in 2016.

Earnings for the year-to-date period were $48.18 million as compared to $24.08 million earned in the same period of 2016.  Fully diluted earnings per share were $0.77 compared to $0.47 for the six months ended June 30, 2016.

Excluding certain items affecting comparability, earnings for the year-to-date period were $46.81 million (non-GAAP), or $0.75 (non-GAAP) per diluted share, as compared to the $36.72 million (non-GAAP), or $0.71 (non-GAAP) per diluted share, earned in the same period of 2016.

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

“We are pleased to announce another quarter of strong earnings with solid deposit growth and continued strong growth in both net interest income and noninterest income, while producing a return on average assets of 1.29% and a return on average tangible equity of 13.67%,” said G. Robert Aston, Jr., Chairman and Chief Executive Officer.  “In addition, we were pleased with the overwhelming response to our $250 million subordinated debt offering completed in July, which will result in increases to our risk-based capital ratios and a reduction in our CRE concentration ratio.”

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

Three Months Ended June 30, 2017               Consolidated
    Banking   Realty   Insurance   Totals
                 
Purchase accounting adjustments (1)   $ 3,889     $ —     $ —     $ 3,889  
Acquisition-related expenses   (699 )   (87 )   (495 )   (1,281 )
                 
Total, before taxes   $ 3,190     $ (87 )   $ (495 )   $ 2,608  
Income taxes   (1,331 )   12     152     (1,167 )
Total impact, net of taxes (2)   $ 1,859     $ (75 )   $ (343 )   $ 1,441  
                 
(1) Relates to the effects of non-recurring reclassification and recovery of certain purchased loans    
(2) Non-GAAP measures are defined in the “Reconcilement of Non-GAAP Measures”    

The following table shows the aggregate acquisition accounting impact on net interest margin for the quarter ended June 30, 2017:

Three Months Ended June 30, 2017   Net Interest Margin (1)
     
Net Interest Margin, as presented   3.84%
Purchase accounting adjustments (2)   0.21%
     
Net interest margin, excluding one-time adjustments   3.63%
Acquisition accounting accretion, other   0.10%
Net interest margin, excluding purchase accounting impact   3.53%
     
(1) Presented on a tax-equivalent basis    
(2) Relates to the effects of non-recurring reclassification of purchased loans    

On July 17, 2017, the Company issued $250.0 million of fixed to variable rate subordinated notes due July 30, 2027.  The Company received $247.10 million after deducting discounts and issuance costs. The notes accrue interest at a fixed rate of 4.50% for the first five years until July 2022.  After this date and for the remaining five years of the notes' term, interest will accrue at a variable rate of three-month LIBOR plus 2.550%. The Company may redeem the subordinated notes in whole or in part, on or after July 30, 2022.  Subject to the speed of deployment into higher earning assets, we expect the issuance of these notes to result in a reduction of up to 12 basis points to net interest margin in third quarter 2017.

Second Quarter 2017 Performance Highlights

  • Total revenues were $119.60 million, an increase of $35.34 million, or 41.95% from second quarter 2016 
    • Taxable equivalent net interest margin was 3.84%, including accretion of 31 basis points, compared to 3.33%, including accretion of 5 basis points, for 2016
    • Excluding one-time purchase accounting adjustments of $3.89 million, or 21 basis points, taxable equivalent net interest margin was 3.63%
    • Residential mortgage banking income increased $9.45 million, or 77.76%
    • Insurance segment total revenue increased 10.03% to $14.89 million  
  • Loans held for investment increased $389.11 million, or 7.00% from June 30, 2016 
  • Total deposits were $6.60 billion, an increase of $409.49 million, or 6.62%, from second quarter 2016
    • Noninterest bearing deposits increased by 13.77%, to $2.22 billion, representing 33.65% of total deposits
    • Total cost of deposits increased slightly to 0.44% from 0.42% at June 30, 2016 
  • Asset quality showed continued strength
    • Nonperforming assets declined to $35.69 million, or 0.42% of total assets compared to $36.29 million, or 0.46%, at June 30, 2016
    • Nonperforming loans were 0.16% of period end loans
    • Foreclosed property decreased to $23.25 million 
  • The Bank remained well-capitalized
    • Common equity tier 1 capital ratio of 11.98%
    • Tier 1 leverage capital ratio of 10.43%
    • Tier 1 risk-based capital ratio of 12.03%
    • Total risk-based capital ratio of 12.68%
    • Tangible book value increased to $12.81

Second Quarter 2017 Earnings Compared to Second Quarter 2016

Net income for the second quarter was $26.21 million, or $0.42 per diluted share, versus $6.26 million, or $0.12 per diluted share, in 2016, reflecting strong growth in net interest income as compared to the prior year period.  Excluding after-tax acquisition-related expenses of $12.26 million, net income for the second quarter of 2016 was $18.52 million (non-GAAP), or $0.36 per diluted share.

Net Interest IncomeNet interest income increased to $69.25 million, a $21.47 million, or 44.93%, increase from the second quarter of 2016.  The primary driver was the growth in average earning assets, which increased $1.45 billion, or 24.65%, while tax-equivalent net interest margin increased to 3.84% in the current quarter from 3.33% in second quarter 2016.  Accretion income added $5.57 million, or 31 basis points, to margin in the current quarter as compared to $0.61 million, or 5 basis points, in the second quarter of 2016.  Net interest income included a cumulative one-time adjustment to accretion income of a $3.89 million, or 21 basis points, due to the effects of a reclassification of purchased revolving credits.

Noninterest IncomeNoninterest income was $50.34 million for the second quarter of 2017, an increase of $13.88 million, or 38.05%, from the second quarter of 2016.  Residential mortgage banking income increased $9.45 million, or 77.76%, from the second quarter of 2016 primarily due to higher production volumes resulting from the Monarch merger.  Mortgage production was $1.08 billion in second quarter 2017, which was $486.59 million higher than second quarter 2016 production of $591.79 million.  Insurance commissions and other title fees increased $1.28 million, or 10.97%, primarily due to organic growth in property and casualty and employee benefits lines of business.  Additionally, real estate brokerage and property management income increased $1.51 million, or 24.74%, from the second quarter of 2016 primarily due to our acquisition of a resort property management company at Deep Creek Lake, Maryland (“Deep Creek”) in second quarter 2017.

Noninterest ExpenseNoninterest expense increased by $6.22 million, or 8.65%, from the comparative quarter of 2016.  The primary driver was an increase of $14.74 million in salaries and benefits expense due to the addition of staff related to the Monarch acquisition, incentive compensation, and organic growth.  Also contributing were increases in occupancy expenses of $1.50 million and furniture and equipment expenses of $1.18 million, primarily related to mortgage facilities acquired in the Monarch acquisition.  Partially offsetting the increase was a reduction in acquisition-related expenses of $17.15 million.

Second Quarter 2017 Earnings Compared to First Quarter 2017Net income for the second quarter was $26.21 million, or $0.42 per diluted share, versus $21.97 million, or $0.35 per diluted share, in first quarter 2017, reflecting the increase in net interest income and seasonal improvements in our Realty segment.

Performance Highlights

  • Total revenues were $119.60 million compared to $105.17 million in the first quarter of 2017
    • Taxable equivalent net interest margin was 3.84%, including accretion of 31 basis points, compared to 3.45%, including accretion of 9 basis points, in the first quarter of 2017
    • Excluding one-time purchase accounting adjustments of $3.89 million, or 21 basis points, taxable equivalent net interest margin was 3.63%
    • Noninterest income increased $5.46 million due to seasonality in our Realty segment 
  • Total loans held for investment increased $35.98 million from March 31, 2017
  • Total deposits increased $405.00 million, or 6.54%, from March 31, 2017, including an additional $175 million of brokered certificates of deposit
    • Noninterest bearing deposits increased by $166.81 million, or 8.13%

Net Interest IncomeOn a linked quarter basis, net interest income increased by $8.97 million or 14.88%, in second quarter 2017 versus first quarter 2017, while tax-equivalent net interest margin was 3.84% versus 3.45% for the first quarter of 2017.  The increase in net interest income was primarily due to the previously discussed increase in accretion income, combined with a seasonal increase in average balances of loans held for sale and decreased borrowing costs.  Accretion income added $5.57 million, or 31 basis points, to margin in the current quarter, as compared to $1.13 million, or 9 basis points, in the linked quarter.  Net interest income included a cumulative one-time adjustment to accretion income of a $3.89 million, or 21 basis points, due to the effects of a reclassification of purchased revolving credits.

Noninterest IncomeIn comparison to the first quarter of 2017, noninterest income increased $5.46 million, or 12.16%.  The increase was driven by residential mortgage banking income, which grew by $3.96 million, or 22.47%, due to a seasonal increase in mortgage production of $372.32 million, from $706.06 million in first quarter 2017 to $1.08 billion in second quarter 2017.  Additionally, real estate brokerage and property management income was higher by $2.64 million, or 52.79% due to a seasonal increase in real estate brokerage and the Deep Creek acquisition.  Partially offsetting the increase from the linked quarter was a decline in insurance commissions due to lower contingent commission revenue, which is primarily received during the first quarter of each year.

Noninterest ExpenseNoninterest expense increased by $7.87 million, or 11.20%, from the first quarter of 2017.  The primary drivers were increases in salaries and benefits expenses of $4.63 million and acquisition-related expenses of $1.29 million.  Salaries and benefits expenses were higher due to the accrual of expenses related to our profit sharing plan, which requires the achievement of certain performance thresholds and a targeted level of earnings, combined with the effects of the Deep Creek acquisition.

Noninterest Income             % Change
  Q2   Q2   Q1   Q2 17 vs.   Q2 17 vs.
(dollars in thousands) 2017   2016   2017   Q2 16   Q1 17
Residential mortgage banking income, net $ 21,594     $ 12,148     $ 17,632     77.76 %   22.47 %
Insurance commissions and other title fees and  income, net 12,902     11,627     14,800     10.97 %   (12.82 )%
Real estate brokerage and property management, net 7,629     6,116     4,993     24.74 %   52.79 %
Service charges on deposit accounts 2,644     2,284     2,472     15.76 %   6.96 %
Credit card merchant fees, net 1,298     1,113     1,118     16.62 %   16.10 %
Bank owned life insurance 1,421     1,181     1,474     20.32 %   (3.60 )%
Other income 2,856     1,999     2,397     42.87 %   19.15 %
Subtotal before loss on investment securities 50,344     36,468     44,886     38.05 %   12.16 %
Net loss on investment securities (1 )   —     —     N/M     N/M  
Total noninterest income $ 50,343     $ 36,468     $ 44,886     38.05 %   12.16 %
Noninterest Expense             % Change
  Q2   Q2   Q1   Q2 17 vs.    Q2 17 vs.
(dollars in thousands) 2017   2016   2017   Q2 16   Q1 17
Salaries and benefits $ 44,834     $ 30,093     $ 40,208     48.98 %   11.51 %
Occupancy expense 6,658     5,157     6,684     29.11 %   (0.39 )%
Furniture and equipment 3,563     2,381     3,343     49.64 %   6.58 %
Acquisition-related expenses 1,281     18,435     (5 )   (93.05 )%   N/M  
Other expenses 21,783     15,833     20,018     37.58 %   8.82 %
Total noninterest expense $ 78,119     $ 71,899     $ 70,248     8.65 %   11.20 %

Segment Results

                $ Change
(in thousands)   Q2   Q2   Q1   Q2 17 vs.    Q2 17 vs.
Segment Net Income (Loss)   2017   2016   2017   Q2 16   Q1 17
Banking   $ 21,546     $ 1,290     $ 17,967     $ 20,256     $ 3,579  
Realty   3,204     3,765     926     (561 )   2,278  
Insurance   1,463     1,204     3,075     259     (1,612 )
Total net income   $ 26,213     $ 6,259     $ 21,968     $ 19,954     $ 4,245  

Second Quarter 2017 Compared to Second Quarter 2016

BankingNet income for the three months ended June 30, 2017 for the Banking segment was $21.55 million, increasing $20.26 million from comparative 2016, as net interest income climbed by $19.55 million primarily due to the increase in earning assets from the Monarch merger and increased accretion income.  Also contributing to the variance was a decrease in the provision for loan losses of $0.78 million and an increase in noninterest income of $1.76 million, which included increases in wealth management income, service charges and credit card merchant fees.  Additionally, noninterest expenses declined by $8.0 million, as the decrease in acquisition-related expenses of $17.32 million was partially offset by increases in personnel costs and other expenses.

RealtyFor the three months ended June 30, 2017, the Realty segment net income was $3.20 million as compared to $3.77 million in second quarter 2016.  The variance was driven by increased noninterest expenses of $13.56 million primarily due to an increase in mortgage operational expenses related to the merger with Monarch, including an increase in personnel costs of $7.97 million.  The decrease was mostly offset by an increase in residential mortgage banking income of $9.24 million, or 73.98%, due to higher production volumes resulting from the Monarch merger.  Additionally, net interest and other income increased by $2.06 million as higher production volume led to higher average mortgage loans held for sale.

InsuranceThe Insurance segment had net income of $1.46 million for the three months ended June 30, 2017, an increase of $0.26 million compared to second quarter 2016.  The increase in net income was primarily driven by organic growth in property and casualty insurance and employee benefit insurance lines.

Second Quarter 2017 Compared to First Quarter 2017

BankingEarnings increased by $3.58 million, or 19.92% from the first quarter of 2017 as an increase in net interest income of $7.99 million was partially offset by increases in personnel costs of $3.18 million and acquisition-related expenses of $0.58 million.  Additionally, there was also a decrease of $1.22 million in the provision for loan losses.

RealtyNet income in the Realty segment increased by $2.28 million from the linked quarter ended March 31, 2017.  The increase was primarily a result of a seasonal increase in residential mortgage banking income of $3.96 million and real estate brokerage income of $0.88 million.

InsuranceNet income decreased $1.61 million from the first quarter of 2017 driven by a reduction in contingency and bonus revenue of $2.59 million.  Contingent commissions are seasonal in nature and are primarily received during the first quarter of each year.  Additionally, commissions from travel insurance decreased by $0.47 million but were offset by an increases in property and casualty commissions of $0.81 million and employee benefits commissions of $0.31 million.

Balance Sheet

At June 30, 2017, total Bank assets reached $8.43 billion, an increase of $0.49 billion, or 6.12%, over June 30, 2016.

Loans

              % Change
  Q2   Q2   Q1   Q2 17 vs.   Q2 17 vs.
(dollars in thousands) 2017   2016   2017   Q2 16   Q1 17
Construction and land development $ 888,566     $ 824,609     $ 898,540     7.76 %   (1.11 )%
Commercial real estate - investment related properties 1,339,270     1,221,488     1,362,184     9.64 %   (1.68 )%
Commercial real estate - owner occupied 956,333     896,620     907,049     6.66 %   5.43 %
Multifamily real estate 206,894     171,501     236,782     20.64 %   (12.62 )%
1-4 family residential real estate 1,227,389     1,183,818     1,215,278     3.68 %   1.00 %
Commercial and industrial business loans 1,110,822     1,075,736     1,086,273     3.26 %   2.26 %
Consumer loans and other 219,787     186,177     206,974     18.05 %   6.19 %
Total $ 5,949,061     $ 5,559,949     $ 5,913,080     7.00 %   0.61 %

The Bank’s loan portfolio ended the period at $5.95 billion representing an increase of 7.00%, or $389.11 million, from the prior year, and an increase of $35.98 million, or 0.61%, from March 31, 2017.

Deposits

              % Change
  Q2   Q2   Q1   Q2 17 vs.   Q2 17 vs.
(dollars in thousands) 2017   2016   2017   Q2 16   Q1 17
Noninterest-bearing demand $ 2,219,406     $ 1,950,816     $ 2,052,598     13.77 %   8.13 %
Interest-bearing:                  
Demand and money market accounts 2,292,978     2,174,154     2,270,025     5.47 %   1.01 %
Savings 318,714     317,071     320,104     0.52 %   (0.43 )%
Certificates of deposits 1,764,671     1,744,238     1,548,045     1.17 %   13.99 %
Total $ 6,595,769     $ 6,186,279     $ 6,190,772     6.62 %   6.54 %

The Bank continued to experience solid deposit growth with total deposits increasing to $6.60 billion, up $0.41 billion, or 6.62%, from June 30, 2016.  The Bank saw continued growth in noninterest-bearing demand deposits, which ended the quarter at $2.22 billion, a 13.77% increase from the prior year.  Noninterest-bearing deposits represented 33.65% of total deposits at June 30, 2017.

Capital Ratios

    Q2   Q2   Q1
    2017   2016   2017
Common Equity Tier 1   11.98 %   11.82 %   11.94 %
Tier 1   12.03 %   11.89 %   11.98 %
Total   12.68 %   12.50 %   12.62 %
Tier 1 Leverage Ratio   10.43 %   12.36 %   10.49 %

The Bank’s total equity at June 30, 2017 rose to $1.12 billion, an increase of $61.45 million, or 5.79%, from June 30, 2016.  Total risk-based capital remained strong as common equity Tier 1, Tier 1 capital, total risk-based capital, and Tier 1 leverage capital ratios were 11.98%, 12.03%, 12.68%, 10.43%, respectively.  All ratios exceed the current regulatory standards for well capitalized status.

Asset Quality

                   
(in thousands) 6/30/2017   3/31/2017   12/31/2016   9/30/2016   6/30/2016
                   
Nonperforming loans $ 9,645     $ 11,538     $ 13,099     $ 11,337     $ 10,580  
Former bank premises 2,798     2,798     3,494     —     —  
Foreclosed property 23,249     21,473     21,011     22,884     25,707  
              —      
Total nonperforming assets $ 35,692     $ 35,809     $ 37,604     $ 34,221     $ 36,287  
                   
Quarterly net loans charged off $ 384     $ 1,347     $ 485     $ 649     $ 241  
                   
Year-to-date net loans charged off $ 1,731     $ 1,347     $ 1,715     $ 1,230     $ 581  
                Change
    Q2   Q2   Q1   Q2 17 vs.   Q2 17 vs.
(dollars in thousands)   2017   2016   2017   Q2 16   Q1 17
Total loans 90 days past due and still accruing   $ 206     $ —     $ 35     $ 206     $ 171  
Total loans 30-89 days past due   $ 4,193     $ 5,041     $ 11,424     $ (848 )   $ (7,231 )
Allowance for loan losses   $ 44,131     $ 39,618     $ 43,195     $ 4,513     $ 936  
Total performing TDRs   $ 24,663     $ 28,184     $ 26,659     $ (3,521 )   $ (1,996 )
                     
Nonperforming loans to period end loans   0.16 %   0.19 %   0.20 %   (0.03 )   (0.04 )
Nonperforming assets to period end assets   0.42 %   0.46 %   0.44 %   (0.04 )   (0.02 )
Allowance for loan losses to period end loans   0.74 %   0.71 %   0.73 %   0.03     0.01  
Allowance for loan losses (originated) to originated period end loans   0.86 %   0.90 %   0.86 %   (0.04 )   —  
Net charge-offs to average loans (annualized)   0.03 %   0.02 %   0.09 %   0.01     (0.06 )
Ratio of allowance for loan losses to nonperforming loans   4.58x     3.74x     3.74x       0.84x    0.84x

Continued strength in credit quality contributed to the Bank's financial results as net charge-offs totaled $0.38 million in the second quarter of 2017 compared to $0.24 million in the second quarter of 2016 and $1.35 million in the linked quarter.  Total nonperforming assets were $35.69 million, or 0.42%, of Bank assets at June 30, 2017, as compared to $36.29 million, or 0.46%, at June 30, 2016, and $35.81 million, or 0.44%, at March 31, 2017.  The allowance for loan losses was $44.13 million, increased from $39.62 million at June 30, 2016 and $43.20 million at March 31, 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 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 $8.43 billion as of June 30, 2017, TowneBank is one of the largest banks headquartered in Virginia.

On April 27, 2017, TowneBank announced the signing of a definitive agreement to acquire Paragon Commercial Corporation (“Paragon”) and its wholly-owned bank subsidiary, Paragon Commercial Bank.  Founded in Raleigh, North Carolina in 1999, Paragon Commercial Bank provides banking services through highly responsive professionals, an extensive courier service, online and mobile technologies, free worldwide ATM access and a select number of strategically placed offices in Raleigh, Cary and Charlotte, North Carolina.  Pending customary regulatory and shareholder approvals, the merger is scheduled to close in January 2018. Based on financial data as of March 31, 2017, the combined company would have total assets of $9.7 billion, gross loans of $7.1 billion and total deposits of $7.5 billion.

Non-GAAP Financial Measures:This press release contains financial information determined by methods other than in accordance with GAAP.  The Company's management uses these non-GAAP financial measures in its analysis of the Company's performance.  These measures typically adjust GAAP performance measures to exclude the effects of the amortization of intangibles and include the tax benefit associated with revenue items that are tax-exempt, as well as adjust income available to common shareholders for certain significant activities or transactions that are infrequent in nature.  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.

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

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

TOWNEBANK
Selected Financial Highlights (unaudited)
(dollars in thousands, except per share data)
 
              Increase/    % Increase/
Three Months Ended June 30, 2017   2016    (Decrease)    (Decrease)
                 
Results of Operations:              
  Net interest income $ 69,253     $ 47,784     $ 21,469     44.93 %
  Noninterest income 50,343     36,468     13,875     38.05 %
  Total Revenue 119,596     84,252     35,344     41.95 %
  Acquisition-related expenses 1,281     18,435     (17,154 )   (93.05 )%
  Noninterest expenses, excluding acquisition-related expenses 76,838     53,464     23,374     43.72 %
  Provision for loan losses 1,320     2,099     (779 )   (37.11 )%
  Income before income tax and noncontrolling interest 40,157     10,254     29,903     291.62 %
  Provision for income tax expense 12,240     2,375     9,865     415.37 %
  Net income 27,917     7,879     20,038     254.32 %
  Net income attributable to noncontrolling interest (1,704 )   (1,620 )   (84 )   5.19 %
  Net income attributable to TowneBank 26,213     6,259     19,954     318.80 %
  Net income available to common shareholders 26,213     6,259     19,954     318.80 %
  Net income per common share - basic 0.42     0.12     0.30     250.00 %
  Net income per common share - diluted 0.42     0.12     0.30     250.00 %
Period End Data:              
  Total assets $ 8,427,042     $ 7,940,741     $ 486,301     6.12 %
  Total assets - tangible 8,118,730     7,641,740     476,990     6.24 %
  Earning assets 7,590,796     7,143,797     446,999     6.26 %
  Loans (net of unearned income) 5,949,061     5,559,949     389,112     7.00 %
  Allowance for loan losses 44,131     39,618     4,513     11.39 %
  Goodwill and other intangibles 308,312     299,000     9,312     3.11 %
  Nonperforming assets 35,692     36,287     (595 )   (1.64 )%
  Noninterest bearing deposits 2,219,406     1,950,816     268,590     13.77 %
  Interest bearing deposits 4,376,363     4,235,463     140,900     3.33 %
    Total deposits 6,595,769     6,186,279     409,490     6.62 %
  Total equity 1,122,998     1,061,548     61,450     5.79 %
  Total equity - tangible 814,686     762,548     52,138     6.84 %
  Common equity 1,110,681     1,050,360     60,321     5.74 %
  Common equity - tangible 802,369     751,360     51,009     6.79 %
  Book value per common share 17.74     16.84     0.90     5.34 %
  Book value per common share - tangible 12.81     12.05     0.76     6.31 %
Daily Average Balances:              
  Total assets $ 8,180,959     $ 6,534,063     $ 1,646,896     25.20 %
  Total assets - tangible 7,873,036     6,339,815     1,533,221     24.18 %
  Earning assets 7,318,667     5,871,197     1,447,470     24.65 %
  Loans (net of unearned income), excluding nonaccrual loans 5,926,336     4,702,825     1,223,511     26.02 %
  Allowance for loan losses 43,501     38,419     5,082     13.23 %
  Goodwill and other intangibles 307,923     194,248     113,675     58.52 %
  Noninterest bearing deposits 2,081,819     1,538,370     543,449     35.33 %
  Interest bearing deposits 4,186,319     3,544,493     641,826     18.11 %
    Total deposits 6,268,138     5,082,863     1,185,275     23.32 %
  Total equity 1,115,008     859,938     255,070     29.66 %
  Total equity - tangible 807,085     665,690     141,395     21.24 %
  Common equity 1,103,813     850,393     253,420     29.80 %
  Common equity - tangible 795,891     656,145     139,746     21.30 %
Key Ratios:              
  Return on average assets 1.29 %   0.39 %   0.90 %   230.77 %
  Return on average assets - tangible 1.40 %   0.44 %   0.96 %   218.18 %
  Return on average equity 9.43 %   2.93 %   6.50 %   221.84 %
  Return on average equity - tangible 13.67 %   4.21 %   9.46 %   224.70 %
  Return on average common equity 9.53 %   2.96 %   6.57 %   221.96 %
  Return on average common equity - tangible 13.87 %   4.28 %   9.59 %   224.07 %
  Net interest margin-fully tax equivalent (1) 3.84 %   3.33 %   0.51 %   15.32 %
  Net interest margin 3.80 %   3.27 %   0.53 %   16.21 %
  Average earning assets/total average assets 89.46 %   89.88 %   (0.42 )%   (0.47 )%
  Average loans/average deposits 94.55 %   92.52 %   2.03 %   2.19 %
  Average noninterest deposits/total average deposits 33.21 %   30.27 %   2.94 %   9.71 %
  Allowance for loan losses/period end loans 0.74 %   0.71 %   0.03 %   4.23 %
  Nonperforming assets to period end assets 0.42 %   0.46 %   (0.04 )%   (8.70 )%
  Period end equity/period end total assets 13.33 %   13.37 %   (0.04 )%   (0.30 )%
  Efficiency ratio 65.32 %   85.34 %   (20.02 )%   (23.46 )%
                 
(1) 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, 2017   2016    (Decrease)    (Decrease)
                 
Results of Operations:              
  Net interest income $ 129,533     $ 94,120     $ 35,413     37.63 %
  Noninterest income 95,228     68,882     26,346     38.25 %
  Total Revenue 224,761     163,002     61,759     37.89 %
  Acquisition-related expenses 1,276     18,849     (17,573 )   (93.23 )%
  Noninterest expenses, excluding acquisition-related expenses 147,091     105,211     41,880     39.81 %
  Provision for loan losses 3,861     1,840     2,021     109.84 %
  Income before income tax and noncontrolling interest 72,533     37,102     35,431     95.50 %
  Provision for income tax expense 21,626     10,563     11,063     104.73 %
  Net income 50,907     26,539     24,368     91.82 %
  Net income attributable to noncontrolling interest (2,727 )   (2,461 )   (266 )   10.81 %
  Net income attributable to TowneBank 48,180     24,078     24,102     100.10 %
  Net income available to common shareholders 48,180     24,078     24,102     100.10 %
  Net income per common share - basic 0.78     0.47     0.31     65.96 %
  Net income per common share - diluted 0.77     0.47     0.30     63.83 %
Period End Data:              
  Total assets $ 8,427,042     $ 7,940,741     $ 486,301     6.12 %
  Total assets - tangible 8,118,730     7,641,740     476,990     6.24 %
  Earning assets 7,590,796     7,143,797     446,999     6.26 %
  Loans (net of unearned income) 5,949,061     5,559,949     389,112     7.00 %
  Allowance for loan losses 44,131     39,618     4,513     11.39 %
  Goodwill and other intangibles 308,312     299,000     9,312     3.11 %
  Nonperforming assets 35,692     36,287     (595 )   (1.64 )%
  Noninterest bearing deposits 2,219,406     1,950,816     268,590     13.77 %
  Interest bearing deposits 4,376,363     4,235,463     140,900     3.33 %
    Total deposits 6,595,769     6,186,279     409,490     6.62 %
  Total equity 1,122,998     1,061,548     61,450     5.79 %
  Total equity - tangible 814,686     762,548     52,138     6.84 %
  Common equity 1,110,681     1,050,360     60,321     5.74 %
  Common equity - tangible 802,369     751,360     51,009     6.79 %
  Book value per common share 17.74     16.84     0.90     5.34 %
  Book value per common share - tangible 12.81     12.05     0.76     6.31 %
Daily Average Balances:              
  Total assets $ 8,091,161     $ 6,423,650     $ 1,667,511     25.96 %
  Total assets - tangible 7,786,156     6,233,169     1,552,987     24.91 %
  Earning assets 7,248,947     5,767,829     1,481,118     25.68 %
  Loans (net of unearned income), excluding nonaccrual loans 5,894,743     4,609,551     1,285,192     27.88 %
  Allowance for loan losses 43,058     38,487     4,571     11.88 %
  Goodwill and other intangibles 305,006     190,481     114,525     60.12 %
  Noninterest bearing deposits 2,020,195     1,477,081     543,114     36.77 %
  Interest bearing deposits 4,144,447     3,522,050     622,397     17.67 %
    Total deposits 6,164,642     4,999,131     1,165,511     23.31 %
  Total equity 1,104,308     845,058     259,250     30.68 %
  Total equity - tangible 799,303     654,577     144,726     22.11 %
  Common equity 1,093,128     835,830     257,298     30.78 %
  Common equity - tangible 788,122     645,349     142,773     22.12 %
Key Ratios:              
  Return on average assets 1.20 %   0.75 %   0.45 %   60.00 %
  Return on average assets - tangible 1.31 %   0.82 %   0.49 %   59.76 %
  Return on average equity 8.80 %   5.73 %   3.07 %   53.58 %
  Return on average equity - tangible 12.79 %   7.84 %   4.95 %   63.14 %
  Return on average common equity 8.89 %   5.79 %   3.10 %   53.54 %
  Return on average common equity - tangible 12.97 %   7.95 %   5.02 %   63.14 %
  Net interest margin-fully tax equivalent (1) 3.64 %   3.33 %   0.31 %   9.31 %
  Net interest margin 3.60 %   3.28 %   0.32 %   9.76 %
  Average earning assets/total average assets 89.59 %   89.79 %   (0.20 )%   (0.22 )%
  Average loans/average deposits 95.62 %   92.21 %   3.41 %   3.70 %
  Average noninterest deposits/total average deposits 32.77 %   29.55 %   3.22 %   10.90 %
  Allowance for loan losses/period end loans 0.74 %   0.71 %   0.03 %   4.23 %
  Nonperforming assets to period end assets 0.42 %   0.46 %   (0.04 )%   (8.70 )%
  Period end equity/period end total assets 13.33 %   13.37 %   (0.04 )%   (0.30 )%
  Efficiency ratio 66.01 %   76.11 %   (10.10 )%   (13.27 )%
                 
(1) 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 2017   2017   (Decrease)    (Decrease)
                 
Results of Operations:              
  Net interest income $ 69,253     $ 60,281     $ 8,972     14.88 %
  Noninterest income 50,343     44,886     5,457     12.16 %
  Total Revenue 119,596     105,167     14,429     13.72 %
  Acquisition-related expenses 1,281     (5 )   1,286     N/M  
  Noninterest expenses, excluding acquisition-related expenses 76,838     70,253     6,585     9.37 %
  Provision for loan losses 1,320     2,541     (1,221 )   (48.05 )%
  Income before income tax and noncontrolling interest 40,157     32,378     7,779     24.03 %
  Provision for income tax expense 12,240     9,386     2,854     30.41 %
  Net income 27,917     22,992     4,925     21.42 %
  Net income attributable to noncontrolling interest (1,704 )   (1,024 )   (680 )   66.41 %
  Net income attributable to TowneBank 26,213     21,968     4,245     19.32 %
  Net income available to common shareholders 26,213     21,968     4,245     19.32 %
  Net income per common share - basic 0.42     0.35     0.07     20.00 %
  Net income per common share - diluted 0.42     0.35     0.07     20.00 %
Period End Data:              
  Total assets $ 8,427,042     $ 8,174,786     $ 252,256     3.09 %
  Total assets - tangible 8,118,730     7,872,823     245,907     3.12 %
  Earning assets 7,590,796     7,362,550     228,246     3.10 %
  Loans (net of unearned income) 5,949,061     5,913,080     35,981     0.61 %
  Allowance for loan losses 44,131     43,195     936     2.17 %
  Goodwill and other intangibles 308,312     301,962     6,350     2.10 %
  Nonperforming assets 35,692     35,809     (117 )   (0.33 )%
  Noninterest bearing deposits 2,219,406     2,052,598     166,808     8.13 %
  Interest bearing deposits 4,376,363     4,138,174     238,189     5.76 %
    Total deposits 6,595,769     6,190,772     404,997     6.54 %
  Total equity 1,122,998     1,101,245     21,753     1.98 %
  Total equity - tangible 814,686     799,283     15,403     1.93 %
  Common equity 1,110,681     1,089,760     20,921     1.92 %
  Common equity - tangible 802,369     787,798     14,571     1.85 %
  Book value per common share 17.74     17.42     0.32     1.84 %
  Book value per common share - tangible 12.81     12.59     0.22     1.75 %
Daily Average Balances:              
  Total assets $ 8,180,959     $ 8,000,366     $ 180,593     2.26 %
  Total assets - tangible 7,873,036     7,698,310     174,726     2.27 %
  Earning assets 7,318,667     7,177,697     140,970     1.96 %
  Loans (net of unearned income), excluding nonaccrual loans 5,926,336     5,862,799     63,537     1.08 %
  Allowance for loan losses 43,501     42,610     891     2.09 %
  Goodwill and other intangibles 307,923     302,056     5,867     1.94 %
  Noninterest bearing deposits 2,081,819     1,957,887     123,932     6.33 %
  Interest bearing deposits 4,186,319     4,102,109     84,210     2.05 %
    Total deposits 6,268,138     6,059,996     208,142     3.43 %
  Total equity 1,115,008     1,093,490     21,518     1.97 %
  Total equity - tangible 807,085     791,433     15,652     1.98 %
  Common equity 1,103,813     1,082,324     21,489     1.99 %
  Common equity - tangible 795,891     780,268     15,623     2.00 %
Key Ratios:              
  Return on average assets 1.29 %   1.11 %   0.18 %   16.22 %
  Return on average assets - tangible 1.40 %   1.22 %   0.18 %   14.75 %
  Return on average equity 9.43 %   8.15 %   1.28 %   15.71 %
  Return on average equity - tangible 13.67 %   11.88 %   1.79 %   15.07 %
  Return on average common equity 9.53 %   8.23 %   1.30 %   15.80 %
  Return on average common equity - tangible 13.87 %   12.05 %   1.82 %   15.10 %
  Net interest margin-fully tax equivalent (1) 3.84 %   3.45 %   0.39 %   11.30 %
  Net interest margin 3.80 %   3.41 %   0.39 %   11.44 %
  Average earning assets/total average assets 89.46 %   89.72 %   (0.26 )%   (0.29 )%
  Average loans/average deposits 94.55 %   96.75 %   (2.20 )%   (2.27 )%
  Average noninterest deposits/total average deposits 33.21 %   32.31 %   0.90 %   2.79 %
  Allowance for loan losses/period end loans 0.74 %   0.73 %   0.01 %   1.37 %
  Nonperforming assets to period end assets 0.42 %   0.44 %   (0.02 )%   (4.55 )%
  Period end equity/period end total assets 13.33 %   13.47 %   (0.14 )%   (1.04 )%
  Efficiency ratio 65.32 %   66.80 %   (1.48 )%   (2.22 )%
                 
(1) Presented on a tax-equivalent basis              
               
               
TOWNEBANK
Average Balances, Yields and Rate Paid (unaudited)
(dollars in thousands)
 
  Three Months Ended   Three Months Ended   Three Months Ended
  June 30, 2017   March 31, 2017   June 30, 2016
      Interest   Average       Interest   Average       Interest   Average
  Average   Income/   Yield/   Average   Income/   Yield/   Average   Income/   Yield/
  Balance   Expense   Rate   Balance   Expense   Rate   Balance   Expense   Rate
Assets:                                  
Loans (net of unearned income   and deferred costs), excluding    nonaccrual loans $ 5,926,336     $ 72,167     4.88 %   $ 5,862,799     $ 64,979     4.49 %   $ 4,702,825     $ 52,232     4.47 %
Taxable investment securities 597,231     2,801     1.88 %   627,338     2,843     1.81 %   671,791     2,734     1.63 %
Tax-exempt investment securities 48,560     370     3.05 %   50,485     375     2.97 %   52,398     405     3.09 %
Interest-bearing deposits 455,489     1,188     1.05 %   450,076     887     0.80 %   289,699     364     0.51 %
Loans held for sale 291,051     2,879     3.96 %   186,999     1,727     3.69 %   154,484     1,294     3.31 %
Total earning assets 7,318,667     79,405     4.35 %   7,177,697     70,811     4.00 %   5,871,197     57,029     3.91 %
  Less: allowance for loan losses (43,501 )           (42,610 )           (38,419 )        
                                   
Total nonearning assets 905,793             865,279             701,285          
                                   
  Total assets $ 8,180,959             $ 8,000,366             $ 6,534,063          
                                   
Liabilities and Equity:                                  
Interest-bearing deposits                                  
  Demand and money market $ 2,235,869     $ 1,957     0.35 %   $ 2,272,911     $ 1,865     0.33 %   $ 1,813,502     $ 1,298     0.29 %
  Savings 318,323     815     1.03 %   320,319     757     0.96 %   301,542     709     0.95 %
  Certificates of deposit 1,632,127     4,105     1.01 %   1,508,879     3,381     0.91 %   1,429,449     3,260     0.92 %
Total interest-bearing deposits 4,186,319     6,877     0.66 %   4,102,109     6,003     0.59 %   3,544,493     5,267     0.60 %
Borrowings 641,748     2,551     1.57 %   723,506     3,803     2.10 %   471,392     3,190     2.69 %
Total interest-bearing liabilities 4,828,067     9,428     0.78 %   4,825,615     9,806     0.82 %   4,015,885     8,457     0.85 %
Demand deposits 2,081,819             1,957,887             1,538,370          
Other noninterest-bearing liabilities 156,065             123,374             119,870          
  Total liabilities 7,065,951             6,906,876             5,674,125          
                                   
Shareholders’ equity 1,115,008             1,093,490             859,938          
                                   
  Total liabilities and equity $ 8,180,959             $ 8,000,366             $ 6,534,063          
                                   
Net interest income (tax-equivalent basis)     $ 69,977             $ 61,005             $ 48,572      
Reconcilement of Non-GAAP Financial Measures                                
  Tax-equivalent basis adjustment     (724 )           (724 )           (788 )    
Net interest income (GAAP)     $ 69,253             $ 60,281             $ 47,784      
                                   
Interest rate spread (1)         3.57 %           3.18 %           3.06 %
Interest expense as a percent of average earning assets       0.52 %           0.55 %           0.58 %
Net interest margin (tax equivalent basis) (2)       3.84 %           3.45 %           3.33 %
Total cost of deposits         0.44 %           0.40 %           0.42 %
                                   

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

TOWNEBANK
Average Balances, Yields and Rate Paid (unaudited)
(dollars in thousands)
 
  Six Months Ended   Six Months Ended   Six Months Ended June 30, 2017
  June 30, 2017   June 30, 2016   Compared with June 30, 2016
      Interest   Average       Interest   Average        
  Average   Income/   Yield/   Average   Income/   Yield/   Increase   Change due to
  Balance   Expense   Rate   Balance   Expense   Rate   (Decrease)   Rate   Volume
Assets:                                  
Loans (net of unearned income and deferred costs), excluding  nonaccrual loans $ 5,894,743     $ 137,146     4.69 %   $ 4,609,551     $ 103,013     4.49 %   $ 34,133     $ 4,650     $ 29,483  
Taxable investment securities 612,196     5,644     1.84 %   713,152     5,790     1.62 %   (146 )   730     (876 )
Tax-exempt investment securities 49,522     746     3.01 %   52,689     814     3.09 %   (68 )   (20 )   (48 )
Interest-bearing deposits 453,174     2,074     0.92 %   277,477     694     0.50 %   1,380     785     595  
Loans held for sale 239,312     4,606     3.85 %   114,960     1,987     3.46 %   2,619     249     2,370  
Total earning assets 7,248,947     150,216     4.18 %   5,767,829     112,298     3.92 %   37,918     6,394     31,524  
  Less: allowance for loan losses (43,058 )           (38,487 )                    
                                   
Total nonearning assets $ 885,272             $ 694,308                      
                                   
  Total assets $ 8,091,161             $ 6,423,650                      
                                   
Liabilities and Equity:                                  
Interest-bearing deposits                                  
  Demand and money market $ 2,254,288     $ 3,822     0.34 %   $ 1,798,205     $ 2,626     0.29 %   $ 1,196     $ 470     $ 726  
  Savings 319,315     1,573     0.99 %   300,806     1,409     0.94 %   164     77     87  
  Certificates of deposit 1,570,844     7,485     0.96 %   1,423,039     6,445     0.91 %   1,040     360     680  
Total interest-bearing deposits 4,144,447     12,880     0.63 %   3,522,050     10,480     0.60 %   2,400     907     1,493  
Borrowings 682,401     6,354     1.85 %   470,497     6,375     2.69 %   (22 )   (2,348 )   2,326  
Total interest-bearing liabilities 4,826,848     19,234     0.80 %   3,992,547     16,855     0.85 %   2,378     (1,441 )   3,819  
Demand deposits 2,020,195             1,477,081                      
Other noninterest-bearing liabilities 139,810             108,964                      
  Total liabilities 6,986,853             5,578,592                      
                                   
Shareholders’ equity 1,104,308             845,058                      
                                   
  Total liabilities and equity $ 8,091,161             $ 6,423,650                      
                                   
Net interest income (tax-equivalent basis)     $ 130,982             $ 95,442         $ 35,540     $ 7,835     $ 27,705  
Reconcilement of Non-GAAP Financial Measures                                
  Tax-equivalent basis adjustment     (1,449 )           (1,322 )       (127 )        
Net interest income (GAAP)     $ 129,533             $ 94,120         $ 35,413          
                                   
Interest rate spread (1)         3.38 %           3.07 %            
Interest expense as a percent of averageearning assets       0.54 %           0.59 %            
Net interest margin (tax equivalentbasis) (2)         3.64 %           3.33 %            
Total cost of deposits         0.42 %           0.42 %            
                                   

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

TOWNEBANK
Consolidated Balance Sheets
(dollars in thousands, except share data)
     
       
  June 30,   December 31,
  2017   2016   2016
  (unaudited)   (unaudited)   (audited)
ASSETS          
Cash and due from banks $ 468,455     $ 188,183     $ 130,967  
Interest-bearing deposits in financial institutions 5,071     33,777     5,581  
Federal funds sold —     14     —  
Total Cash and Cash Equivalents 473,526     221,974     136,548  
Securities available for sale, at fair value 700,354     812,375     812,974  
Securities held to maturity, at amortized cost 63,937     65,728     66,490  
Federal Home Loan Bank stock, at amortized cost 29,586     28,008     35,937  
Total Securities 793,877     906,111     915,401  
Mortgage loans held for sale 388,523     473,147     314,046  
Loans, net of unearned income and deferred costs:          
Real estate-residential 1-4 family 1,227,389     1,183,818     1,215,823  
Real estate-commercial 2,295,603     2,118,108     2,251,312  
Real estate-construction and development 888,566     824,609     826,027  
Real estate-multi-family 206,894     171,501     222,791  
Commercial 1,110,822     1,075,736     1,089,539  
Consumer and other loans 219,787     186,177     201,729  
Loans, net of unearned income and deferred costs 5,949,061     5,559,949     5,807,221  
  Less: allowance for loan losses (44,131 )   (39,618 )   (42,001 )
Net Loans 5,904,930     5,520,331     5,765,220  
Premises and equipment, net 199,926     202,333     198,568  
Goodwill 268,246     257,485     264,910  
Other intangible assets, net 40,066     41,515     37,856  
Bank-owned life insurance policies 192,339     164,933     189,499  
Other assets 165,609     152,912     151,867  
TOTAL ASSETS $ 8,427,042     $ 7,940,741     $ 7,973,915  
           
LIABILITIES AND EQUITY          
Deposits:          
Noninterest-bearing demand $ 2,219,406     $ 1,950,816     $ 1,947,312  
Interest-bearing:          
Demand and money market accounts 2,292,978     2,174,154     2,263,894  
Savings 318,714     317,071     319,611  
Certificates of deposit 1,764,671     1,744,238     1,504,380  
Total Deposits 6,595,769     6,186,279     6,035,197  
Advances from the Federal Home Loan Bank 527,219     500,798     687,511  
Repurchase agreements and other borrowings 28,571     44,008     32,540  
Total Borrowings 555,790     544,806     720,051  
Other liabilities 152,485     148,108     132,109  
TOTAL LIABILITIES 7,304,044     6,879,193     6,887,357  
Preferred stock          
Authorized and unissued shares - 2,000,000 —     —     —  
Common stock, $1.667 par: 90,000,000 shares authorized          
  62,619,045; 62,365,197; and 62,492,168 shares issued at          
  June 30, 2017 and 2016 and December 31, 2016, respectively 104,386     103,963     104,174  
Capital surplus 747,867     742,228     745,411  
Retained earnings 260,783     202,565     229,503  
Common stock issued to deferred compensation trust, at cost          
  697,606; 674,899; and 692,431 shares at          
  June 30, 2017 and 2016 and December 31, 2016, respectively (11,492 )   (10,785 )   (11,168 )
Deferred compensation trust 11,492     10,785     11,168  
Accumulated other comprehensive income (loss) (2,355 )   1,604     (3,986 )
TOTAL SHAREHOLDERS’ EQUITY 1,110,681     1,050,360     1,075,102  
Noncontrolling interest 12,317     11,188     11,456  
TOTAL EQUITY 1,122,998     1,061,548     1,086,558  
TOTAL LIABILITIES AND EQUITY $ 8,427,042     $ 7,940,741     $ 7,973,915  
TOWNEBANK
Consolidated Statements of Income (unaudited)
(dollars in thousands, except per share data)
               
               
  Three Months Ended   Six Months Ended
  June 30,   June 30,
  2017   2016   2017   2016
INTEREST INCOME:              
Loans, including fees $ 71,443     $ 51,444     $ 135,698     $ 101,690  
Investment securities 3,171     3,139     6,389     6,604  
Interest-bearing deposits in financial institutions and   federal funds sold 1,188     364     2,074     694  
Mortgage loans held for sale 2,879     1,294     4,606     1,987  
Total interest income 78,681     56,241     148,767     110,975  
INTEREST EXPENSE:              
Deposits 6,877     5,267     12,879     10,480  
Advances from the Federal Home Loan Bank 2,521     3,158     6,294     6,321  
Repurchase agreements and other borrowings, net of capitalized interest 30     32     61     54  
Total interest expense 9,428     8,457     19,234     16,855  
Net interest income 69,253     47,784     129,533     94,120  
               
PROVISION FOR LOAN LOSSES 1,320     2,099     3,861     1,840  
Net interest income after provision for loan losses 67,933     45,685     125,672     92,280  
NONINTEREST INCOME:              
Residential mortgage banking income, net 21,594     12,148     39,226     19,266  
Insurance commissions and other title fees and income, net 12,902     11,627     27,702     25,660  
Real estate brokerage and property management income, net 7,629     6,116     12,623     10,943  
Service charges on deposit accounts 2,644     2,284     5,115     4,460  
Credit card merchant fees, net 1,298     1,113     2,416     2,008  
Bank owned life insurance 1,421     1,181     2,896     2,352  
Other income 2,856     1,999     5,251     4,193  
Loss on investment securities (1 )   —     (1 )   —  
Total noninterest income 50,343     36,468     95,228     68,882  
NONINTEREST EXPENSE:              
Salaries and employee benefits 44,834     30,093     85,042     60,279  
Occupancy 6,658     5,157     13,342     10,174  
Furniture and equipment 3,563     2,381     6,906     4,739  
Other expenses 23,064     34,268     43,077     48,868  
Total noninterest expense 78,119     71,899     148,367     124,060  
Income before income tax expense & noncontrolling interest 40,157     10,254     72,533     37,102  
Provision for income tax expense 12,240     2,375     21,626     10,563  
Net income $ 27,917     $ 7,879     $ 50,907     $ 26,539  
Net income attributable to noncontrolling interest (1,704 )   (1,620 )   (2,727 )   (2,461 )
Net income attributable to TowneBank $ 26,213     $ 6,259     $ 48,180     $ 24,078  
Net income available to common shareholders $ 26,213     $ 6,259     $ 48,180     $ 24,078  
Per common share information              
Basic earnings $ 0.42     $ 0.12     $ 0.78     $ 0.47  
Diluted earnings $ 0.42     $ 0.12     $ 0.77     $ 0.47  
Cash dividends declared $ 0.14     $ 0.13     $ 0.27     $ 0.25  
TOWNEBANK
Consolidated Statements of Comprehensive Income
(dollars in thousands)
               
               
  Three Months Ended   Six Months Ended
  June 30,   June 30,
  2017   2016   2017   2016
  (unaudited)   (unaudited)   (unaudited)   (unaudited)
               
Net income $ 27,917     $ 7,879     $ 50,907     $ 26,539  
               
Other comprehensive income (loss)              
               
Unrealized gains on securities              
Unrealized holding gains arising during the period 2,571     2,329     2,733     6,809  
Deferred tax expense (900 )   (815 )   (957 )   (2,383 )
Realized losses reclassified into earnings 1     —     1     —  
Net unrealized gains 1,672     1,514     1,777     4,426  
               
Pension and postretirement benefit plans              
Actuarial gain (loss) 143     —     (395 )   109  
Deferred tax benefit (expense) (49 )   —     139     (38 )
Amortization of prior service costs 41     115     92     153  
Deferred tax expense (14 )   (40 )   (32 )   (53 )
Amortization of actuarial loss (gain) 39     (2 )   78     2  
Deferred tax expense (14 )   1     (28 )   (1 )
Change in retirement plans, net of tax 146     74     (146 )   172  
               
Other comprehensive income (loss), net of tax 1,818     1,588     1,631     4,598  
               
Comprehensive income $ 29,735     $ 9,467     $ 52,538     $ 31,137  
TOWNEBANK
Consolidated Balance Sheets - Five Quarter Trend
(dollars in thousands, except share data)
 
                   
  June 30,   March 31,   December 31,   September 30,   June 30,
  2017   2017   2016   2016   2016
  (unaudited)   (unaudited)   (audited)   (unaudited)   (unaudited)
ASSETS                  
Cash and due from banks $ 468,455     $ 420,192     $ 130,967     $ 147,887     $ 188,183  
Interest-bearing deposits in financial institutions 5,071     5,335     5,581     6,891     33,777  
Federal funds sold —     —     —     —     14  
Total Cash and Cash Equivalents 473,526     425,527     136,548     154,778     221,974  
Securities available for sale, at fair value 700,354     720,667     812,974     704,418     812,375  
Securities held to maturity, at amortized cost 63,937     65,117     66,490     70,304     65,728  
Federal Home Loan Bank stock, at amortized cost 29,586     36,402     35,937     24,888     28,008  
Total Securities 793,877     822,186     915,401     799,610     906,111  
Mortgage loans held for sale 388,523     214,047     314,046     439,451     473,147  
Loans, net of unearned income and deferred costs: 5,949,061     5,913,080     5,807,221     5,651,642     5,559,949  
  Less: allowance for loan losses (44,131 )   (43,195 )   (42,001 )   (40,655 )   (39,618 )
Net Loans 5,904,930     5,869,885     5,765,220     5,610,987     5,520,331  
Premises and equipment, net 199,926     198,664     198,568     202,955     202,333  
Goodwill 268,246     264,910     264,910     264,578     257,485  
Other intangible assets, net 40,066     37,052     37,856     39,747     41,515  
Bank-owned life insurance policies 192,339     190,917     189,499     163,385     164,933  
Other assets 165,609     151,598     151,867     154,651     152,912  
TOTAL ASSETS $ 8,427,042     $ 8,174,786     $ 7,973,915     $ 7,830,142     $ 7,940,741  
LIABILITIES AND EQUITY                  
Deposits:                  
Noninterest-bearing demand $ 2,219,406     $ 2,052,598     $ 1,947,312     $ 1,974,395     $ 1,950,816  
Interest-bearing:                  
Demand and money market accounts 2,292,978     2,270,025     2,263,894     2,207,962     2,174,154  
Savings 318,714     320,104     319,611     315,477     317,071  
Certificates of deposit 1,764,671     1,548,045     1,504,380     1,649,113     1,744,238  
Total Deposits 6,595,769     6,190,772     6,035,197     6,146,947     6,186,279  
Advances from the Federal Home Loan Bank 527,219     687,366     687,511     427,655     500,798  
Repurchase agreements and other borrowings 28,571     35,318     32,540     31,927     44,008  
Total Borrowings 555,790     722,684     720,051     459,582     544,806  
Other liabilities 152,485     160,085     132,109     144,735     148,108  
TOTAL LIABILITIES 7,304,044     7,073,541     6,887,357     6,751,264     6,879,193  
Preferred stock                  
Authorized shares - 2,000,000 —     —     —     —     —  
                   
Common stock, $1.667 par value 104,386     104,307     104,174     104,000     103,963  
Capital surplus 747,867     746,289     745,411     743,223     742,228  
Retained earnings 260,783     243,337     229,503     218,631     202,565  
Common stock issued to deferred compensation trust, at cost (11,492 )   (11,294 )   (11,168 )   (10,969 )   (10,785 )
Deferred compensation trust 11,492     11,294     11,168     10,969     10,785  
Accumulated other comprehensive income (loss) (2,355 )   (4,173 )   (3,986 )   1,339     1,604  
TOTAL SHAREHOLDERS’ EQUITY 1,110,681     1,089,760     1,075,102     1,067,193     1,050,360  
Noncontrolling interest 12,317     11,485     11,456     11,685     11,188  
TOTAL EQUITY 1,122,998     1,101,245     1,086,558     1,078,878     1,061,548  
TOTAL LIABILITIES AND EQUITY $ 8,427,042     $ 8,174,786     $ 7,973,915     $ 7,830,142     $ 7,940,741  
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,
  2017   2017   2016   2016   2016
INTEREST INCOME:                  
Loans, including fees $ 71,443     $ 64,255     $ 65,151     $ 64,623     $ 51,444  
Investment securities 3,171     3,218     3,152     3,099     3,139  
Interest-bearing deposits in financial institutions andfederal funds sold 1,188     887     487     (36 )   364  
Mortgage loans held for sale 2,879     1,727     3,028     4,137     1,294  
Total Interest Income 78,681     70,087     71,818     71,823     56,241  
INTEREST EXPENSE:                  
Deposits 6,877     6,003     5,928     5,909     5,267  
Advances from the Federal Home Loan Bank 2,521     3,772     3,546     3,276     3,158  
Repurchase agreements and other borrowings 30     31     193     33     32  
Total Interest Expense 9,428     9,806     9,667     9,218     8,457  
Net Interest Income 69,253     60,281     62,151     62,605     47,784  
                   
PROVISION FOR LOAN LOSSES 1,320     2,541     1,831     1,686     2,099  
Net Interest Income after Provision for Loan Losses 67,933     57,740     60,320     60,919     45,685  
NONINTEREST INCOME:                  
Residential mortgage banking income, net 21,594     17,632     18,096     21,430     12,148  
Insurance commissions and other title fees and income, net 12,902     14,800     9,823     11,258     11,627  
Real estate brokerage and property management income, net 7,629     4,993     2,925     6,647     6,116  
Service charges on deposit accounts 2,644     2,472     2,535     2,552     2,284  
Credit card merchant fees, net 1,298     1,118     1,135     1,365     1,113  
Bank owned life insurance 1,421     1,474     2,377     1,264     1,181  
Other income 2,856     2,397     2,621     2,305     1,999  
Net gain (loss) on investment securities (1 )   —     6     —     —  
Total Noninterest Income 50,343     44,886     39,518     46,821     36,468  
NONINTEREST EXPENSE:                  
Salaries and employee benefits 44,834     40,208     43,071     40,497     30,093  
Occupancy expense 6,658     6,684     6,885     6,656     5,157  
Furniture and equipment 3,563     3,343     3,378     3,199     2,381  
Other expenses 23,064     20,013     19,500     20,581     34,268  
Total Noninterest Expense 78,119     70,248     72,834     70,933     71,899  
Income before income tax expense and noncontrolling interest 40,157     32,378     27,004     36,807     10,254  
Provision for income tax expense 12,240     9,386     7,160     10,974     2,375  
Net income 27,917     22,992     19,844     25,833     7,879  
Net income attributable to noncontrolling interest (1,704 )   (1,024 )   (848 )   (1,657 )   (1,620 )
Net income attributable to TowneBank $ 26,213     $ 21,968     $ 18,996     $ 24,176     $ 6,259  
Net income available to common shareholders $ 26,213     $ 21,968     $ 18,996     $ 24,176     $ 6,259  
Per common share information                  
Basic earnings $ 0.42     $ 0.35     $ 0.31     $ 0.39     $ 0.12  
Diluted earnings $ 0.42     $ 0.35     $ 0.31     $ 0.39     $ 0.12  
Basic weighted average shares outstanding 62,145,045     62,075,983     61,963,948     61,908,316     51,994,473  
Diluted weighted average shares outstanding 62,364,260     62,262,789     62,175,705     62,067,832     52,116,772  
Cash dividends declared $ 0.14     $ 0.13     $ 0.13     $ 0.13     $ 0.13  
TOWNEBANK
Banking Segment Financial Information
(dollars in thousands)
 
       
      Increase/(Decrease)
  Three Months Ended   June 30, 2017   June 30, 2017
  June 30,   March 31, 2017   June 30, 2016   March 31, 2017
  2017   2016     Amount   Percent   Amount   Percent
Revenue                          
Net interest income $ 66,434     $ 46,888     $ 58,444     $ 19,546     41.69 %   $ 7,990     13.67 %
Service charges on deposit accounts 2,644     2,284     2,472     360     15.76 %   172     6.96 %
Credit card merchant fees 1,297     1,113     1,118     184     16.53 %   179     16.01 %
Other income 3,362     2,148     3,106     1,214     56.52 %   256     8.24 %
Total noninterest income 7,303     5,545     6,696     1,758     31.70 %   607     9.07 %
Total revenue 73,737     52,433     65,140     21,304     40.63 %   8,597     13.20 %
                           
Provision for loan losses 1,320     2,099     2,541     (779 )   (37.11 )%   (1,221 )   (48.05 )%
                           
Expenses                          
Salaries and employee benefits 23,519     17,119     20,341     6,400     37.39 %   3,178     15.62 %
Occupancy expense 3,828     3,588     4,128     240     6.69 %   (300 )   (7.27 )%
Furniture and equipment 2,372     1,847     2,274     525     28.42 %   98     4.31 %
Advertising and marketing 1,207     933     1,041     274     29.37 %   166     15.95 %
Charitable contributions 1,647     1,295     1,313     352     27.18 %   334     25.44 %
Outside processing 1,112     842     1,154     270     32.07 %   (42 )   (3.64 )%
Foreclosed property expenses 135     454     130     (319 )   (70.26 )%   5     3.85 %
FDIC and other insurance 1,131     1,122     987     9     0.80 %   144     14.59 %
Professional fees 748     885     1,280     (137 )   (15.48 )%   (532 )   (41.56 )%
Telephone and postage 963     715     904     248     34.69 %   59     6.53 %
Other expenses 5,311     21,177     4,797     (15,866 )   (74.92 )%   514     10.72 %
Total expenses 41,973     49,977     38,349     (8,004 )   (16.02 )%   3,624     9.45 %
Income before income tax, corporate allocation and noncontrolling interest 30,444     357     24,250     30,087     8,427.73 %   6,194     25.54 %
Corporate allocation 410     255     484     155     60.78 %   (74 )   (15.29 )%
Income before income tax provision and noncontrolling interest 30,854     612     24,734     30,242     4,941.50 %   6,120     24.74 %
Provision for income tax expense 9,307     (678 )   6,765     9,985     (1,472.71 )%   2,542     37.58 %
Net income 21,547     1,290     17,969     20,257     1,570.31 %   3,578     19.91 %
Noncontrolling interest (1 )   —     (2 )   (1 )   N/M     1     (50.00 )%
Net income attributable to TowneBank $ 21,546     $ 1,290     $ 17,967     $ 20,256     1,570.23 %   $ 3,579     19.92 %
                           
Efficiency ratio 56.92 %   95.32 %   58.87 %   (38.40 )%   (40.29 )%   (1.95 )%   (3.31 )%
TOWNEBANK
Banking Segment Financial Information
(dollars in thousands)
 
       
  Six Months Ended   Increase/(Decrease)
  June 30,   2017 over 2016
  2017   2016   Amount   Percent
Net interest income $ 124,878     $ 92,711     $ 32,167     34.70 %
  Service charges on deposit accounts 5,115     4,460     655     14.69 %
  Credit card merchant fees 2,416     2,008     408     20.32 %
  Other income 6,468     4,676     1,792     38.32 %
  Total noninterest income 13,999     11,144       2,855     25.62 %
  Total revenue 138,877     103,855       35,022     33.72 %
               
  Provision for loan losses 3,861     1,840     2,021     109.84 %
               
Salaries and employee benefits 43,860     34,631     9,229     26.65 %
Occupancy expense 7,955     7,063     892     12.63 %
Furniture and equipment 4,646     3,712     934     25.16 %
Advertising and marketing 2,249     1,807     442     24.46 %
Charitable contributions 2,960     2,262     698     30.86 %
Outside processing 2,266     1,772     494     27.88 %
Foreclosed property expenses 253     566     (313 )   (55.30 )%
FDIC and other insurance 2,118     2,172     (54 )   (2.49 )%
Professional fees 2,028     1,934     94     4.86 %
Telephone and postage 1,868     1,460     408     27.95 %
Other expenses 10,120     24,778     (14,658 )   (59.16 )%
  Total expenses 80,323     82,157     (1,834 )   (2.23 )%
Income before income tax and   corporate allocation 54,693     19,858     34,835     175.42 %
Corporate allocation 895     614     281     45.77 %
Income before income tax provision 55,588     20,472     35,116     171.53 %
Provision for income tax expense 16,072     5,051     11,021     218.19 %
Net income $ 39,516     $ 15,421     24,095     156.25 %
Noncontrolling interest $ (3 )   $ —     (3 )   N/M  
Net income attributable to TowneBank $ 39,513     $ 15,421     24,092     156.23 %
               
Efficiency ratio 57.84 %   79.11 %   (21.27 )%   (26.89 )%
TOWNEBANK
Realty Segment Financial Information
(dollars in thousands)
 
       
      Increase/(Decrease)
  Three Months Ended   June 30, 2017   June 30, 2017
  June 30,   March 31,   June 30, 2016   March 31, 2017
  2017   2016   2017   Amount   Percent   Amount   Percent
Revenue                          
Residential mortgage brokerageincome, net $ 21,730     $ 12,490     $ 17,775     $ 9,240     73.98 %   $ 3,955     22.25 %
Real estate brokerage income, net 2,337     2,393     1,460     (56 )   (2.34 )%   877     60.07 %
Title insurance and settlement fees 582     550     355     32     5.82 %   227     63.94 %
Property management fees, net 5,293     3,723     3,533     1,570     42.17 %   1,760     49.82 %
Income from unconsolidatedsubsidiary 250     216     124     34     15.74 %   126     101.61 %
Net interest and other income 3,229     1,167     2,203     2,062     176.69 %   1,026     46.57 %
Total revenue 33,421     20,539     25,450     12,882     62.72 %   7,971     31.32 %
                           
Expenses                          
Salaries and employee benefits 15,220     7,250     13,708     7,970     109.93 %   1,512     11.03 %
Occupancy expense 2,269     1,053     1,964     1,216     115.48 %   305     15.53 %
Furniture and equipment 999     275     869     724     263.27 %   130     14.96 %
Amortization of intangible assets 718     353     559     365     103.40 %   159     28.44 %
Other expenses 7,495     4,214     5,978     3,281     77.86 %   1,517     25.38 %
Total expenses 26,701     13,145     23,078     13,556     103.13 %   3,623     15.70 %
                           
Income before income tax, corporate allocation and noncontrolling interest 6,720     7,394     2,372     (674 )   (9.12 )%   4,348     183.31 %
Corporate allocation (266 )   (123 )   (307 )   (143 )   116.26 %   41     (13.36 )%
Income before income tax provision and noncontrolling interest 6,454     7,271     2,065     (817 )   (11.24 )%   4,389     212.54 %
Provision for income tax expense 1,889     2,249     627     (360 )   (16.01 )%   1,262     201.28 %
Net income 4,565     5,022     1,438     (457 )   (9.10 )%   3,127     217.45 %
Noncontrolling interest (1,361 )   (1,257 )   (512 )   (104 )   8.27 %   (849 )   165.82 %
Net income attributable to TowneBank $ 3,204     $ 3,765     $ 926     $ (561 )   (14.90 )%   $ 2,278     246.00 %
                           
Efficiency ratio 79.89 %   64.00 %   90.68 %   15.89 %   24.83 %   (10.79 )%   (11.90 )%
TOWNEBANK
Realty Segment Financial Information
(dollars in thousands)
               
       
  Six Months Ended   Increase/(Decrease)
  June 30,   2017 over 2016
  2017   2016   Amount   Percent
Residential mortgage banking income, net $ 39,505     $ 19,800     $ 19,705     99.52 %
Real estate brokerage income, net 3,797     3,805     (8 )   (0.21 )%
Title insurance and settlement fees 936     899     37     4.12 %
Property management fees, net 8,826     7,138     1,688     23.65 %
Income from unconsolidated subsidiary 374     380     (6 )   (1.58 )%
Net interest and other income 5,431     1,930     3,501     181.40 %
Total revenue 58,869     33,952     24,917     73.39 %
               
Salaries and employee benefits 28,928     13,957     14,971     107.27 %
Occupancy expense 4,233     2,066     2,167     104.89 %
Furniture and equipment 1,868     544     1,324     243.38 %
Amortization of intangible assets 1,277     705     572     81.13 %
Other expenses 13,472     7,058     6,414     90.88 %
Total expenses 49,778     24,330     25,448     104.60 %
Income before income tax, corporate allocation and noncontrolling interest 9,091     9,622     (531 )   (5.52 )%
Corporate allocation (574 )   (292 )   (282 )   96.58 %
Income before income tax provision and noncontrolling interest 8,517     9,330     (813 )   (8.71 )%
Provision for income tax 2,516     2,908     (392 )   (13.48 )%
Net income 6,001     6,422     (421 )   (6.56 )%
Noncontrolling interest (1,872 )   (1,625 )   (247 )   15.20 %
Net income attributable to TowneBank $ 4,129     $ 4,797     $ (668 )   (13.93 )%
               
Efficiency ratio 84.56 %   71.66 %   12.90 %   18.00 %
TOWNEBANK
Insurance Segment Financial Information
(dollars in thousands)
 
                   
      Increase/(Decrease)
  Three Months Ended   June 30, 2017   June 30, 2017
  June 30,   March 31,   June 30, 2016   March 31, 2017
  2017   2016   2017   Amount   Percent   Amount   Percent
Commission and fee income                          
Property and casualty $ 9,271     $ 8,793     $ 8,457     $ 478     5.44 %   $ 814     9.63 %
Employee benefits 3,280     2,907     2,974     373     12.83 %   306     10.29 %
Travel insurance 1,159     1,163     1,627     (4 )   (0.34 )%   (468 )   (28.76 )%
Specialized benefit services 158     152     165     6     3.95 %   (7 )   (4.24 )%
Total commissions and fees 13,868     13,015     13,223     853     6.55 %   645     4.88 %
                           
Contingency and bonus revenue 948     467     3,539     481     103.00 %   (2,591 )   (73.21 )%
Other income 76     52     88     24     46.15 %   (12 )   (13.64 )%
Total revenue 14,892     13,534     16,850     1,358     10.03 %   (1,958 )   (11.62 )%
                           
Employee commission expense 2,454     2,254     2,273     200     8.87 %   181     7.96 %
Revenue, net of commission expense 12,438     11,280     14,577     1,158     10.27 %   (2,139 )   (14.67 )%
                           
Salaries and employee benefits 6,095     5,723     6,159     372     6.50 %   (64 )   (1.04 )%
Occupancy expense 562     517     592     45     8.70 %   (30 )   (5.07 )%
Furniture and equipment 192     259     200     (67 )   (25.87 )%   (8 )   (4.00 )%
Amortization of intangible assets 704     692     697     12     1.73 %   7     1.00 %
Other expenses 1,892     1,586     1,173     306     19.29 %   719     61.30 %
Total operating expenses 9,445     8,777     8,821     668     7.61 %   624     7.07 %
Income before income tax, corporate allocation and noncontrolling interest 2,993     2,503     5,756     490     19.58 %   (2,763 )   (48.00 )%
Corporate allocation (144 )   (132 )   (177 )   (12 )   9.09 %   33     (18.64 )%
Income before income tax provision and noncontrolling interest 2,849     2,371     5,579     478     20.16 %   (2,730 )   (48.93 )%
Provision for income tax expense 1,044     804     1,994     240     29.85 %   (950 )   (47.64 )%
Net income 1,805     1,567     3,585     238     15.19 %   (1,780 )   (49.65 )%
Noncontrolling interest (342 )   (363 )   (510 )   21     (5.79 )%   168     (32.94 )%
Net income attributable to TowneBank $ 1,463     $ 1,204     $ 3,075     $ 259     21.51 %   $ (1,612 )   (52.42 )%
                           
Efficiency ratio 75.94 %   77.81 %   60.51 %   (1.87 )%   (2.40 )%   15.43 %   25.50 %
TOWNEBANK
Insurance Segment Financial Information
(dollars in thousands)
               
               
  Six Months Ended Increase/(Decrease)
  June 30,   2017 over 2016
  2017   2016   Amount   Percent
Net commission and fee income              
Property and casualty $ 17,728     $ 16,878     $ 850     5.04 %
Employee benefits 6,254     5,806     448     7.72 %
Travel insurance 2,786     2,619     167     6.38 %
Specialized benefit services 323     305     18     5.90 %
Total net commissions and fees 27,091     25,608     1,483     5.79 %
               
Contingency and bonus revenue 4,488     3,879     609     15.70 %
Other income 162     129     33     25.58 %
Total revenues 31,741     29,616     2,125     7.18 %
               
Employee commission expense 4,726     4,421     305     6.90 %
Revenue, net of commission expense 27,015     25,195     1,820     7.22 %
               
Salaries and employee benefits 12,255     11,692     563     4.82 %
Occupancy expense 1,154     1,045     109     10.43 %
Furniture and equipment 392     483     (91 )   (18.84 )%
Amortization of intangible assets 1,401     1,377     24     1.74 %
Other expenses 3,064     2,976     88     2.96 %
Total operating expenses 18,266     17,573     693     3.94 %
Income before income tax, corporate allocation and noncontrolling interest 8,749     7,622     1,127     14.79 %
Corporate allocation (321 )   (322 )   1     (0.31 )%
Income before income tax provision and noncontrolling interest 8,428     7,300     1,128     15.45 %
Provision for income tax 3,038     2,604     434     16.67 %
Net income 5,390     4,696     694     14.78 %
Noncontrolling interest (852 )   (836 )   (16 )   1.91 %
Net income attributable to TowneBank $ 4,538     $ 3,860     $ 678     17.56 %
               
Efficiency ratio 67.61 %   69.75 %   (2.14 )%   (3.07 )%
TOWNEBANK
Reconcilement of Non-GAAP Financial Measures
                   
                   
  Three Months Ended   Six Months Ended
  June 30,   June 30,   March 31,   June 30,   June 30,
  2017   2016   2017   2017   2016
                   
Return on average assets (GAAP) 1.29 %   0.39 %   1.11 %   1.20 %   0.75 %
Impact of excluding average goodwill and otherintangibles and amortization 0.11 %   0.05 %   0.11 %   0.11 %   0.07 %
Return on average tangible assets (non-GAAP) 1.40 %   0.44 %   1.22 %   1.31 %   0.82 %
                   
Return on average equity (GAAP) 9.43 %   2.93 %   8.15 %   8.80 %   5.73 %
Impact of excluding average goodwill and otherintangibles and amortization 4.24 %   1.28 %   3.73 %   3.99 %   2.11 %
Return on average tangible equity (non-GAAP) 13.67 %   4.21 %   11.88 %   12.79 %   7.84 %
                   
Return on average common equity (GAAP) 9.53 %   2.96 %   8.23 %   8.89 %   5.79 %
Impact of excluding average goodwill and otherintangibles and amortization 4.34 %   1.32 %   3.82 %   4.08 %   2.16 %
Return on average tangible common equity(non-GAAP) 13.87 %   4.28 %   12.05 %   12.97 %   7.95 %
                   
Book value (GAAP) $ 17.74     $ 16.84     $ 17.42     $ 17.74     $ 16.84  
Impact of excluding average goodwill and otherintangibles and amortization (4.93 )   (4.79 )   (4.83 )   (4.93 )   (4.79 )
Tangible book value (non-GAAP) $ 12.81     $ 12.05     $ 12.59     $ 12.81     $ 12.05  
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
    June 30,   March 31,   December 31,   September 30,   June 30,
    2017   2017   2016   2016   2016
                     
Net income (GAAP)   $ 26,213     $ 21,968     $ 18,996     $ 24,176     $ 6,259  
                     
Purchase accounting corrections   (3,889 )   —     —     —     —  
                     
Acquisition-related expenses   1,281     (5 )   (707 )   969     18,435  
                     
Total charges   (2,608 )   (5 )   (707 )   969     18,435  
Income tax expense (benefit)   1,167     75     264     (267 )   (6,177 )
Total charges, net of taxes   (1,441 )   70     (443 )   702     12,258  
Operating earnings, excluding certain items affectingcomparability (non-GAAP)   $ 24,772     $ 22,038     $ 18,553     $ 24,878     $ 18,517  
                     
Weighted average diluted shares   62,364,260     62,262,789     62,175,705     62,067,832     52,116,772  
                     
Diluted EPS (GAAP)   $ 0.42     $ 0.35     $ 0.31     $ 0.39     $ 0.12  
Diluted EPS, excluding certain items affectingcomparability (non-GAAP)   $ 0.40     $ 0.35     $ 0.30     $ 0.40     $ 0.36  
                     
Average assets   $ 8,180,959     $ 8,000,366     $ 7,965,438     $ 7,991,213     $ 6,534,063  
Average tangible equity   $ 807,085     $ 791,433     $ 783,789     $ 772,932     $ 665,690  
                     
Return on average assets, excluding certain itemsaffecting comparability (non-GAAP)   1.21 %   1.12 %   0.93 %   1.24 %   1.14 %
Return on average tangible equity, excluding certain itemsaffecting comparability (non-GAAP)   12.96 %   11.91 %   10.04 %   13.45 %   11.62 %
Efficiency ratio, excluding certain items affectingcomparability (Non-GAAP)   66.41 %   66.80 %   72.34 %   63.94 %   63.46 %
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   Six Months Ended
    June 30,   June 30,
    2017   2016
         
Net income (GAAP)   $ 48,180     $ 24,078  
         
Purchase accounting adjustments   (3,889 )   —  
         
Acquisition-related expenses   1,276     18,849  
         
Total charges   (2,613 )   18,849  
Income tax expense (benefit)   1,242     (6,210 )
Total charges, net of taxes   (1,371 )   12,639  
Operating earnings, excluding certain items affecting comparability (non-GAAP)   $ 46,809     $ 36,717  
         
Weighted average diluted shares   62,351,215     51,711,472  
         
Diluted EPS (GAAP)   $ 0.77     $ 0.47  
Diluted EPS, excluding certain items affecting comparability (non-GAAP)   $ 0.75     $ 0.71  
         
Average assets   $ 8,091,161     $ 6,423,650  
Average tangible equity   $ 799,303     $ 654,577  
         
Return on average assets, excluding certain items affecting comparability (non-GAAP)   1.16 %   1.15 %
Return on average tangible equity, excluding certain items affectingcomparability (non-GAAP)   12.44 %   11.72 %
Efficiency ratio, excluding certain items affecting comparability (non-GAAP)   66.60 %   64.55 %

 

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
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