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

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

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

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

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

Third Quarter 2017 Performance Highlights

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

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

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

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

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

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

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

•  Asset quality showed continued strength

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

•  The Bank remained well-capitalized

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

Third Quarter 2017 Earnings Compared to Third Quarter 2016

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

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

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

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

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

Performance Highlights

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

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

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

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

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

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

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

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

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

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

Noninterest Income             % Change
  Q3   Q3   Q2   Q3 17 vs.   Q3 17 vs.
(dollars in thousands) 2017   2016   2017   Q3 16   Q2 17
Residential mortgage banking income, net $ 19,087     $ 21,430     $ 21,594     (10.93 )%   (11.61 )%
Insurance commissions and other title fees and income, net 12,116     11,258     12,902     7.62 %   (6.09 )%
Real estate brokerage and property management, net 10,042     6,647     7,629     51.08 %   31.63 %
Service charges on deposit accounts 2,670     2,552     2,644     4.62 %   0.98 %
Credit card merchant fees, net 1,388     1,365     1,298     1.68 %   6.93 %
Bank owned life insurance 1,425     1,264     1,421     12.74 %   0.28 %
Other income 2,688     2,305     2,856     16.62 %   (5.88 )%
Subtotal before loss on investment securities 49,416     46,821     50,344     5.54 %   (1.84 )%
Net loss on investment securities —     —     (1 )   N/M   (100.00 )%
Total noninterest income $ 49,416     $ 46,821     $ 50,343     5.54 %   (1.84 )%
Noninterest Expense             % Change
  Q3   Q3   Q2   Q3 17 vs.   Q3 17 vs.
(dollars in thousands) 2017   2016   2017   Q3 16   Q2 17
Salaries and benefits $ 43,467     $ 40,497     $ 44,834     7.33 %   (3.05 )%
Occupancy expense 6,635     6,656     6,658     (0.32 )%   (0.35 )%
Furniture and equipment 3,710     3,199     3,563     15.97 %   4.13 %
Acquisition-related expenses 466     969     1,281     (51.91 )%   (63.62 )%
Other expenses 19,908     19,612     21,783     1.51 %   (8.61 )%
Total noninterest expense $ 74,186     $ 70,933     $ 78,119     4.59 %   (5.03 )%

Segment Results

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

Third Quarter 2017 Compared to Third Quarter 2016

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

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

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

Third Quarter 2017 Compared to Second Quarter 2017

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

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

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

Balance Sheet

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

Loans

              % Change
  Q3   Q3   Q2   Q3 17 vs.   Q3 17 vs.
(dollars in thousands) 2017   2016   2017   Q3 16   Q2 17
Construction and land development $ 880,655     $ 820,453     $ 888,566     7.34 %   (0.89 )%
Commercial real estate - investment related properties 1,336,277     1,283,619     1,339,270     4.10 %   (0.22 )%
Commercial real estate - owner occupied 966,986     905,870     956,333     6.75 %   1.11 %
Multifamily real estate 185,323     206,623     206,894     (10.31 )%   (10.43 )%
1-4 family residential real estate 1,239,886     1,208,001     1,227,389     2.64 %   1.02 %
Commercial and industrial business loans 1,084,555     1,033,797     1,110,822     4.91 %   (2.36 )%
Consumer loans and other 216,797     193,279     219,787     12.17 %   (1.36 )%
Total $ 5,910,479     $ 5,651,642     $ 5,949,061     4.58 %   (0.65 )%

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

Deposits

              % Change
  Q3   Q3   Q2   Q3 17 vs.   Q3 17 vs.
(dollars in thousands) 2017   2016   2017   Q3 16   Q2 17
Noninterest-bearing demand $ 2,212,047     $ 1,974,395     $ 2,219,406     12.04 %   (0.33 )%
Interest-bearing:                  
Demand and money market accounts 2,253,746     2,207,962     2,292,978     2.07 %   (1.71 )%
Savings 320,028     315,477     318,714     1.44 %   0.41 %
Certificates of deposits 1,762,641     1,649,113     1,764,671     6.88 %   (0.12 )%
Total $ 6,548,462     $ 6,146,947     $ 6,595,769     6.53 %   (0.72 )%

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

Capital Ratios

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

The Bank’s total equity at September 30, 2017 rose to $1.14 billion, an increase of $61.97 million, or 5.74%, from September 30, 2016.  Total risk-based capital remained strong as common equity Tier 1, Tier 1 capital, total risk-based capital, and Tier 1 leverage capital ratios were 12.36%, 12.40%, 16.71%, 10.14%, respectively.  All ratios exceed the current regulatory standards for well capitalized status.

Asset Quality

                   
(in thousands) 9/30/2017   6/30/2017   3/31/2017   12/31/2016   9/30/2016
                   
Nonperforming loans $ 8,768     $ 9,645     $ 11,538     $ 13,099     $ 11,337  
Former bank premises 3,619     2,798     2,798     3,494     —  
Foreclosed property 21,504     23,249     21,473     21,011     22,884  
                  —  
Total nonperforming assets $ 33,891     $ 35,692     $ 35,809     $ 37,604     $ 34,221  
                   
Quarterly net loans charged off $ 429     $ 384     $ 1,347     $ 485     $ 649  
                   
Year-to-date net loans charged off $ 2,160     $ 1,731     $ 1,347     $ 1,715     $ 1,230  
                Change
    Q3   Q3   Q2   Q3 17 vs.   Q3 17 vs.
(dollars in thousands)   2017   2016   2017   Q3 16   Q2 17
Total loans 90 days past due and still accruing   $ 74     $ —     $ 206     $ 74     $ (132 )
Total loans 30-89 days past due   $ 5,888     $ 6,707     $ 4,193     $ (819 )   $ 1,695  
Allowance for loan losses   $ 44,398     $ 40,655     $ 44,131     $ 3,743     $ 267  
Total performing TDRs   $ 22,280     $ 28,345     $ 24,663     $ (6,065 )   $ (2,383 )
                     
Nonperforming loans to period end loans   0.15 %   0.20 %   0.16 %   (0.05 )   (0.01 )
Nonperforming assets to period end assets   0.39 %   0.44 %   0.42 %   (0.05 )   (0.03 )
Allowance for loan losses to period end loans   0.75 %   0.72 %   0.74 %   0.03     0.01  
Allowance for loan losses (originated) to originated period end loans   0.86 %   0.91 %   0.86 %   (0.05 )   —  
Net charge-offs to average loans (annualized)   0.03 %   0.05 %   0.03 %   (0.02 )   —  
Ratio of allowance for loan losses to nonperforming loans   5.06x   3.59x   4.58x   1.47 x   0.48 x

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

About TowneBank:As one of the top community banks in Virginia and North Carolina, TowneBank operates 37 banking offices serving Chesapeake, Chesterfield County, Glen Allen, Hampton, James City County, Mechanicsville, Newport News, Norfolk, Portsmouth, Richmond, Suffolk, Virginia Beach, Williamsburg, and York County in Virginia, along with Moyock, Grandy, Camden County, Southern Shores, Corolla and Nags Head in North Carolina.  Towne also offers a full range of financial services through its controlled divisions and subsidiaries that include Towne Investment Group, Towne Wealth Management, Towne Insurance Agency, Towne Benefits, TowneBank Mortgage, TowneBank Commercial Mortgage, Berkshire Hathaway HomeServices Towne Realty, Towne 1031 Exchange, LLC, and Towne Vacations.  Local decision-making is a hallmark of its hometown banking strategy that is delivered through the leadership of each group’s President and Board of Directors.  With total assets of $8.61 billion as of September 30, 2017, TowneBank is one of the largest banks headquartered in Virginia.

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

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

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

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

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

TOWNEBANK
Selected Financial Highlights (unaudited)
(dollars in thousands, except per share data)
 
              Increase/    % Increase/
Three Months Ended September 30, 2017   2016    (Decrease)    (Decrease)
                 
Results of Operations:              
  Net interest income $ 65,923     $ 62,605     $ 3,318     5.30 %
  Noninterest income 49,416     46,821     2,595     5.54 %
  Total Revenue 115,339     109,426     5,913     5.40 %
  Acquisition-related expenses 466     969     (503 )   (51.91 )%
  Noninterest expenses, excluding acquisition-related expenses 73,720     69,964     3,756     5.37 %
  Provision for loan losses 696     1,686     (990 )   (58.72 )%
  Income before income tax and noncontrolling interest 40,457     36,807     3,650     9.92 %
  Provision for income tax expense 11,862     10,974     888     8.09 %
  Net income 28,595     25,833     2,762     10.69 %
  Net income attributable to noncontrolling interest (1,445 )   (1,657 )   212     (12.79 )%
  Net income attributable to TowneBank 27,150     24,176     2,974     12.30 %
  Net income available to common shareholders 27,150     24,176     2,974     12.30 %
  Net income per common share - basic 0.44     0.39     0.05     12.82 %
  Net income per common share - diluted 0.44     0.39     0.05     12.82 %
Period End Data:              
  Total assets $ 8,614,794     $ 7,830,142     $ 784,652     10.02 %
  Total assets - tangible 8,304,142     7,525,817     778,325     10.34 %
  Earning assets 7,785,167     7,033,535     751,632     10.69 %
  Loans (net of unearned income) 5,910,479     5,651,642     258,837     4.58 %
  Allowance for loan losses 44,398     40,655     3,743     9.21 %
  Goodwill and other intangibles 310,652     304,325     6,327     2.08 %
  Nonperforming assets 33,891     34,221     (330 )   (0.96 )%
  Noninterest bearing deposits 2,212,047     1,974,395     237,652     12.04 %
  Interest bearing deposits 4,336,415     4,172,552     163,863     3.93 %
  Total deposits 6,548,462     6,146,947     401,515     6.53 %
  Total equity 1,140,852     1,078,878     61,974     5.74 %
  Total equity - tangible 830,199     774,553     55,646     7.18 %
  Common equity 1,129,588     1,067,193     62,395     5.85 %
  Common equity - tangible 818,936     762,868     56,068     7.35 %
  Book value per common share 18.04     17.11     0.93     5.44 %
  Book value per common share - tangible 13.08     12.23     0.85     6.95 %
Daily Average Balances:              
  Total assets $ 8,570,019     $ 7,991,213     $ 578,806     7.24 %
  Total assets - tangible 8,259,587     7,689,122     570,465     7.42 %
  Earning assets 7,710,245     7,088,493     621,752     8.77 %
  Loans (net of unearned income), excluding nonaccrual loans 5,897,169     5,583,711     313,458     5.61 %
  Allowance for loan losses 44,198     40,004     4,194     10.48 %
  Goodwill and other intangibles 310,432     302,091     8,341     2.76 %
  Noninterest bearing deposits 2,173,920     1,959,025     214,895     10.97 %
  Interest bearing deposits 4,365,820     4,219,316     146,504     3.47 %
  Total deposits 6,539,740     6,178,341     361,399     5.85 %
  Total equity 1,135,218     1,075,023     60,195     5.60 %
  Total equity - tangible 824,787     772,932     51,855     6.71 %
  Common equity 1,124,173     1,064,179     59,994     5.64 %
  Common equity - tangible 813,741     762,088     51,653     6.78 %
Key Ratios:              
  Return on average assets 1.26 %   1.20 %   0.06 %   5.00 %
  Return on average assets - tangible 1.37 %   1.32 %   0.05 %   3.79 %
  Return on average equity 9.49 %   8.95 %   0.54 %   6.03 %
  Return on average equity - tangible 13.67 %   13.09 %   0.58 %   4.43 %
  Return on average common equity 9.58 %   9.04 %   0.54 %   5.97 %
  Return on average common equity - tangible 13.86 %   13.27 %   0.59 %   4.45 %
  Net interest margin-fully tax equivalent (1) 3.43 %   3.55 %   (0.12 )%   (3.38 )%
  Net interest margin 3.39 %   3.51 %   (0.12 )%   (3.42 )%
  Average earning assets/total average assets 89.97 %   88.70 %   1.27 %   1.43 %
  Average loans/average deposits 90.17 %   90.38 %   (0.21 )%   (0.23 )%
  Average noninterest deposits/total average deposits 33.24 %   31.71 %   1.53 %   4.82 %
  Allowance for loan losses/period end loans 0.75 %   0.72 %   0.03 %   4.17 %
  Nonperforming assets to period end assets 0.39 %   0.44 %   (0.05 )%   (11.36 )%
  Period end equity/period end total assets 13.24 %   13.78 %   (0.54 )%   (3.92 )%
  Efficiency ratio 64.32 %   64.82 %   (0.50 )%   (0.77 )%
                 
(1) Presented on a tax-equivalent basis              
TOWNEBANK
Selected Financial Highlights (unaudited)
(dollars in thousands, except per share data)
 
              Increase/    % Increase/
Nine Months Ended September 30, 2017   2016    (Decrease)    (Decrease)
                 
Results of Operations:              
  Net interest income $ 195,456     $ 156,724     $ 38,732     24.71 %
  Noninterest income 144,645     115,704     28,941     25.01 %
  Total Revenue 340,101     272,428     67,673     24.84 %
  Acquisition-related expenses 1,743     19,817     (18,074 )   (91.20 )%
  Noninterest expenses, excluding acquisition-related expenses 220,810     175,175     45,635     26.05 %
  Provision for loan losses 4,557     3,526     1,031     29.24 %
  Income before income tax and noncontrolling interest 112,991     73,910     39,081     52.88 %
  Provision for income tax expense 33,488     21,538     11,950     55.48 %
  Net income 79,503     52,372     27,131     51.80 %
  Net income attributable to noncontrolling interest (4,173 )   (4,118 )   (55 )   1.34 %
  Net income attributable to TowneBank 75,330     48,254     27,076     56.11 %
  Net income available to common shareholders 75,330     48,254     27,076     56.11 %
  Net income per common share - basic 1.21     0.88     0.33     37.50 %
  Net income per common share - diluted 1.21     0.87     0.34     39.08 %
Period End Data:              
  Total assets $ 8,614,794     $ 7,830,142     $ 784,652     10.02 %
  Total assets - tangible 8,304,142     7,525,817     778,325     10.34 %
  Earning assets 7,785,167     7,033,535     751,632     10.69 %
  Loans (net of unearned income) 5,910,479     5,651,642     258,837     4.58 %
  Allowance for loan losses 44,398     40,655     3,743     9.21 %
  Goodwill and other intangibles 310,652     304,325     6,327     2.08 %
  Nonperforming assets 33,891     34,221     (330 )   (0.96 )%
  Noninterest bearing deposits 2,212,047     1,974,395     237,652     12.04 %
  Interest bearing deposits 4,336,415     4,172,552     163,863     3.93 %
    Total deposits 6,548,462     6,146,947     401,515     6.53 %
  Total equity 1,140,852     1,078,878     61,974     5.74 %
  Total equity - tangible 830,199     774,553     55,646     7.18 %
  Common equity 1,129,588     1,067,193     62,395     5.85 %
  Common equity - tangible 818,936     762,869     56,067     7.35 %
  Book value per common share 18.04     17.11     0.93     5.44 %
  Book value per common share - tangible 13.08     12.23     0.85     6.95 %
Daily Average Balances:              
  Total assets $ 8,252,534     $ 6,949,985     $ 1,302,549     18.74 %
  Total assets - tangible 7,945,700     6,722,029     1,223,671     18.20 %
  Earning assets 7,434,268     6,211,263     1,223,005     19.69 %
  Loans (net of unearned income), excluding nonaccrual loans 5,895,560     4,936,641     958,919     19.42 %
  Allowance for loan losses 43,442     38,996     4,446     11.40 %
  Goodwill and other intangibles 306,834     227,956     78,878     34.60 %
  Noninterest bearing deposits 2,072,000     1,638,902     433,098     26.43 %
  Interest bearing deposits 4,219,049     3,756,169     462,880     12.32 %
    Total deposits 6,291,048     5,395,071     895,977     16.61 %
  Total equity 1,114,725     922,272     192,453     20.87 %
  Total equity - tangible 807,891     694,316     113,575     16.36 %
  Common equity 1,103,590     912,502     191,088     20.94 %
  Common equity - tangible 796,756     684,546     112,210     16.39 %
Key Ratios:              
  Return on average assets 1.22 %   0.93 %   0.29 %   31.18 %
  Return on average assets - tangible 1.33 %   1.01 %   0.32 %   31.68 %
  Return on average equity 9.04 %   6.99 %   2.05 %   29.33 %
  Return on average equity - tangible 13.09 %   9.80 %   3.29 %   33.57 %
  Return on average common equity 9.13 %   7.06 %   2.07 %   29.32 %
  Return on average common equity - tangible 13.28 %   9.94 %   3.34 %   33.60 %
  Net interest margin-fully tax equivalent (1) 3.55 %   3.41 %   0.14 %   4.11 %
  Net interest margin 3.52 %   3.37 %   0.15 %   4.45 %
  Average earning assets/total average assets 90.08 %   89.37 %   0.71 %   0.79 %
  Average loans/average deposits 93.71 %   91.50 %   2.21 %   2.42 %
  Average noninterest deposits/total average deposits 32.94 %   30.38 %   2.56 %   8.43 %
  Allowance for loan losses/period end loans 0.75 %   0.72 %   0.03 %   4.17 %
  Nonperforming assets to period end assets 0.39 %   0.44 %   (0.05 )%   (11.36 )%
  Period end equity/period end total assets 13.24 %   13.78 %   (0.54 )%   (3.92 )%
  Efficiency ratio 65.44 %   71.58 %   (6.14 )%   (8.58 )%
                 
(1) Presented on a tax-equivalent basis              
TOWNEBANK
Selected Financial Highlights (unaudited)
(dollars in thousands, except per share data)
 
    September 30,   June 30,   Increase/    % Increase/
Three Months Ended 2017   2017   (Decrease)    (Decrease)
                 
Results of Operations:              
  Net interest income $ 65,923     $ 69,253     $ (3,330 )   (4.81 )%
  Noninterest income 49,416     50,343     (927 )   (1.84 )%
  Total Revenue 115,339     119,596     (4,257 )   (3.56 )%
  Acquisition-related expenses 466     1,281     (815 )   (63.62 )%
  Noninterest expenses, excluding acquisition-related expenses 73,720     76,838     (3,118 )   (4.06 )%
  Provision for loan losses 696     1,320     (624 )   (47.27 )%
  Income before income tax and noncontrolling interest 40,457     40,157     300     0.75 %
  Provision for income tax expense 11,862     12,240     (378 )   (3.09 )%
  Net income 28,595     27,917     678     2.43 %
  Net income attributable to noncontrolling interest (1,445 )   (1,704 )   259     (15.20 )%
  Net income attributable to TowneBank 27,150     26,213     937     3.57 %
  Net income available to common shareholders 27,150     26,213     937     3.57 %
  Net income per common share - basic 0.44     0.42     0.02     4.76 %
  Net income per common share - diluted 0.44     0.42     0.02     4.76 %
Period End Data:              
  Total assets $ 8,614,794     $ 8,427,042     $ 187,752     2.23 %
  Total assets - tangible 8,304,142     8,118,730     185,412     2.28 %
  Earning assets 7,785,167     7,590,796     194,371     2.56 %
  Loans (net of unearned income) 5,910,479     5,949,061     (38,582 )   (0.65 )%
  Allowance for loan losses 44,398     44,131     267     0.61 %
  Goodwill and other intangibles 310,652     308,312     2,340     0.76 %
  Nonperforming assets 33,891     35,692     (1,801 )   (5.05 )%
  Noninterest bearing deposits 2,212,047     2,219,406     (7,359 )   (0.33 )%
  Interest bearing deposits 4,336,415     4,376,363     (39,948 )   (0.91 )%
    Total deposits 6,548,462     6,595,769     (47,307 )   (0.72 )%
  Total equity 1,140,852     1,122,998     17,854     1.59 %
  Total equity - tangible 830,199     814,686     15,513     1.90 %
  Common equity 1,129,588     1,110,681     18,907     1.70 %
  Common equity - tangible 818,936     802,369     16,567     2.06 %
  Book value per common share 18.04     17.74     0.30     1.69 %
  Book value per common share - tangible 13.08     12.81     0.27     2.11 %
Daily Average Balances:              
  Total assets $ 8,570,019     $ 8,180,959     $ 389,060     4.76 %
  Total assets - tangible 8,259,587     7,873,036     386,551     4.91 %
  Earning assets 7,710,245     7,318,667     391,578     5.35 %
  Loans (net of unearned income), excluding nonaccrual loans 5,897,169     5,926,336     (29,167 )   (0.49 )%
  Allowance for loan losses 44,198     43,501     697     1.60 %
  Goodwill and other intangibles 310,432     307,923     2,509     0.81 %
  Noninterest bearing deposits 2,173,920     2,081,819     92,101     4.42 %
  Interest bearing deposits 4,365,820     4,186,319     179,501     4.29 %
    Total deposits 6,539,740     6,268,138     271,602     4.33 %
  Total equity 1,135,218     1,115,008     20,210     1.81 %
  Total equity - tangible 824,787     807,085     17,702     2.19 %
  Common equity 1,124,173     1,103,813     20,360     1.84 %
  Common equity - tangible 813,741     795,891     17,850     2.24 %
Key Ratios:              
  Return on average assets 1.26 %   1.29 %   (0.03 )%   (2.33 )%
  Return on average assets - tangible 1.37 %   1.40 %   (0.03 )%   (2.14 )%
  Return on average equity 9.49 %   9.43 %   0.06 %   0.64 %
  Return on average equity - tangible 13.67 %   13.67 %   — %   — %
  Return on average common equity 9.58 %   9.53 %   0.05 %   0.52 %
  Return on average common equity - tangible 13.86 %   13.87 %   (0.01 )%   (0.07 )%
  Net interest margin-fully tax equivalent (1) 3.43 %   3.84 %   (0.41 )%   (10.68 )%
  Net interest margin 3.39 %   3.80 %   (0.41 )%   (10.79 )%
  Average earning assets/total average assets 89.97 %   89.46 %   0.51 %   0.57 %
  Average loans/average deposits 90.17 %   94.55 %   (4.38 )%   (4.63 )%
  Average noninterest deposits/total average deposits 33.24 %   33.21 %   0.03 %   0.09 %
  Allowance for loan losses/period end loans 0.75 %   0.74 %   0.01 %   1.35 %
  Nonperforming assets to period end assets 0.39 %   0.42 %   (0.03 )%   (7.14 )%
  Period end equity/period end total assets 13.24 %   13.33 %   (0.09 )%   (0.68 )%
  Efficiency ratio 64.32 %   65.32 %   (1.00 )%   (1.53 )%
                 
(1) Presented on a tax-equivalent basis              
TOWNEBANK
Average Balances, Yields and Rate Paid (unaudited)
(dollars in thousands)
 
  Three Months Ended   Three Months Ended   Three Months Ended
  September 30, 2017   June 30, 2017   September 30, 2016
      Interest   Average       Interest   Average       Interest   Average
  Average   Income/   Yield/   Average   Income/   Yield/   Average   Income/   Yield/
  Balance   Expense   Rate   Balance   Expense   Rate   Balance   Expense   Rate
Assets:                                  
Loans (net of unearned income and deferred costs), excluding nonaccrual loans $ 5,897,169     $ 69,679     4.69 %   $ 5,926,336     $ 72,167     4.88 %   $ 5,583,711     $ 65,245     4.65 %
Taxable investment securities 582,747     2,717     1.86 %   597,231     2,801     1.88 %   687,480     2,702     1.57 %
Tax-exempt investment securities 47,087     360     3.06 %   48,560     370     3.05 %   53,180     396     2.98 %
Interest-bearing deposits 870,480     2,745     1.25 %   455,489     1,188     1.05 %   287,672     (36 )   (0.05 )%
Loans held for sale 312,762     3,081     3.94 %   291,051     2,879     3.96 %   476,450     4,138     3.47 %
Total earning assets 7,710,245     78,582     4.04 %   7,318,667     79,405     4.35 %   7,088,493     72,445     4.07 %
  Less: allowance for loan losses (44,198 )           (43,501 )           (40,004 )        
                                   
Total nonearning assets 903,972             905,793             942,724          
                                   
  Total assets $ 8,570,019             $ 8,180,959             $ 7,991,213          
                                   
Liabilities and Equity:                                  
Interest-bearing deposits                                  
  Demand and money market $ 2,284,995     $ 2,107     0.37 %   $ 2,235,869     $ 1,957     0.35 %   $ 2,216,987     $ 1,674     0.30 %
  Savings 320,891     862     1.07 %   318,323     815     1.03 %   318,193     723     0.90 %
  Certificates of deposit 1,759,934     4,841     1.09 %   1,632,127     4,105     1.01 %   1,684,136     3,512     0.83 %
Total interest-bearing deposits 4,365,820     7,810     0.71 %   4,186,319     6,877     0.66 %   4,219,316     5,909     0.56 %
Borrowings 554,147     1,770     1.25 %   641,748     2,551     1.57 %   523,018     3,309     2.48 %
Subordinated capital debentures 204,146     2,368     4.64 %   —     —     —     —     —     —  
Total interest-bearing liabilities 5,124,113     11,948     0.93 %   4,828,067     9,428     0.78 %   4,742,334     9,218     0.77 %
Demand deposits 2,173,920             2,081,819             1,959,025          
Other noninterest-bearing liabilities 136,768             156,065             214,831          
  Total liabilities 7,434,801             7,065,951             6,916,190          
                                   
Shareholders’ equity 1,135,218             1,115,008             1,075,023          
                                   
  Total liabilities and equity $ 8,570,019             $ 8,180,959             $ 7,991,213          
                                   
Net interest income (tax-equivalent basis)     $ 66,634             $ 69,977             $ 63,227      
Reconcilement of Non-GAAP Financial Measures                                
  Tax-equivalent basis adjustment     (711 )           (724 )           (622 )    
Net interest income (GAAP)     $ 65,923             $ 69,253             $ 62,605      
                                   
Interest rate spread (1)         3.11 %           3.57 %           3.30 %
Interest expense as a percent of average earning assets       0.61 %           0.52 %           0.52 %
Net interest margin (tax equivalent basis) (2)       3.43 %           3.84 %           3.55 %
Total cost of deposits         0.47 %           0.44 %           0.38 %
                                   

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

TOWNEBANK
Average Balances, Yields and Rate Paid (unaudited)
(dollars in thousands)
 
  Nine Months Ended   Nine Months Ended   Nine Months Ended September 30, 2017
  September 30, 2017   September 30, 2016   Compared with September 30, 2016
      Interest   Average       Interest   Average        
  Average   Income/   Yield/   Average   Income/   Yield/   Increase   Change due to
  Balance   Expense   Rate   Balance   Expense   Rate   (Decrease)   Rate   Volume
Assets:                                  
Loans (net of unearned income and deferred costs), excluding  nonaccrual loans $ 5,895,560     $ 206,825     4.69 %   $ 4,936,641     $ 168,257     4.55 %   $ 38,568     $ 5,195     $ 33,373  
Taxable investment securities 602,272     8,360     1.85 %   704,532     8,492     1.61 %   (132 )   1,192     (1,324 )
Tax-exempt investment securities 48,701     1,106     3.03 %   52,854     1,211     3.05 %   (105 )   (11 )   (94 )
Interest-bearing deposits 623,670     4,819     1.03 %   280,900     658     0.31 %   4,161     2,719     1,442  
Loans held for sale 264,065     7,687     3.88 %   236,336     6,124     3.45 %   1,563     802     761  
Total earning assets 7,434,268     228,797     4.11 %   6,211,263     184,742     3.97 %   44,055     9,897     34,158  
  Less: allowance for loan losses (43,442 )           (38,996 )                    
                                   
Total nonearning assets 861,708             777,718                      
                                   
  Total assets $ 8,252,534             $ 6,949,985                      
                                   
Liabilities and Equity:                                  
Interest-bearing deposits                                  
  Demand and money market $ 2,264,636     $ 5,929     0.35 %   $ 1,938,818     $ 4,300     0.30 %   $ 1,629     $ 846     $ 783  
  Savings 319,847     2,435     1.02 %   306,644     2,132     0.93 %   303     209     94  
  Certificates of deposit 1,634,566     12,326     1.01 %   1,510,707     9,957     0.88 %   2,369     1,514     855  
Total interest-bearing deposits 4,219,049     20,690     0.66 %   3,756,169     16,389     0.58 %   4,301     2,569     1,732  
Borrowings 639,180     8,125     1.68 %   488,132     9,685     2.61 %   (1,560 )   (4,035 )   2,475  
Subordinated debentures 68,796     2,368     4.59 %   —     —     —     2,368     —     2,368  
Total interest-bearing liabilities 4,927,025     31,183     0.85 %   4,244,301     26,074     0.82 %   5,109     (1,466 )   6,575  
Demand deposits 2,072,000             1,638,902                      
Other noninterest-bearing liabilities 138,784             144,510                      
  Total liabilities 7,137,809             6,027,713                      
                                   
Shareholders’ equity 1,114,725             922,272                      
                                   
  Total liabilities and equity $ 8,252,534             $ 6,949,985                      
                                   
Net interest income (tax-equivalent basis)     $ 197,614             $ 158,668         $ 38,946     $ 11,363     $ 27,583  
Reconcilement of Non-GAAP Financial Measures                                
  Tax-equivalent basis adjustment     (2,158 )           (1,944 )       (214 )        
Net interest income (GAAP)     $ 195,456             $ 156,724         $ 38,732          
                                   
Interest rate spread (1)         3.27 %           3.15 %            
Interest expense as a percent of averageearning assets       0.56 %           0.56 %            
Net interest margin (tax equivalent basis) (2)         3.55 %           3.41 %            
Total cost of deposits         0.44 %           0.41 %            
                                   

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

TOWNEBANK
Consolidated Balance Sheets
(dollars in thousands, except share data)
     
       
  September 30,   December 31,
  2017   2016   2016
  (unaudited)   (unaudited)   (audited)
ASSETS          
Cash and due from banks $ 647,728     $ 147,887     $ 130,967  
Interest-bearing deposits in financial institutions 5,055     6,891     5,581  
Total Cash and Cash Equivalents 652,783     154,778     136,548  
Securities available for sale, at fair value 831,483     704,418     812,974  
Securities held to maturity, at amortized cost 62,487     70,304     66,490  
Federal Home Loan Bank stock, at amortized cost 29,586     24,888     35,937  
Total Securities 923,556     799,610     915,401  
Mortgage loans held for sale 318,595     439,608     314,046  
Loans, net of unearned income and deferred costs:          
Real estate-residential 1-4 family 1,239,886     1,208,001     1,215,823  
Real estate-commercial 2,303,263     2,189,489     2,251,312  
Real estate-construction and development 880,655     820,453     826,027  
Real estate-multi-family 185,323     206,623     222,791  
Commercial 1,084,555     1,033,797     1,089,539  
Consumer and other loans 216,797     193,279     201,729  
Loans, net of unearned income and deferred costs 5,910,479     5,651,642     5,807,221  
Less: allowance for loan losses (44,398 )   (40,655 )   (42,001 )
Net Loans 5,866,081     5,610,987     5,765,220  
Premises and equipment, net 196,975     202,955     198,568  
Goodwill 270,901     264,578     264,910  
Other intangible assets, net 39,751     39,747     37,856  
Bank-owned life insurance policies 193,823     163,385     189,499  
Other assets 152,329     154,494     151,867  
TOTAL ASSETS $ 8,614,794     $ 7,830,142     $ 7,973,915  
           
LIABILITIES AND EQUITY          
Deposits:          
Noninterest-bearing demand $ 2,212,047     $ 1,974,395     $ 1,947,312  
Interest-bearing:          
Demand and money market accounts 2,253,746     2,207,962     2,263,894  
Savings 320,028     315,477     319,611  
Certificates of deposit 1,762,641     1,649,113     1,504,380  
Total Deposits 6,548,462     6,146,947     6,035,197  
Advances from the Federal Home Loan Bank 527,072     427,655     687,511  
Subordinated debt, net 247,128     —     —  
Repurchase agreements and other borrowings 23,195     31,927     32,540  
Total Borrowings 797,395     459,582     720,051  
Other liabilities 128,086     144,735     132,109  
TOTAL LIABILITIES 7,473,943     6,751,264     6,887,357  
Preferred stock          
Authorized and unissued shares - 2,000,000 —     —     —  
Common stock, $1.667 par: 90,000,000 shares authorized          
  62,619,857; 62,387,564; and 62,492,168 shares issued at          
  September 30, 2017 and 2016 and December 31, 2016, respectively 104,387     104,000     104,174  
Capital surplus 748,444     743,223     745,411  
Retained earnings 279,165     218,631     229,503  
Common stock issued to deferred compensation trust, at cost          
  723,304; 683,833; and 692,431 shares at          
  September 30, 2017 and 2016 and December 31, 2016, respectively (12,304 )   (10,969 )   (11,168 )
Deferred compensation trust 12,304     10,969     11,168  
Accumulated other comprehensive income (loss) (2,408 )   1,339     (3,986 )
TOTAL SHAREHOLDERS’ EQUITY 1,129,588     1,067,193     1,075,102  
Noncontrolling interest 11,263     11,685     11,456  
TOTAL EQUITY 1,140,851     1,078,878     1,086,558  
TOTAL LIABILITIES AND EQUITY $ 8,614,794     $ 7,830,142     $ 7,973,915  
TOWNEBANK
Consolidated Statements of Income (unaudited)
(dollars in thousands, except per share data)
               
               
  Three Months Ended   Nine Months Ended
  September 30,   September 30,
  2017   2016   2017   2016
INTEREST INCOME:              
Loans, including fees $ 68,969     $ 64,623     $ 204,667     $ 166,313  
Investment securities 3,076     3,099     9,466     9,703  
Interest-bearing deposits in financial institutions and federal funds sold 2,745     (36 )   4,819     658  
Mortgage loans held for sale 3,081     4,137     7,687     6,124  
Total interest income 77,871     71,823     226,639     182,798  
INTEREST EXPENSE:              
Deposits 7,810     5,909     20,690     16,389  
Advances from the Federal Home Loan Bank 1,750     3,276     8,044     9,606  
Subordinated capital debentures 2,368     —     2,368     —  
Repurchase agreements and other borrowings, net of capitalized interest 20     33     81     79  
Total interest expense 11,948     9,218     31,183     26,074  
Net interest income 65,923     62,605     195,456     156,724  
               
PROVISION FOR LOAN LOSSES 696     1,686     4,557     3,526  
Net interest income after provision for loan losses 65,227     60,919     190,899     153,198  
NONINTEREST INCOME:              
Residential mortgage banking income, net 19,087     21,430     58,314     40,696  
Insurance commissions and other title fees and income, net 12,116     11,258     39,818     36,918  
Real estate brokerage and property management income, net 10,042     6,647     22,664     17,591  
Service charges on deposit accounts 2,670     2,552     7,785     7,012  
Credit card merchant fees, net 1,388     1,365     3,804     3,373  
Bank owned life insurance 1,425     1,264     4,321     3,616  
Other income 2,688     2,305     7,940     6,498  
Loss on investment securities —     —     (1 )   —  
Total noninterest income 49,416     46,821     144,645     115,704  
NONINTEREST EXPENSE:              
Salaries and employee benefits 43,467     40,497     128,509     100,776  
Occupancy 6,635     6,656     19,977     16,831  
Furniture and equipment 3,710     3,199     10,616     7,937  
Other expenses 20,374     20,581     63,451     69,448  
Total noninterest expense 74,186     70,933     222,553     194,992  
Income before income tax expense & noncontrolling interest 40,457     36,807     112,991     73,910  
Provision for income tax expense 11,862     10,974     33,488     21,538  
Net income $ 28,595     $ 25,833     $ 79,503     $ 52,372  
Net income attributable to noncontrolling interest (1,445 )   (1,657 )   (4,173 )   (4,118 )
Net income attributable to TowneBank $ 27,150     $ 24,176     $ 75,330     $ 48,254  
Net income available to common shareholders $ 27,150     $ 24,176     $ 75,330     $ 48,254  
Per common share information              
Basic earnings $ 0.44     $ 0.39     $ 1.21     $ 0.88  
Diluted earnings $ 0.44     $ 0.39     $ 1.21     $ 0.87  
Cash dividends declared $ 0.14     $ 0.13     $ 0.41     $ 0.38  
TOWNEBANK
Consolidated Statements of Comprehensive Income
(dollars in thousands)
               
               
  Three Months Ended   Nine Months Ended
  September 30,   September 30,
  2017   2016   2017   2016
  (unaudited)   (unaudited)   (unaudited)   (unaudited)
               
Net income $ 28,595     $ 25,833     $ 79,503     $ 52,372  
               
Other comprehensive income (loss)              
               
Unrealized gains on securities              
Unrealized holding gains (losses) arising during the period (305 )   (516 )   2,428     6,294  
Deferred tax benefit (expense) 106     180     (851 )   (2,203 )
Realized losses reclassified into earnings —     —     1     —  
Net unrealized gains (losses) (199 )   (336 )   1,578     4,091  
               
Pension and postretirement benefit plans              
Actuarial gain (loss) 143     —     (252 )   109  
Deferred tax benefit (expense) (49 )   —     90     (38 )
Amortization of prior service costs 41     110     133     263  
Deferred tax expense (14 )   (38 )   (46 )   (91 )
Amortization of actuarial (gain) loss 39     (2 )   117     (2 )
Deferred tax benefit (expense) (14 )   1     (42 )   1  
Change in retirement plans, net of tax 146     71     —     242  
               
Other comprehensive income (loss), net of tax (53 )   (265 )   1,578     4,333  
               
Comprehensive income $ 28,542     $ 25,568     $ 81,081     $ 56,705  
TOWNEBANK
Consolidated Balance Sheets - Five Quarter Trend
(dollars in thousands, except share data)
 
                   
  September 30,   June 30,   March 31,   December 31,   September 30,
  2017   2017   2017   2016   2016
  (unaudited)   (unaudited)   (unaudited)   (audited)   (unaudited)
ASSETS                  
Cash and due from banks $ 647,728     $ 468,455     $ 420,192     $ 130,967     $ 147,887  
Interest-bearing deposits in financial institutions 5,055     5,071     5,335     5,581     6,891  
Total Cash and Cash Equivalents 652,783     473,526     425,527     136,548     154,778  
Securities available for sale, at fair value 831,483     700,354     720,667     812,974     704,418  
Securities held to maturity, at amortized cost 62,487     63,937     65,117     66,490     70,304  
Federal Home Loan Bank stock, at amortized cost 29,586     29,586     36,402     35,937     24,888  
Total Securities 923,556     793,877     822,186     915,401     799,610  
Mortgage loans held for sale 318,595     388,523     214,047     314,046     439,451  
Loans, net of unearned income and deferred costs: 5,910,479     5,949,061     5,913,080     5,807,221     5,651,642  
  Less: allowance for loan losses (44,398 )   (44,131 )   (43,195 )   (42,001 )   (40,655 )
Net Loans 5,866,081     5,904,930     5,869,885     5,765,220     5,610,987  
Premises and equipment, net 196,975     199,926     198,664     198,568     202,955  
Goodwill 270,901     268,246     264,910     264,910     264,578  
Other intangible assets, net 39,751     40,066     37,052     37,856     39,747  
Bank-owned life insurance policies 193,823     192,339     190,917     189,499     163,385  
Other assets 152,329     165,609     151,598     151,867     154,651  
TOTAL ASSETS $ 8,614,794     $ 8,427,042     $ 8,174,786     $ 7,973,915     $ 7,830,142  
LIABILITIES AND EQUITY                  
Deposits:                  
Noninterest-bearing demand $ 2,212,047     $ 2,219,406     $ 2,052,598     $ 1,947,312     $ 1,974,395  
Interest-bearing:                  
Demand and money market accounts 2,253,746     2,292,978     2,270,025     2,263,894     2,207,962  
Savings 320,028     318,714     320,104     319,611     315,477  
Certificates of deposit 1,762,641     1,764,671     1,548,045     1,504,380     1,649,113  
Total Deposits 6,548,462     6,595,769     6,190,772     6,035,197     6,146,947  
Advances from the Federal Home Loan Bank 527,072     527,219     687,366     687,511     427,655  
Subordinated debt, net 247,128     —     —     —     —  
Repurchase agreements and other borrowings 23,195     28,571     35,318     32,540     31,927  
Total Borrowings 797,395     555,790     722,684     720,051     459,582  
Other liabilities 128,086     152,485     160,085     132,109     144,735  
TOTAL LIABILITIES 7,473,943     7,304,044     7,073,541     6,887,357     6,751,264  
Preferred stock                  
Authorized shares - 2,000,000 —     —     —     —     —  
                   
Common stock, $1.667 par value 104,387     104,386     104,307     104,174     104,000  
Capital surplus 748,444     747,867     746,289     745,411     743,223  
Retained earnings 279,165     260,783     243,337     229,503     218,631  
Common stock issued to deferred compensation trust, at cost (12,304 )   (11,492 )   (11,294 )   (11,168 )   (10,969 )
Deferred compensation trust 12,304     11,492     11,294     11,168     10,969  
Accumulated other comprehensive income (loss) (2,408 )   (2,355 )   (4,173 )   (3,986 )   1,339  
TOTAL SHAREHOLDERS’ EQUITY 1,129,588     1,110,681     1,089,760     1,075,102     1,067,193  
Noncontrolling interest 11,263     12,317     11,485     11,456     11,685  
TOTAL EQUITY 1,140,851     1,122,998     1,101,245     1,086,558     1,078,878  
TOTAL LIABILITIES AND EQUITY $ 8,614,794     $ 8,427,042     $ 8,174,786     $ 7,973,915     $ 7,830,142  
TOWNEBANK
Consolidated Statements of Income - Five Quarter Trend (unaudited)
(dollars in thousands, except per share data)
       
       
  Three Months Ended
  September 30,   June 30,   March 31,   December 31,   September 30,
  2017   2017   2017   2016   2016
INTEREST INCOME:                  
Loans, including fees $ 68,969     $ 71,443     $ 64,255     $ 65,151     $ 64,623  
Investment securities 3,076     3,171     3,218     3,152     3,099  
Interest-bearing deposits in financial institutions and federal funds sold 2,745     1,188     887     487     (36 )
Mortgage loans held for sale 3,081     2,879     1,727     3,028     4,137  
Total Interest Income 77,871     78,681     70,087     71,818     71,823  
INTEREST EXPENSE:                  
Deposits 7,810     6,877     6,003     5,928     5,909  
Advances from the Federal Home Loan Bank 1,750     2,521     3,772     3,546     3,276  
Subordinated capital debentures 2,368     —     —     —     —  
Repurchase agreements and other borrowings 20     30     31     193     33  
Total Interest Expense 11,948     9,428     9,806     9,667     9,218  
Net Interest Income 65,923     69,253     60,281     62,151     62,605  
                   
PROVISION FOR LOAN LOSSES 696     1,320     2,541     1,831     1,686  
Net Interest Income after Provision for Loan Losses 65,227     67,933     57,740     60,320     60,919  
NONINTEREST INCOME:                  
Residential mortgage banking income, net 19,087     21,594     17,632     18,096     21,430  
Insurance commissions and other title fees and income, net 12,116     12,902     14,800     9,823     11,258  
Real estate brokerage and property management income, net 10,042     7,629     4,993     2,925     6,647  
Service charges on deposit accounts 2,670     2,644     2,472     2,535     2,552  
Credit card merchant fees, net 1,388     1,298     1,118     1,135     1,365  
Bank owned life insurance 1,425     1,421     1,474     2,377     1,264  
Other income 2,688     2,856     2,397     2,621     2,305  
Net gain (loss) on investment securities —     (1 )   —     6     —  
Total Noninterest Income 49,416     50,343     44,886     39,518     46,821  
NONINTEREST EXPENSE:                  
Salaries and employee benefits 43,467     44,834     40,208     43,071     40,497  
Occupancy expense 6,635     6,658     6,684     6,885     6,656  
Furniture and equipment 3,710     3,563     3,343     3,378     3,199  
Other expenses 20,374     23,064     20,013     19,500     20,581  
Total Noninterest Expense 74,186     78,119     70,248     72,834     70,933  
Income before income tax expense and noncontrolling interest 40,457     40,157     32,378     27,004     36,807  
Provision for income tax expense 11,862     12,240     9,386     7,160     10,974  
Net income 28,595     27,917     22,992     19,844     25,833  
Net income attributable to noncontrolling interest (1,445 )   (1,704 )   (1,024 )   (848 )   (1,657 )
Net income attributable to TowneBank $ 27,150     $ 26,213     $ 21,968     $ 18,996     $ 24,176  
Net income available to common shareholders $ 27,150     $ 26,213     $ 21,968     $ 18,996     $ 24,176  
Per common share information                  
Basic earnings $ 0.44     $ 0.42     $ 0.35     $ 0.31     $ 0.39  
Diluted earnings $ 0.44     $ 0.42     $ 0.35     $ 0.31     $ 0.39  
Basic weighted average shares outstanding 62,210,834     62,145,045     62,075,983     61,963,948     61,908,316  
Diluted weighted average shares outstanding 62,410,591     62,364,260     62,262,789     62,175,705     62,067,832  
Cash dividends declared $ 0.14     $ 0.14     $ 0.13     $ 0.13     $ 0.13  
TOWNEBANK
Banking Segment Financial Information
(dollars in thousands)
 
       
      Increase/(Decrease)
  Three Months Ended   September 30, 2017   September 30, 2017
  September 30,   June 30, 2017   September 30, 2016   June 30, 2017
  2017   2016     Amount   Percent   Amount   Percent
Revenue                          
Net interest income $ 63,094     $ 58,919     $ 66,434     $ 4,175     7.09 %   $ (3,340 )   (5.03 )%
Service charges on deposit accounts 2,670     2,552     2,644     118     4.62 %   26     0.98 %
Credit card merchant fees 1,388     1,365     1,297     23     1.68 %   91     7.02 %
Other income 3,259     2,701     3,362     558     20.66 %   (103 )   (3.06 )%
Total noninterest income 7,317     6,618     7,303     699     10.56 %   14     0.19 %
Total revenue 70,411     65,537     73,737     4,874     7.44 %   (3,326 )   (4.51 )%
                           
Provision for loan losses 696     1,686     1,320     (990 )   (58.72 )%   (624 )   (47.27 )%
                           
Expenses                          
Salaries and employee benefits 21,643     20,509     23,519     1,134     5.53 %   (1,876 )   (7.98 )%
Occupancy expense 3,992     4,197     3,828     (205 )   (4.88 )%   164     4.28 %
Furniture and equipment 2,434     2,358     2,372     76     3.22 %   62     2.61 %
Advertising and marketing 624     922     1,207     (298 )   (32.32 )%   (583 )   (48.30 )%
Charitable contributions 1,380     919     1,647     461     50.16 %   (267 )   (16.21 )%
Outside processing 1,113     1,280     1,112     (167 )   (13.05 )%   1     0.09 %
Foreclosed property expenses 186     157     141     29     18.47 %   45     31.91 %
FDIC and other insurance 953     1,224     1,131     (271 )   (22.14 )%   (178 )   (15.74 )%
Professional fees 750     965     748     (215 )   (22.28 )%   2     0.27 %
Telephone and postage 922     962     963     (40 )   (4.16 )%   (41 )   (4.26 )%
Other expenses 4,550     5,178     5,305     (628 )   (12.13 )%   (755 )   (14.23 )%
Total expenses 38,547     38,671     41,973     (124 )   (0.32 )%   (3,426 )   (8.16 )%
Income before income tax, corporate allocation and noncontrolling interest 31,168     25,180     30,444     5,988     23.78 %   724     2.38 %
Corporate allocation 400     439     410     (39 )   (8.88 )%   (10 )   (2.44 )%
Income before income tax provision and noncontrolling interest 31,568     25,619     30,854     5,949     23.22 %   714     2.31 %
Provision for income tax expense 9,002     7,325     9,307     1,677     22.89 %   (305 )   (3.28 )%
Net income 22,566     18,294     21,547     4,272     23.35 %   1,019     4.73 %
Noncontrolling interest 3       (18 )   (1 )   21     N/M   4     N/M
Net income attributable to TowneBank $ 22,569     $ 18,276     $ 21,546     $ 4,293     23.49 %   $ 1,023     4.75 %
                           
Efficiency ratio 54.75 %   59.01 %   56.92 %   (4.26 )%   (7.22 )%   (2.17 )%   (3.81 )%
TOWNEBANK
Banking Segment Financial Information
(dollars in thousands)
 
       
  Nine Months Ended   Increase/(Decrease)
  September 30,   2017 over 2016
  2017   2016   Amount   Percent
Net interest income $ 187,972     $ 151,630     $ 36,342     23.97 %
  Service charges on deposit accounts 7,785     7,012     773     11.02 %
  Credit card merchant fees 3,804     3,373     431     12.78 %
  Other income 9,728     7,377     2,351     31.87 %
  Total noninterest income 21,317     17,762       3,555     20.01 %
  Total revenue 209,289     169,392       39,897     23.55 %
               
  Provision for loan losses 4,557     3,526     1,031     29.24 %
               
Salaries and employee benefits 65,503     55,140     10,363     18.79 %
Occupancy expense 11,947     11,261     686     6.09 %
Furniture and equipment 7,080     6,070     1,010     16.64 %
Advertising and marketing 2,873     2,729     144     5.28 %
Charitable contributions 4,340     3,182     1,158     36.39 %
Outside processing 3,379     3,052     327     10.71 %
Foreclosed property expenses 457     727     (270 )   (37.14 )%
FDIC and other insurance 3,071     3,395     (324 )   (9.54 )%
Professional fees 2,779     2,900     (121 )   (4.17 )%
Telephone and postage 2,790     2,423     367     15.15 %
Other expenses 14,651     29,949     (15,298 )   (51.08 )%
  Total expenses 118,870     120,828     (1,958 )   (1.62 )%
Income before income tax and corporate allocation 85,862     45,038     40,824     90.64 %
Corporate allocation 1,295     1,054     241     22.87 %
Income before income tax provision and noncontrolling interest 87,157     46,092     41,065     89.09 %
Provision for income tax expense 25,074     12,377     12,697     102.59 %
Net income 62,083     33,715     28,368     84.14 %
Noncontrolling interest —     (18 )   18     N/M
Net income attributable to TowneBank $ 62,083     $ 33,697     $ 28,386     84.24 %
               
Efficiency ratio 56.80 %   71.33 %   (14.53 )%   (20.37 )%
TOWNEBANK
Realty Segment Financial Information
(dollars in thousands)
 
       
      Increase/(Decrease)
  Three Months Ended   September 30, 2017   September 30, 2017
  September 30,   June 30,   September 30, 2016   June 30, 2017
  2017   2016   2017   Amount   Percent   Amount   Percent
Revenue                          
Residential mortgage brokerage income, net $ 19,196     $ 21,692     $ 21,730     $ (2,496 )   (11.51 )%   $ (2,534 )   (11.66 )%
Real estate brokerage income, net 2,103     2,267     2,337     (164 )   (7.23 )%   (234 )   (10.01 )%
Title insurance and settlement fees 509     562     582     (53 )   (9.43 )%   (73 )   (12.54 )%
Property management fees, net 7,939     4,381     5,293     3,558     81.21 %   2,646     49.99 %
Income from unconsolidatedsubsidiary 214     283     250     (69 )   (24.38 )%   (36 )   (14.40 )%
Net interest and other income 3,242     3,964     3,229     (722 )   (18.21 )%   13     0.40 %
Total revenue 33,203     33,149     33,421     54     0.16 %   (218 )   (0.65 )%
                           
Expenses                          
Salaries and employee benefits 15,421     14,198     15,220     1,223     8.61 %   201     1.32 %
Occupancy expense 2,045     1,922     2,269     123     6.40 %   (224 )   (9.87 )%
Furniture and equipment 1,036     762     999     274     35.96 %   37     3.70 %
Amortization of intangible assets 718     559     718     159     28.44 %   —     — %
Other expenses 6,967     6,325     7,495     642     10.15 %   (528 )   (7.04 )%
Total expenses 26,187     23,766     26,701     2,421     10.19 %   (514 )   (1.93 )%
                           
Income before income tax, corporate allocation and noncontrolling interest 7,016     9,383     6,720     (2,367 )   (25.23 )%   296     4.40 %
Corporate allocation (267 )   (278 )   (266 )   11     (3.96 )%   (1 )   0.38 %
Income before income tax provision and noncontrolling interest 6,749     9,105     6,454     (2,356 )   (25.88 )%   295     4.57 %
Provision for income tax expense 2,115     2,921     1,889     (806 )   (27.59 )%   226     11.96 %
Net income 4,634     6,184     4,565     (1,550 )   (25.06 )%   69     1.51 %
Noncontrolling interest (1,189 )   (1,369 )   (1,361 )   180     (13.15 )%   172     (12.64 )%
Net income attributable to TowneBank $ 3,445     $ 4,815     $ 3,204     $ (1,370 )   (28.45 )%   $ 241     7.52 %
                           
Efficiency ratio 78.87 %   71.69 %   79.89 %   7.18 %   10.02 %   (1.02 )%   (1.28 )%
TOWNEBANK
Realty Segment Financial Information
(dollars in thousands)
               
       
  Nine Months Ended   Increase/(Decrease)
  September 30,   2017 over 2016
  2017   2016   Amount   Percent
Residential mortgage banking income, net $ 58,701     $ 41,492     $ 17,209     41.48 %
Real estate brokerage income, net 5,899     6,072     (173 )   (2.85 )%
Title insurance and settlement fees 1,446     1,461     (15 )   (1.03 )%
Property management fees, net 16,765     11,519     5,246     45.54 %
Income from unconsolidated subsidiary 588     663     (75 )   (11.31 )%
Net interest and other income 8,672     5,895     2,777     47.11 %
Total revenue 92,071     67,102     24,969     37.21 %
               
Salaries and employee benefits 44,349     28,155     16,194     57.52 %
Occupancy expense 6,277     3,988     2,289     57.40 %
Furniture and equipment 2,904     1,306     1,598     122.36 %
Amortization of intangible assets 1,994     1,264     730     57.75 %
Other expenses 20,441     13,382     7,059     52.75 %
Total expenses 75,965     48,095     27,870     57.95 %
Income before income tax, corporate allocation and noncontrolling interest 16,106     19,007     (2,901 )   (15.26 )%
Corporate allocation (841 )   (570 )   (271 )   47.54 %
Income before income tax provision and noncontrolling interest 15,265     18,437     (3,172 )   (17.20 )%
Provision for income tax 4,631     5,829     (1,198 )   (20.55 )%
Net income 10,634     12,608     (1,974 )   (15.66 )%
Noncontrolling interest (3,061 )   (2,994 )   (67 )   2.24 %
Net income attributable to TowneBank $ 7,573     $ 9,614     $ (2,041 )   (21.23 )%
               
Efficiency ratio 82.51 %   71.67 %   10.84 %   15.12 %
TOWNEBANK
Insurance Segment Financial Information
(dollars in thousands)
 
                   
      Increase/(Decrease)
  Three Months Ended   September 30, 2017   September 30, 2017
  September 30,   June 30,   September 30, 2016   June 30, 2017
  2017   2016   2017   Amount   Percent   Amount   Percent
Commission and fee income                          
Property and casualty $ 9,768     $ 9,052     $ 9,271     $ 716     7.91 %   $ 497     5.36 %
Employee benefits 3,132     2,947     3,280     185     6.28 %   (148 )   (4.51 )%
Travel insurance 970     926     1,159     44     4.75 %   (189 )   (16.31 )%
Specialized benefit services 165     154     158     11     7.14 %   7     4.43 %
Total commissions and fees 14,035     13,079     13,868     956     7.31 %   167     1.20 %
                           
Contingency and bonus revenue 180     61     948     119     195.08 %   (768 )   (81.01 )%
Other income 67     82     76     (15 )   (18.29 )%   (9 )   (11.84 )%
Total revenue 14,282     13,222     14,892     1,060     8.02 %   (610 )   (4.10 )%
                           
Employee commission expense 2,557     2,482     2,454     75     3.02 %   103     4.20 %
Revenue, net of commission expense 11,725     10,740     12,438     985     9.17 %   (713 )   (5.73 )%
                           
Salaries and employee benefits 6,403     5,790     6,095     613     10.59 %   308     5.05 %
Occupancy expense 599     537     562     62     11.55 %   37     6.58 %
Furniture and equipment 240     78     192     162     207.69 %   48     25.00 %
Amortization of intangible assets 675     706     704     (31 )   (4.39 )%   (29 )   (4.12 )%
Other expenses 1,535     1,385     1,892     150     10.83 %   (357 )   (18.87 )%
Total operating expenses 9,452     8,496     9,445     956     11.25 %   7     0.07 %
Income before income tax, corporate allocation and noncontrolling interest 2,273     2,244     2,993     29     1.29 %   (720 )   (24.06 )%
Corporate allocation (133 )   (161 )   (144 )   28     (17.39 )%   11     (7.64 )%
Income before income tax provision and noncontrolling interest 2,140     2,083     2,849     57     2.74 %   (709 )   (24.89 )%
Provision for income tax expense 745     728     1,044     17     2.34 %   (299 )   (28.64 )%
Net income 1,395     1,355     1,805     40     2.95 %   (410 )   (22.71 )%
Noncontrolling interest (259 )   (270 )   (342 )   11     (4.07 )%   83     (24.27 )%
Net income attributable to TowneBank $ 1,136     $ 1,085     $ 1,463     $ 51     4.70 %   $ (327 )   (22.35 )%
                           
Efficiency ratio 80.61 %   79.11 %   75.94 %   1.50 %   1.90 %   4.67 %   6.15 %
TOWNEBANK
Insurance Segment Financial Information
(dollars in thousands)
               
               
  Nine Months Ended   Increase/(Decrease)
  September 30,   2017 over 2016
  2017   2016   Amount   Percent
Net commission and fee income              
Property and casualty $ 27,496     $ 25,930     $ 1,566     6.04 %
Employee benefits 9,386     8,753     633     7.23 %
Travel insurance 3,756     3,546     210     5.92 %
Specialized benefit services 488     459     29     6.32 %
Total net commissions and fees 41,126     38,688     2,438     6.30 %
               
Contingency and bonus revenue 4,668     3,941     727     18.45 %
Other income 231     208     23     11.06 %
Total revenues 46,025     42,837     3,188     7.44 %
               
Employee commission expense 7,284     6,903     381     5.52 %
Revenue, net of commission expense 38,741     35,934     2,807     7.81 %
               
Salaries and employee benefits 18,658     17,481     1,177     6.73 %
Occupancy expense 1,753     1,582     171     10.81 %
Furniture and equipment 632     562     70     12.46 %
Amortization of intangible assets 2,077     2,083     (6 )   (0.29 )%
Other expenses 4,598     4,361     237     5.43 %
Total operating expenses 27,718     26,069     1,649     6.33 %
Income before income tax, corporate allocation and noncontrolling interest 11,023     9,865     1,158     11.74 %
Corporate allocation (454 )   (484 )   30     (6.20 )%
Income before income tax provision and noncontrolling interest 10,569     9,381     1,188     12.66 %
Provision for income tax 3,783     3,332     451     13.54 %
Net income 6,786     6,049     737     12.18 %
Noncontrolling interest (1,112 )   (1,106 )   (6 )   0.54 %
Net income attributable to TowneBank $ 5,674     $ 4,943     $ 731     14.79 %
               
Efficiency ratio 71.55 %   72.55 %   (1.00 )%   (1.38 )%
TOWNEBANK
Reconcilement of Non-GAAP Financial Measures
                   
                   
  Three Months Ended   Nine Months Ended
  September 30,   September 30,   June 30,   September 30,   September 30,
  2017   2016   2017   2017   2016
                   
Return on average assets (GAAP) 1.26 %   1.20 %   1.29 %   1.22 %   0.93 %
Impact of excluding average goodwill and other intangibles and amortization 0.11 %   0.12 %   0.11 %   0.11 %   0.08 %
Return on average tangible assets (non-GAAP) 1.37 %   1.32 %   1.40 %   1.33 %   1.01 %
                   
Return on average equity (GAAP) 9.49 %   8.95 %   9.43 %   9.04 %   6.99 %
Impact of excluding average goodwill and other intangibles and amortization 4.18 %   4.14 %   4.24 %   4.05 %   2.81 %
Return on average tangible equity (non-GAAP) 13.67 %   13.09 %   13.67 %   13.09 %   9.80 %
                   
Return on average common equity (GAAP) 9.58 %   9.04 %   9.53 %   9.13 %   7.06 %
Impact of excluding average goodwill and other intangibles and amortization 4.28 %   4.23 %   4.34 %   4.15 %   2.88 %
Return on average tangible common equity (non-GAAP) 13.86 %   13.27 %   13.87 %   13.28 %   9.94 %
                   
Book value (GAAP) $ 18.04     $ 17.11     $ 17.74     $ 18.04     $ 17.11  
Impact of excluding average goodwill and other intangibles and amortization 4.96     4.88     4.93     4.96     4.88  
Tangible book value (non-GAAP) $ 13.08     $ 12.23     $ 12.81     $ 13.08     $ 12.23  
                   
TOWNEBANK
Reconcilement of Non-GAAP Financial Measures
(dollars in thousands, except per share data)
                     
                     
Reconcilement of GAAP Earnings to Operating Earnings Excluding Certain Items Affecting Comparability   Three Months Ended
    September 30,   June 30,   March 31,   December 31,   September 30,
    2017   2017   2017   2016   2016
                     
Net income (GAAP)   $ 27,150     $ 26,213     $ 21,968     $ 18,996     $ 24,176  
                     
Purchase accounting corrections   —     (3,889 )   —     —     —  
                     
Acquisition-related expenses   466     1,281     (5 )   (707 )   969  
                     
Total charges   466     (2,608 )   (5 )   (707 )   969  
Income tax expense (benefit)   (117 )   1,167     75     264     (267 )
Total charges, net of taxes   349     (1,441 )   70     (443 )   702  
Operating earnings, excluding certain items affecting comparability (non-GAAP)   $ 27,499     $ 24,772     $ 22,038     $ 18,553     $ 24,878  
                     
Weighted average diluted shares   62,410,591     62,364,260     62,262,789     62,175,705     62,067,832  
                     
Diluted EPS (GAAP)   $ 0.44     $ 0.42     $ 0.35     $ 0.31     $ 0.39  
Diluted EPS, excluding certain items affecting comparability (non-GAAP)   $ 0.44     $ 0.40     $ 0.35     $ 0.30     $ 0.40  
                     
Average assets   $ 8,570,019     $ 8,180,959     $ 8,000,366     $ 7,965,438     $ 7,991,213  
Average tangible equity   $ 824,787     807,085     $ 791,433     $ 783,789     $ 772,932  
                     
Return on average assets, excluding certain items affecting comparability (non-GAAP)   1.27 %   1.21 %   1.12 %   0.93 %   1.24 %
Return on average tangible equity, excluding certain items affecting comparability (non-GAAP)   13.84 %   12.96 %   11.91 %   10.04 %   13.45 %
Efficiency ratio, excluding certain items affecting comparability (Non-GAAP)   63.92 %   66.41 %   66.80 %   72.34 %   63.94 %
TOWNEBANK
Reconcilement of Non-GAAP Financial Measures
(dollars in thousands, except per share data)
         
         
Reconcilement of GAAP Earnings to Operating Earnings Excluding Certain Items Affecting Comparability   Nine months ended
    September 30,   September 30,
    2017   2016
         
Net income (GAAP)   $ 75,330     $ 48,254  
         
Purchase accounting adjustments   (3,889 )   —  
         
Acquisition-related expenses   1,743     19,817  
         
Total charges   (2,146 )   19,817  
Income tax expense (benefit)   1,125     (6,476 )
Total charges, net of taxes   (1,021 )   13,341  
Operating earnings, excluding certain items affecting comparability (non-GAAP)   $ 74,309     $ 61,595  
         
Weighted average diluted shares   62,368,929     55,238,139  
         
Diluted EPS (GAAP)   $ 1.21     $ 0.87  
Diluted EPS, excluding certain items affecting comparability (non-GAAP)   $ 1.19     $ 1.12  
         
Average assets   $ 8,252,534     $ 6,949,985  
Average tangible equity   $ 807,891     $ 694,316  
         
Return on average assets, excluding certain items affecting comparability (non-GAAP)   1.20 %   1.18 %
Return on average tangible equity, excluding certain items affecting comparability (non-GAAP)   12.92 %   12.36 %
Efficiency ratio, excluding certain items affecting comparability (non-GAAP)   65.68 %   64.30 %

For more information contact:G. Robert Aston, Jr., Chairman and CEO, 757-638-6780Clyde E. McFarland, Jr., Senior Executive Vice President and CFO, 757-638-6801William B. Littreal, Chief Investor Relations Officer and CSO, 757-638-6813

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