TowneBank (the “Company”) (Nasdaq: TOWN) today reported financial results for the full year and the fourth quarter ended December 31, 2020. For the year ended December 31, 2020, earnings were $145.54 million, or $2.01 per diluted share, compared to $138.78 million, or $1.92 per diluted share for the year ended December 31, 2019. Earnings in the fourth quarter of 2020 were $50.08 million, or $0.69 per diluted share, compared to fourth quarter 2019 earnings of $35.08 million, or $0.49 per diluted share.

“We were pleased to deliver our 21St consecutive year of increased earnings during a year filled with challenges and opportunities. We achieved solid financial results while facing economic headwinds and prudently building substantial reserves to address future economic uncertainty. Our unique business model enabled our HomeTowne bankers to support our members and the communities we serve with more than $1.1 billion in funds through the Paycheck Protection Program. Additionally, our diverse sources of revenue resulted in record levels of total revenues which eclipsed $664 million for the year. TowneMortgage achieved record volumes and delivered a strong performance by closing more than $5.88 billion in mortgages. These accomplishments were the result of hard work and dedication from our more than 2,800 team members who work each day defining our culture of caring,” said G. Robert Aston, Jr., Executive Chairman.

Quarter Highlights:

  • Total revenues were $171.85 million, in fourth quarter 2020, an increase over the prior year quarter of $32.18 million, or 23.04%.
  • Quarterly pre-provision, pre-tax, net revenues (non-GAAP) were $62.11 million, an increase of $15.65 million, or 33.67%.
  • During fourth quarter 2020, we completed a core banking system conversion to allow the Company to provide a greater variety of financial services to our members through new technologies and enhanced digital solutions.
  • Loans held for investment increased $1.21 billion, or 14.37%, from December 31, 2019, and decreased $141.50 million, or 1.45%, from September 30, 2020. The balance at December 31, 2020 and September 30, 2020 included $0.86 billion and $1.10 billion, respectively, of loans originated under the Small Business Administration's Paycheck Protection Program ("PPP"). Excluding PPP, loans held for investment increased $353.89 million, or 4.20%, compared to prior year, and $105.75 million, or 4.85% on an annualized basis, compared to the linked quarter.
  • Total deposits were $11.57 billion, an increase of $2.30 billion, or 24.83%, compared to prior year but a decrease, due to expected runoff and seasonality, of $131.80 million, or 1.13%, from September 30, 2020.
  • Noninterest bearing deposits increased by 48.23%, to $4.37 billion, compared to prior year, representing 37.80% of total deposits. Compared to the linked quarter, noninterest bearing deposits decreased 2.01%.
  • In the quarter ended December 31, 2020, annualized return on average common shareholders' equity was 11.36% and annualized return on average tangible common shareholders' equity was 16.48% (non-GAAP). For the full 12 months, return on average common shareholders' equity was 8.52% and return on average tangible common shareholders' equity was 12.76% (non-GAAP).
  • Net interest margin of 2.97% and taxable equivalent net interest margin of 2.98% (non-GAAP) compared to the prior year quarter of 3.33% and 3.35%, respectively.
  • Effective tax rate of 17.21% compared to 18.17% at December 31, 2019.

“In addition to our financial results, we concluded a multi-year system conversion during the fourth quarter. This system will enable us to improve our digital capabilities and drive revenue growth. We opened the door to over 700 new relationships through our efforts with the Paycheck Protection Program, having onboarded 65% of those new banking relationships throughout 2020. We continue to have strong interest in nonbank acquisitions and completed an insurance agency acquisition in late December,” said J. Morgan Davis, President and Chief Executive Officer.

Quarterly Net Interest Income Compared to the Fourth Quarter of 2019:

  • Net interest income was $100.61 million compared to $89.96 million for the quarter ended December 31, 2019. Included in net interest income was PPP interest and fee income of $11.29 million and $0, respectively.
  • Taxable equivalent net interest margin was 2.98%, including purchase accounting accretion of 5 basis points and PPP accretion of 5 basis points, compared to 3.35%, including purchase accounting accretion of 9 basis points, for 2019.
  • Average loans held for investment, with an average yield of 4.28%, represented 72.32% of average earning assets in the fourth quarter of 2020 compared to an average yield of 4.81%, which represented 77.25% of average earning assets in the fourth quarter of 2019.
  • Total cost of deposits decreased to 0.37% from 0.92% at December 31, 2019.
  • Average interest-earning assets totaled $13.48 billion at December 31, 2020 compared to $10.72 billion at December 31, 2019, an increase of 25.76%.
  • Average interest-bearing liabilities totaled $8.03 billion, an increase of $0.97 billion, or 13.74%, from the prior year.
  • Total interest expense decreased 42.04%, to $15.37 million in fourth quarter 2020 compared to $26.52 million in fourth quarter 2019, and decreased $3.40 million, or 18.11%, compared to the linked quarter.

Quarterly Provision for Loan Losses:

  • Recorded a provision for loan losses of $1.21 million compared to $3.60 million one year ago and $28.26 million in the linked quarter. A combination of modest loan growth, significantly higher provisions in the two previous quarters, and improvements in the economic forecast were the drivers in the lower fourth quarter 2020 provision.
  • Net charge-offs were $0.11 million compared to $0.80 million one year prior. The ratio of net charge-offs (recoveries) to average loans on an annualized basis was 0.00% in fourth quarter 2020, (0.01)% in the linked quarter, and 0.04% in fourth quarter 2019.
  • Recorded a provision for credit losses on off-balance sheet commitments of $0.06 million compared to $3.50 million in the linked quarter.
  • The allowance for loan losses represented 1.25% of total loans compared to 1.22% at September 30, 2020 and 0.69% at December 31, 2019. Excluding PPP loans, which are fully government guaranteed, the allowance for credit losses (non-GAAP) was 1.37%, at December 31, 2020 and September 30, 2020. The allowance for loan losses was 10.74 times nonperforming loans compared to 7.31 times at September 30, 2020 and 3.34 times at December 31, 2019.

Quarterly Noninterest Income Compared to the Fourth Quarter of 2019:

  • Total noninterest income was $71.23 million compared to $49.71 million in 2019, an increase of $21.52 million, or 43.29%. Residential mortgage banking income increased $21.62 million, insurance commissions decreased $1.13 million, and real estate brokerage and property management income increased $2.49 million.
  • Residential mortgage banking income was $37.50 million compared to $15.88 million in fourth quarter 2019. Loan volume in the current quarter was $1.69 billion, with purchase activity comprising 59.76%. Loan volume in fourth quarter 2019 was $860.16 million, with purchase activity of 70.32%. Loan volume in the linked quarter was $1.79 billion with purchase activity of 61.21%.
  • Total insurance segment revenue decreased $2.89 million, or 14.51%, to $17.00 million in the fourth quarter of 2020. This decrease is attributable to several factors. The prior year quarter included proceeds from life insurance policies of $1.64 million. Contingency income and benefits commissions declined, compared to the prior year quarter. Additionally, there were no commissions on travel insurance in the fourth quarter of 2020, compared to $0.79 million in the prior year quarter, due to the sale of Red Sky Insurance in the third quarter of 2020. We also acquired an insurance agency, which is expected to add approximately $2.4 million in gross revenue for 2021, at the end of December 2020.
  • Property management fee revenue increased 35.30%, or $1.48 million, as compared to fourth quarter 2019 due to increases in reservation levels and stronger fourth quarter 2020 advanced reservations.
  • Service charges on deposit accounts declined $0.54 million, or 23.96%, compared to the prior year quarter due to fee waivers for members experiencing financial hardship and the waiving of various member service charges during our core conversion.

Quarterly Noninterest Expense Compared to the Fourth Quarter of 2019:

  • Total noninterest expense was $105.93 million compared to $92.34 million, an increase of $13.60 million, or 14.72%. This reflects increases of $5.46 million in salary and benefits expense, $1.09 million in software expense, and $0.68 million in occupancy expenses.
  • FDIC insurance assessments increased $1.84 million in fourth quarter 2020 compared to 2019 due to the Company's receipt of small bank assessment credits for $1.66 million in the fourth quarter of 2019.
  • Increases in salaries and benefits were driven by incentives related to a strong full-year performance and conversion and production related overtime. Software increases were largely driven by core conversion costs, and the costs associated with software needed to facilitate the adoption of CECL. Occupancy expense increases were driven by a full quarter expense related to the November 2019 expansion into the Greensboro, North Carolina market.
  • Recorded a loss on early extinguishment of debt of $2.63 million in the fourth quarter of 2020, associated with restructuring of certain borrowings to reduce future interest expense and deploy excess liquidity.   The impact of this nonrecurring expense was a reduction to our EPS of $0.03.

Quarterly Income Taxes Compared to the Fourth Quarter of 2019:

  • Income tax expense was $10.41 million compared to $7.79 million one year prior. This represents an effective tax rate of 17.21% compared to 18.17% in the fourth quarter of 2019.

Consolidated Balance Sheet December 31, 2020 Compared to December 31, 2019

  • Total assets were $14.63 billion at December 31, 2020, an increase of 22.42%, compared to $11.95 billion at December 31, 2019. This increase was driven primarily by increased liquidity levels and additional loan balances attributable to PPP loans.
  • Loans held for investment increased $1.21 billion, or 14.37%, compared to year end 2019, but decreased $0.14 billion compared to the linked quarter.  
  • Mortgage loans held for sale increased $121.57 million, or 29.00%, compared to prior year and decreased $128.22 million, or 19.17%, compared to the linked quarter.
  • Total deposits increased $2.30 billion, or 24.83%, over December 31, 2019, and decreased $0.13 billion, or 1.13%, compared to the linked quarter.

Investment Securities:

  • Total investment securities were $1.42 billion compared to $1.38 billion at September 30, 2020 and $1.52 billion at December 31, 2019. The weighted average duration of the portfolio at December 31, 2020 was 4.10 years. The carrying value of the AFS debt securities portfolio included $58.32 million in net unrealized gains compared to $19.73 million in net unrealized gains at December 31, 2019.

Loans and Asset Quality:

  • Total loans held for investment were $9.63 billion at December 31, 2020 compared to $9.77 billion at September 30, 2020 and $8.42 billion at December 31, 2019.
  • Nonperforming assets were $16.21 million, or 0.11% of total assets, compared to $32.80 million, or 0.27% of total assets, at December 31, 2019.
  • Nonperforming loans were 0.12% of period end loans compared to 0.21% at December 31, 2019.
  • Foreclosed property decreased to $4.28 million from $13.84 million at December 31, 2019.
  • Expected loss estimates are subject to change based on continuing review of models and assumptions, portfolio performance, changes in forecasted macroeconomic conditions and loan mix which could result in material changes to the reserve in future periods.
  • At December 31, 2020 we had $340.81 million in loan modifications made in accordance with section 4013 of the Cares Act, 64% are currently paying interest.

Deposits and Borrowings:

  • Total deposits were $11.57 billion compared to $11.70 billion at September 30, 2020 and $9.27 billion at December 31, 2019.
  • Total loans to total deposits were 83.20% compared to 83.47% at September 30, 2020 and 90.81% at December 31, 2019.
  • Non-interest bearing deposits were 37.80% of total deposits at December 31, 2020 compared to 38.14% at September 30, 2020 and 31.83% at December 31, 2019. Non-interest bearing deposits experienced typical seasonality during the fourth quarter.
  • Total borrowings were $0.96 billion compared to $1.04 billion and $0.77 billion at September 30, 2020 and December 31, 2019, respectively.

Capital:

  • Common equity tier 1 capital ratio of 11.87%.
  • Tier 1 leverage capital ratio of 8.99%.
  • Tier 1 risk-based capital ratio of 12.04%.
  • Total risk-based capital ratio of 15.42%.
  • Book value was $24.31 compared to $23.83 at September 30, 2020 and $22.58 at December 31, 2019.
  • Tangible book value (non-GAAP) was $17.46 compared to $17.06 at September 30, 2020 and $15.69 at December 31, 2019.

Annual Meeting of Shareholders:TowneBank intends to hold its 2021 Annual Meeting of Shareholders at 11:30 a.m. on Wednesday, May 26, 2021 at the Virginia Beach Convention Center, 1000 19th Street in Virginia Beach, Virginia.

About TowneBank:As one of the top community banks in Virginia and North Carolina, TowneBank operates 42 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 Raleigh, Cary, Charlotte, Greensboro, Greenville, Moyock, Grandy, Camden County, Southern Shores, Corolla and Nags Head in North Carolina. TowneBank 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 $14.63 billion as of December 31, 2020, TowneBank is one of the largest banks headquartered in Virginia.

Non-GAAP Financial Measures:

This press release contains financial information determined by methods other than in accordance with GAAP. The Company's management uses these non-GAAP financial measures in their analysis of the Company's performance. These measures typically adjust GAAP performance measures to exclude the effects of the amortization of intangibles and include the tax benefit associated with revenue items that are tax-exempt, as well as adjust income available to common shareholders for certain significant activities or transactions that are infrequent in nature. 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: the impact of the COVID-19 pandemic and the associated efforts to limit its spread, 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 areas; cybersecurity threats or attacks, the implementation of new technologies, and the ability to develop and maintain reliable electronic systems; changes in the securities markets; changes in accounting principles, policies and guidelines; and other risk factors detailed from time to time in filings made by TowneBank with the Federal Deposit Insurance Corporation. TowneBank undertakes no obligation to update or clarify these forward-looking statements, whether as a result of new information, future events or otherwise.

Media contact:G. Robert Aston, Jr., Executive Chairman, 757-638-6780J. Morgan Davis, President and Chief Executive Officer, 757-673-1673

Investor contact:William B. Littreal, Chief Financial Officer, 757-638-6813

TOWNEBANK
Selected Financial Highlights (unaudited)
(dollars in thousands, except per share data)
     
    Three Months Ended
    December 31,   September 30,   June 30,   March 31,   December 31,
  2020   2020   2020   2020   2019
Income and Performance Ratios:                  
  Total Revenue $ 171,848     $ 192,135     $ 162,656     $ 137,696     $ 139,671  
  Net income 53,891     50,715     37,222     27,605     35,948  
  Net income available to common shareholders 50,082     34,464     34,605     26,384     35,075  
  Pre-provision, pre-tax, net revenues (non-GAAP) 62,107     73,903     69,014     39,587     46,462  
  Net income per common share - diluted 0.69     0.48     0.48     0.36     0.49  
  Book value per common share 24.31     23.83     23.50     22.77     22.58  
  Book value per share - tangible (non-GAAP) 17.46     17.06     16.68     15.91     15.69  
  Return on average assets 1.35 %   0.89 %   0.97 %   0.88 %   1.16 %
  Return on average assets - tangible (non-GAAP) 1.46 %   0.97 %   1.07 %   1.00 %   1.30 %
  Return on average equity 11.26 %   7.85 %   8.18 %   6.37 %   8.44 %
  Return on average equity - tangible (non-GAAP) 16.28 %   11.66 %   12.32 %   9.91 %   12.97 %
  Return on average common equity 11.36 %   7.91 %   8.24 %   6.42 %   8.51 %
  Return on average common equity - tangible (non-GAAP) 16.48 %   11.79 %   12.44 %   10.01 %   13.12 %
  Noninterest income as a percentage of total revenue 41.45 %   49.64 %   42.66 %   35.00 %   35.59 %
Regulatory Capital Ratios (1):                  
  Common equity tier 1 11.87 %   11.75 %   11.54 %   11.23 %   11.46 %
  Tier 1 12.04 %   11.91 %   11.67 %   11.35 %   11.49 %
  Total 15.42 %   15.35 %   14.91 %   14.40 %   14.58 %
  Tier 1 leverage ratio 8.99 %   8.89 %   9.05 %   10.11 %   9.95 %
Asset Quality:                  
  Allowance for loan losses to nonperforming loans 10.74x   7.31x   5.34x   3.85x   3.34x
  Allowance for loan losses to period end loans 1.25 %   1.22 %   0.92 %   0.73 %   0.69 %
  Allowance for loan losses to period end loans excluding PPP loans (non-GAAP) 1.37 %   1.37 %   1.04 %   0.73 %   0.69 %
  Nonperforming loans to period end loans 0.12 %   0.17 %   0.17 %   0.19 %   0.21 %
  Nonperforming assets to period end assets 0.11 %   0.19 %   0.19 %   0.24 %   0.27 %
  Net charge-offs (recoveries) to average loans (annualized) %   (0.01 )%   %   0.03 %   0.04 %
                     
  Nonperforming loans $ 11,188     $ 16,295     $ 16,935     $ 16,700     $ 17,437  
  Former bank premises 750     750             1,521  
  Foreclosed property 4,276     11,695     12,315     13,053     13,839  
  Total nonperforming assets $ 16,214     $ 28,740     $ 29,250     $ 29,753     $ 32,797  
  Loans past due 90 days and still accruing interest $ 528     $ 19     $ 464     $ 91     $ 309  
  Allowance for loan losses 120,157     119,058     90,467     64,372     58,234  
Mortgage Banking:                  
  Loans originated, mortgage $ 1,257,963     $ 1,292,801     $ 1,116,782     $ 718,681     $ 628,279  
  Loans originated, joint venture 429,848     498,100     357,815     204,522     231,879  
  Total loans originated $ 1,687,811     $ 1,790,901     $ 1,474,597     $ 923,203     $ 860,158  
  Number of loans originated 5,481     5,817     4,818     3,025     2,984  
  Number of originators 228     224     216     223     217  
  Purchase % 59.76 %   61.21 %   51.26 %   61.31 %   70.32 %
  Loans sold $ 1,845,926     $ 1,833,590     $ 1,398,649     $ 809,834     $ 879,910  
  Rate lock asset $ 11,781     $ 10,480     $ 7,202     $ 3,691     $ 1,525  
  Gross realized gain on sales and fees as a % of loans originated 4.02 %   3.65 %   3.17 %   1.80 %   3.38 %
Other Ratios:                  
  Net interest margin 2.97 %   2.70 %   2.85 %   3.35 %   3.33 %
  Net interest margin-fully tax equivalent (non-GAAP) 2.98 %   2.72 %   2.87 %   3.37 %   3.35 %
  Average earning assets/total average assets 91.59 %   92.09 %   91.33 %   89.15 %   89.57 %
  Average loans/average deposits 83.42 %   86.29 %   91.81 %   92.99 %   88.41 %
  Average noninterest deposits/total average deposits 39.61 %   37.76 %   36.52 %   32.21 %   32.14 %
  Period end equity/period end total assets 12.20 %   11.82 %   11.05 %   13.19 %   13.84 %
  Efficiency ratio (non-GAAP) 60.02 %   57.36 %   55.17 %   70.79 %   63.96 %
  (1) Current reporting period regulatory capital ratios are preliminary.            
               
TOWNEBANK
Selected Data (unaudited)
(dollars in thousands)
 
                   
Investment Securities             % Change
  Q4   Q4   Q3   Q4 20 vs.   Q4 20 vs.
Available-for-sale securities, at fair value 2020   2019   2020   Q4 19   Q3 20
U.S. agency securities $ 184,657     $ 129,038     $ 167,275     43.10 %   10.39 %
U.S. Treasury notes 1,000     1,000     1,006     %   (0.60 )%
Municipal securities 353,651     223,106     292,792     58.51 %   20.79 %
Trust preferred and other corporate securities 31,499     53,367     24,236     (40.98 )%   29.97 %
Mortgage-backed securities issued by GSE and GNMA 797,765     1,034,797     825,378     (22.91 )%   (3.35 )%
Allowance for credit losses (348 )       (4 )   n/m   n/m
Total $ 1,368,224     $ 1,441,308     $ 1,310,683     (5.07 )%   4.39 %
                   
Gross unrealized gains (losses) reflected in financial statements                  
Total gross unrealized gains $ 60,025     $ 23,950     $ 62,206     150.63 %   (3.51 )%
Total gross unrealized losses (1,703 )   (4,215 )   (773 )   (59.60 )%   120.31 %
Net unrealized gain (loss) on AFS securities $ 58,322     $ 19,735     $ 61,433     195.53 %   (5.06 )%
                   
Held-to-maturity securities, at amortized cost                  
Municipal securities $ 5,012     $ 29,167     $ 2,333     (82.82 )%   114.83 %
Trust preferred corporate securities 2,321     2,369     4,992     (2.03 )%   (53.51 )%
Mortgage-backed securities issued by GSE and GNMA 9,179     12,152     9,806     (24.47 )%   (6.39 )%
Allowance for credit losses (97 )       (90 )   n/a   7.78 %
Total $ 16,415     $ 43,688     $ 17,041     (62.43 )%   (3.67 )%
                   
Gross unrealized gains (losses) not reflected in financial statements                
Total gross unrealized gains $ 1,957     $ 1,520     $ 1,971     28.75 %   (0.71 )%
Total gross unrealized losses     (37 )       (100.00 )%   n/m
Net unrealized gain (loss) on HTM securities $ 1,957     $ 1,483     $ 1,971     31.96 %   (0.71 )%
                   
Loans Held For Investment (1)             % Change
  Q4   Q4   Q3   Q4 20 vs.   Q4 20 vs.
  2020   2019   2020   Q4 19   Q3 20
Real estate - construction and development $ 1,199,772     $ 1,120,533     $ 1,143,202     7.07 %   4.95 %
Commercial real estate - investment related properties 2,335,235     2,183,232     2,338,532     6.96 %   (0.14 )%
Commercial real estate - owner occupied 1,380,516     1,329,144     1,378,443     3.87 %   0.15 %
Real estate - multifamily 295,488     243,041     289,270     21.58 %   2.15 %
Real estate - residential 1-4 family 1,629,105     1,653,084     1,660,535     (1.45 )%   (1.89 )%
Commercial and industrial business 2,370,051     1,574,275     2,499,801     50.55 %   (5.19 )%
Consumer and other loans 418,901     315,979     460,787     32.57 %   (9.09 )%
Total $ 9,629,068     $ 8,419,288     $ 9,770,570     14.37 %   (1.45 )%
(1) PPP loans totaling $0.86 billion and $1.10 billion, primarily in C&I, are included in Q4 2020 and Q3 2020, respectively.
                   
Deposits             % Change
  Q4   Q4   Q3   Q4 20 vs.   Q4 20 vs.
  2020   2019   2020   Q4 19   Q3 20
Noninterest-bearing demand $ 4,374,566     $ 2,951,225     $ 4,464,178     48.23 %   (2.01 )%
Interest-bearing:                  
Demand and money market accounts 4,819,604     3,586,364     4,642,482     34.39 %   3.82 %
Savings 330,091     276,205     312,444     19.51 %   5.65 %
Certificates of deposits 2,048,905     2,457,123     2,285,859     (16.61 )%   (10.37 )%
Total $ 11,573,166     $ 9,270,917     $ 11,704,963     24.83 %   (1.13 )%
                   
TOWNEBANK
Average Balances, Yields and Rate Paid (unaudited)
(dollars in thousands)
 
  Three Months Ended   Three Months Ended   Three Months Ended
  December 31, 2020   September 30, 2020   December 31, 2019
      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 (1) $ 9,752,150     $ 104,799     4.28 %   $ 9,752,746     $ 103,401     4.22 %   $ 8,283,388     $ 100,504     4.81 %
Taxable investment securities 1,250,375     6,878     2.20 %   1,206,679     6,726     2.23 %   1,331,175     9,179     2.76 %
Tax-exempt investment securities 139,572     520     1.49 %   144,999     779     2.15 %   118,298     908     3.07 %
Total securities 1,389,947     7,398     2.13 %   1,351,678     7,505     2.22 %   1,449,473     10,087     2.78 %
Interest-bearing deposits 1,754,365     435     0.10 %   2,523,644     632     0.10 %   519,737     2,067     1.58 %
Loans held for sale 587,517     3,867     2.63 %   634,309     4,587     2.89 %   469,725     4,413     3.76 %
Total earning assets 13,483,979     116,499     3.44 %   14,262,377     116,125     3.24 %   10,722,323     117,071     4.33 %
Less: allowance for loan losses (121,402 )           (95,594 )           (56,766 )        
Total nonearning assets 1,359,808             1,320,369             1,305,036          
Total assets $ 14,722,385             $ 15,487,152             $ 11,970,593          
Liabilities and Equity:                                  
Interest-bearing deposits                                  
Demand and money market $ 4,582,588     $ 2,633     0.23 %   $ 4,311,920     $ 2,663     0.25 %   $ 3,533,912     $ 6,421     0.72 %
Savings 317,561     552     0.69 %   304,753     555     0.72 %   278,910     638     0.91 %
Certificates of deposit 2,159,573     7,578     1.40 %   2,417,772     9,747     1.60 %   2,544,845     14,685     2.29 %
Total interest-bearing deposits 7,059,722     10,763     0.61 %   7,034,445     12,965     0.73 %   6,357,667     21,744     1.36 %
Borrowings 722,291     1,645     0.89 %   1,931,120     2,841     0.58 %   454,621     1,810     1.56 %
Subordinated debt, net 248,965     2,962     4.76 %   248,807     2,962     4.76 %   248,361     2,962     4.77 %
Total interest-bearing liabilities 8,030,978     15,370     0.76 %   9,214,372     18,768     0.81 %   7,060,649     26,516     1.49 %
Demand deposits 4,630,665             4,268,443             3,011,688          
Other noninterest-bearing liabilities 291,836             257,304             250,327          
Total liabilities 12,953,479             13,740,119             10,322,664          
Shareholders’ equity 1,768,906             1,747,033             1,647,929          
Total liabilities and equity $ 14,722,385             $ 15,487,152             $ 11,970,593          
Net interest income (tax-equivalent basis)     $ 101,129             $ 97,357             $ 90,555      
Reconcilement of Non-GAAP Financial Measures                                
Tax-equivalent basis adjustment     (515 )           (598 )           (596 )    
Net interest income (GAAP)     $ 100,614             $ 96,759             $ 89,959      
Interest rate spread (2)(3)         2.68 %           2.43 %           2.84 %
Interest expense as a percent of average earning assets       0.45 %           0.52 %           0.98 %
Net interest margin (tax equivalent basis) (3)(4)       2.98 %           2.72 %           3.35 %
Total cost of deposits         0.37 %           0.46 %           0.92 %
                                   

(1) December 31, and September 30, 2020 balances include average PPP balances of $1.04 billion and $1.10 billion, and related interest and fee income of $11.29 million and $9.82 million, respectively. There were no PPP balances at December 31, 2019.(2) Interest spread is the average yield earned on earning assets less the average rate paid on interest-bearing liabilities. Fully tax equivalent.(3) Net interest margin is net interest income expressed as a percentage of average earning assets. Fully tax equivalent.(4) Non-GAAP.

TOWNEBANK
Average Balances, Yields and Rate Paid (unaudited)
(dollars in thousands)
 
  Year Ended December 31,
  2020   2019   2018
      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 (1) $ 9,420,584     $ 411,421     4.37 %   $ 8,122,210     $ 405,511     4.99 %   $ 7,567,570     $ 373,057     4.93 %
Taxable investment securities 1,252,926     30,181     2.41 %   1,202,107     34,141     2.84 %   1,004,080     24,729     2.46 %
Tax-exempt investment securities 140,078     2,997     2.14 %   102,731     3,426     3.34 %   79,720     2,920     3.66 %
Total securities 1,393,004     33,178     2.38 %   1,304,838     37,567     2.88 %   1,083,800     27,649     2.55 %
Interest-bearing deposits 689,715     2,603     0.38 %   665,903     13,825     2.08 %   560,368     10,229     1.83 %
Mortgage loans held for sale 505,502     15,252     3.02 %   335,588     13,379     3.99 %   293,017     13,124     4.48 %
Total earning assets 12,008,805     462,454     3.85 %   10,428,539     470,282     4.51 %   9,504,755     424,059     4.46 %
Less: allowance for loan losses (85,570 )           (54,476 )           (48,737 )        
Total nonearning assets 2,248,971             1,264,363             1,143,167          
Total assets $ 14,172,206             $ 11,638,426             $ 10,599,185          
Liabilities and Equity:                                  
Interest-bearing deposits                                  
Demand and money market $ 4,070,562     $ 13,105     0.32 %   $ 3,351,135     $ 26,909     0.80 %   $ 2,951,038     $ 16,458     0.56 %
Savings 297,441     2,254     0.76 %   280,894     3,296     1.17 %   302,435     3,824     1.26 %
Certificates of deposit 2,378,281     42,502     1.79 %   2,478,663     56,050     2.26 %   2,060,587     32,859     1.59 %
Total interest-bearing deposits 6,746,284     57,861     0.86 %   6,110,692     86,255     1.41 %   5,314,060     53,141     1.00 %
Borrowings 1,269,064     10,306     0.80 %   609,142     11,368     1.84 %   897,574     15,542     1.71 %
Subordinated debt, net 248,736     11,847     4.76 %   248,139     11,847     4.77 %   251,097     12,067     4.81 %
Total interest-bearing liabilities 8,264,084     80,014     0.97 %   6,967,973     109,470     1.57 %   6,462,731     80,750     1.25 %
Demand deposits 3,924,797             2,844,178             2,517,173          
Other noninterest-bearing liabilities 262,266             228,994             164,486          
Total liabilities 12,451,147             10,041,145             9,144,390          
Shareholders' equity 1,721,059             1,597,281             1,454,795          
Total liabilities and equity $ 14,172,206             $ 11,638,426             $ 10,599,185          
Net interest income (tax-equivalent basis)   $ 382,440             $ 360,812             $ 343,309      
Reconcilement of Non-GAAP Financial Measures                                
Tax-equivalent basis adjustment   (2,296 )           (2,457 )           (2,236 )    
Net interest income (GAAP)   $ 380,144             $ 358,355             $ 341,073      
Interest rate spread (2)(4)       2.88 %           2.94 %           3.21 %
Interest expense as a percent of average earning assets       0.67 %           1.05 %           0.85 %
Net interest margin (tax-equivalent basis) (3)(4)       3.18 %           3.46 %           3.61 %
Total cost of deposits       0.54 %           0.96 %           0.68 %
                                   

(1) December 31, 2020 balances include average PPP balances of $0.74 billion and related interest and fee income of $26.94 million. There were no PPP balances at December 31, 2019 or 2018.(2) Interest spread is the average yield earned on earning assets less the average rate paid on interest-bearing liabilities. Fully tax equivalent.(3) Net interest margin is net interest income expressed as a percentage of average earning assets. Fully tax equivalent.(4) Non-GAAP.

TOWNEBANK
Consolidated Balance Sheets
(dollars in thousands, except per share data)
       
  2020   2019
  (unaudited)   (audited)
ASSETS      
Cash and due from banks $ 41,514     $ 97,593  
Interest-bearing deposits at FRB - Richmond 1,795,241     322,505  
Interest-bearing deposits in financial institutions 27,532     22,518  
Total Cash and Cash Equivalents 1,864,287     442,616  
Securities available for sale, at fair value (amortized cost $1,310,250, allowance for credit losses of $348)(1) 1,368,224     1,441,308  
Securities held to maturity, at amortized cost (fair value $18,469)(1) 16,512     43,688  
Less: allowance for credit losses (97 )    
Securities held to maturity, net of allowance for credit losses 16,415     43,688  
Other equity securities 6,492     6,462  
FHLB stock 30,135     30,094  
Total Securities 1,421,266     1,521,552  
Mortgage loans held for sale 540,798     419,233  
Loans, net of unearned income and deferred costs 9,629,068     8,419,288  
Less: allowance for credit losses (120,157 )   (58,234 )
Net Loans 9,508,911     8,361,054  
Premises and equipment, net 260,242     231,806  
Goodwill 452,328     446,816  
Other intangible assets, net 45,533     54,399  
BOLI 246,109     243,062  
Other assets 286,970     227,125  
TOTAL ASSETS $ 14,626,444     $ 11,947,663  
LIABILITIES AND EQUITY      
Deposits:      
Noninterest-bearing demand $ 4,374,566     $ 2,951,225  
Interest-bearing:      
Demand and money market accounts 4,819,604     3,586,364  
Savings 330,091     276,205  
Certificates of deposit 2,048,905     2,457,123  
Total Deposits 11,573,166     9,270,917  
Advances from the FHLB 456,038     471,687  
Subordinated debt, net 249,055     248,458  
FRB PPP Lending Facility 182,852      
Repurchase agreements and other borrowings 67,786     52,391  
Total Borrowings 955,731     772,536  
Other liabilities 313,719     250,516  
TOTAL LIABILITIES 12,842,616     10,293,969  
Preferred stock      
Authorized and unissued shares - 2,000,000      
Common stock, $1.667 par: Authorized shares - 150,000,000      
Issued and outstanding shares 72,667,541 in 2020 and 72,649,682 in 2019 121,132     121,107  
Capital surplus 1,046,642     1,041,160  
Retained earnings 557,889     467,186  
Common stock issued to deferred compensation trust, at cost      
873,486 shares in 2020 and 818,578 shares in 2019 (16,969 )   (15,555 )
Deferred compensation trust 16,969     15,555  
Accumulated other comprehensive income (loss) 41,184     11,302  
TOTAL SHAREHOLDERS’ EQUITY 1,766,847     1,640,755  
Noncontrolling interest 16,981     12,939  
TOTAL EQUITY 1,783,828     1,653,694  
TOTAL LIABILITIES AND EQUITY $ 14,626,444     $ 11,947,663  
               

(1) For 2020, disclosures are presented in compliance with ASC 326.

TOWNEBANK
Consolidated Statements of Income
(dollars in thousands, except per share data)
     
  Three Months Ended   Twelve Months Ended
  December 31,   December 31,
  2020   2019   2020   2019
  (unaudited)   (unaudited)   (unaudited)   (audited)
INTEREST INCOME:              
Loans, including fees $ 104,182     $ 100,059     $ 409,252     $ 403,675  
Investment securities 7,499     9,936     33,052     36,946  
Interest-bearing deposits in financial institutions and federal funds sold 435     2,067     2,603     13,825  
Mortgage loans held for sale 3,867     4,413     15,252     13,379  
Total interest income 115,983     116,475     460,159     467,825  
INTEREST EXPENSE:              
Deposits 10,762     21,744     57,862     86,255  
Advances from the FHLB 1,404     1,730     8,393     11,018  
Subordinated debt, net 2,962     2,962     11,847     11,847  
Repurchase agreements and other borrowings 241     80     1,913     350  
Total interest expense 15,369     26,516     80,015     109,470  
Net interest income 100,614     89,959     380,144     358,355  
PROVISION FOR CREDIT LOSSES 1,617     3,601     67,177     9,371  
Net interest income after provision for credit losses 98,997     86,358     312,967     348,984  
NONINTEREST INCOME:              
Residential mortgage banking income, net 37,504     15,884     112,166     66,812  
Insurance commissions and other title fees and income, net 13,868     15,001     65,840     64,478  
Real estate brokerage and property management income, net 9,229     6,737     38,249     34,292  
Service charges on deposit accounts 1,707     2,245     8,021     10,544  
Credit card merchant fees, net 1,377     1,389     5,170     4,746  
BOLI 1,990     3,865     8,285     9,215  
Other income 5,559     4,591     36,826     16,346  
Net gain/(loss) on investment securities         9,634     (845 )
Total noninterest income 71,234     49,712     284,191     205,588  
NONINTEREST EXPENSE:              
Salaries and employee benefits 61,475     56,013     235,676     218,920  
Occupancy expense 8,193     7,516     31,317     31,381  
Furniture and equipment 3,462     3,598     13,914     14,351  
Amortization - intangibles 2,797     3,005     11,498     12,370  
Software expense 4,066     2,976     14,622     11,717  
Data processing 2,363     2,510     10,985     11,825  
Professional fees 2,591     2,990     11,268     12,943  
Advertising and marketing 2,204     2,839     9,643     12,279  
Other expenses 18,781     10,889     56,902     52,516  
Total noninterest expense 105,932     92,336     395,825     378,302  
Income before income tax expense and noncontrolling interest 64,299     43,734     201,333     176,270  
Provision for income tax expense 10,408     7,786     31,900     32,596  
Net income $ 53,891     $ 35,948     $ 169,433     $ 143,674  
Net income attributable to noncontrolling interest (3,809 )   (873 )   (23,898 )   (4,891 )
Net income attributable to TowneBank $ 50,082     $ 35,075     $ 145,535     $ 138,783  
               
Per common share information              
Basic earnings $ 0.69     $ 0.49     $ 2.01     $ 1.93  
Diluted earnings $ 0.69     $ 0.49     $ 2.01     $ 1.92  
Cash dividends declared $ 0.18     $ 0.18     $ 0.72     $ 0.70  
                               
TOWNEBANK
Consolidated Balance Sheets - Five Quarter Trend
(dollars in thousands, except per share data)
 
                   
  December 31,   September 30,   June 30,   March 31,   December 31,
  2020   2020   2020   2020   2019
  (unaudited)   (unaudited)   (unaudited)   (unaudited)   (audited)
ASSETS                  
Cash and due from banks $ 41,514     $ 114,604     $ 115,724     $ 108,929     $ 97,593  
Interest-bearing deposits at FRB - Richmond 1,795,241     1,670,186     2,511,152     753,643     322,505  
Interest-bearing deposits in financial institutions 27,532     24,890     24,374     23,564     22,518  
Total Cash and Cash Equivalents 1,864,287     1,809,680     2,651,250     886,136     442,616  
Securities available for sale, at fair value 1,368,224     1,310,683     1,266,624     1,248,420     1,441,308  
Securities held to maturity 16,512     17,131     41,595     42,431     43,688  
Less: allowance for credit losses (97 )   (90 )   (121 )   (133 )    
Securities held to maturity, net of allowance for credit losses 16,415     17,041     41,474     42,298     43,688  
Other equity securities 6,492     6,497     6,497     6,462     6,462  
Federal Home Loan Bank stock 30,135     41,829     49,277     52,042     30,094  
Total Securities 1,421,266     1,376,050     1,363,872     1,349,222     1,521,552  
Mortgage loans held for sale 540,798     669,020     610,369     453,143     419,233  
Loans, net of unearned income and deferred costs 9,629,068     9,770,570     9,801,889     8,784,195     8,419,288  
Less: allowance for credit losses (120,157 )   (119,058 )   (90,467 )   (64,372 )   (58,234 )
Net Loans 9,508,911     9,651,512     9,711,422     8,719,823     8,361,054  
Premises and equipment, net 260,242     256,909     257,533     236,735     231,806  
Goodwill 452,328     446,725     446,725     446,725     446,816  
Other intangible assets, net 45,533     45,781     48,632     51,448     54,399  
BOLI 246,109     244,103     242,493     240,924     243,062  
Other assets 286,970     295,637     247,962     239,670     227,125  
TOTAL ASSETS $ 14,626,444     $ 14,795,417     $ 15,580,258     $ 12,623,826     $ 11,947,663  
LIABILITIES AND EQUITY                  
Deposits:                  
Noninterest-bearing demand $ 4,374,566     $ 4,464,178     $ 4,226,208     $ 3,060,515     $ 2,951,225  
Interest-bearing:                  
Demand and money market accounts 4,819,604     4,642,482     4,223,391     3,573,926     3,586,364  
Savings 330,091     312,444     298,673     280,807     276,205  
Certificates of deposit 2,048,905     2,285,859     2,516,666     2,392,744     2,457,123  
Total Deposits 11,573,166     11,704,963     11,264,938     9,307,992     9,270,917  
Advances from the FHLB 456,038     731,202     906,365     971,527     471,687  
Subordinated debt, net 249,055     248,906     248,756     248,607     248,458  
FRB PPP Lending Facility 182,852         1,111,429          
Repurchase agreements and other borrowings 67,786     58,061     60,913     171,762     52,391  
Total Borrowings 955,731     1,038,169     2,327,463     1,391,896     772,536  
Other liabilities 313,719     303,582     266,314     258,306     250,516  
TOTAL LIABILITIES 12,842,616     13,046,714     13,858,715     10,958,194     10,293,969  
Preferred stock                  
Authorized shares - 2,000,000                  
Common stock, $1.667 par value 121,132     121,115     121,101     121,057     121,107  
Capital surplus 1,046,642     1,045,170     1,043,774     1,041,870     1,041,160  
Retained earnings 557,889     520,888     499,502     477,972     467,186  
Common stock issued to deferred compensation trust, at cost (16,969 )   (16,951 )   (16,776 )   (15,562 )   (15,555 )
Deferred compensation trust 16,969     16,951     16,776     15,562     15,555  
Accumulated other comprehensive income (loss) 41,184     44,569     43,218     12,301     11,302  
TOTAL SHAREHOLDERS’ EQUITY 1,766,847     1,731,742     1,707,595     1,653,200     1,640,755  
Noncontrolling interest 16,981     16,961     13,948     12,432     12,939  
TOTAL EQUITY 1,783,828     1,748,703     1,721,543     1,665,632     1,653,694  
TOTAL LIABILITIES AND EQUITY $ 14,626,444     $ 14,795,417     $ 15,580,258     $ 12,623,826     $ 11,947,663  
                                       
TOWNEBANK
Consolidated Statements of Income - Five Quarter Trend (unaudited)
(dollars in thousands, except per share data)
           
           
  Three Months Ended
  December 31,   September 30,   June 30,   March 31,   December 31,
  2020   2020   2020   2020   2019
INTEREST INCOME:                  
Loans, including fees $ 104,182     $ 102,869     $ 102,139     $ 100,062     $ 100,059  
Investment securities 7,499     7,440     8,163     9,949     9,936  
Interest-bearing deposits in financial institutions and federal funds sold 435     632     433     1,102     2,067  
Mortgage loans held for sale 3,867     4,587     3,811     2,988     4,413  
Total interest income 115,983     115,528     114,546     114,101     116,475  
INTEREST EXPENSE:                  
Deposits 10,762     12,966     15,072     19,062     21,744  
Advances from the FHLB 1,404     1,901     2,595     2,492     1,730  
Subordinated debt 2,962     2,962     2,962     2,962     2,962  
Repurchase agreements and other borrowings 241     940     643     89     80  
Total interest expense 15,369     18,769     21,272     24,605     26,516  
Net interest income 100,614     96,759     93,274     89,496     89,959  
PROVISION FOR CREDIT LOSSES 1,617     31,598     26,945     7,016     3,601  
Net interest income after provision for credit losses 98,997     65,161     66,329     82,480     86,358  
NONINTEREST INCOME:                  
Residential mortgage banking income, net 37,504     37,531     29,715     7,416     15,884  
Insurance commissions and other title fees and income, net 13,868     17,468     17,612     16,893     15,001  
Real estate brokerage and property management income, net 9,229     11,301     10,781     6,938     6,737  
Service charges on deposit accounts 1,707     1,986     1,888     2,440     2,245  
Credit card merchant fees, net 1,377     1,506     1,109     1,179     1,389  
BOLI 1,990     1,605     1,584     3,105     3,865  
Other income 5,559     22,278     3,763     5,227     4,591  
Net gain/(loss) on investment securities     1,701     2,930     5,002      
Total noninterest income 71,234     95,376     69,382     48,200     49,712  
NONINTEREST EXPENSE:                  
Salaries and employee benefits 61,475     61,408     56,926     55,867     56,013  
Occupancy expense 8,193     8,396     7,227     7,502     7,516  
Furniture and equipment 3,462     3,247     3,564     3,640     3,598  
Amortization - intangibles 2,797     2,851     2,901     2,950     3,005  
Software expense 4,066     3,572     3,492     3,492     2,976  
Data processing 2,363     3,113     2,718     2,791     2,510  
Professional fees 2,591     2,637     2,972     3,067     2,990  
Advertising and marketing 2,204     1,870     1,986     3,584     2,839  
Other expenses 18,781     14,887     9,239     13,995     10,889  
Total noninterest expense 105,932     101,981     91,025     96,888     92,336  
Income before income tax expense and noncontrolling interest 64,299     58,556     44,686     33,792     43,734  
Provision for income tax expense 10,408     7,841     7,464     6,187     7,786  
Net income 53,891     50,715     37,222     27,605     35,948  
Net income attributable to noncontrolling interest (3,809 )   (16,251 )   (2,617 )   (1,221 )   (873 )
Net income attributable to TowneBank $ 50,082     $ 34,464     $ 34,605     $ 26,384     $ 35,075  
Per common share information                  
Basic earnings $ 0.69     $ 0.48     $ 0.48     $ 0.37     $ 0.49  
Diluted earnings (1) $ 0.69     $ 0.48     $ 0.48     $ 0.36     $ 0.49  
Basic weighted average shares outstanding 72,357,177     72,307,961     72,280,555     72,206,228     72,122,476  
Diluted weighted average shares outstanding 72,455,096     72,344,284     72,317,988     72,299,721     72,302,414  
Cash dividends declared $ 0.18     $ 0.18     $ 0.18     $ 0.18     $ 0.18  
                                       

(1) The quarterly diluted EPS do not sum to the total year diluted EPS due to rounding.

TOWNEBANKBanking Segment Financial Information(dollars in thousands)
                                                     
                                                     
  Three Months Ended   Year Ended   Increase/(Decrease)
  December 31,    September 30,    December 31,   2020 over 2019
    2020       2019        2020       2020       2019       Amount     Percent 
Revenue                                                    
Net interest income $ 97,412     $ 87,637     $ 92,869     $ 367,353     $ 351,969     $ 15,384     4.37 %
Noninterest income                          
Service charges on deposit accounts 1,707     2,245     1,986     8,021     10,544     (2,523 )   (23.93 )%
Credit card merchant fees 1,377     1,389     1,506     5,169     4,746     423     8.91 %
Other income 5,983     5,271     4,876     21,809     19,620     2,189     11.16 %
Subtotal 9,067     8,905     8,368     34,999     34,910     89     0.25 %
Gain (loss) on investment securities         1,701     9,634     (845 )   10,479     n/m
Total noninterest income 9,067     8,905     10,069     44,633     34,065     10,568     31.02 %
Total revenue 106,479     96,542     102,938     411,986     386,034     25,952     6.72 %
                           
Provision for credit losses 1,628     3,601     31,070     65,799     9,371     56,428     602.16 %
                           
Expenses                          
Salaries and employee benefits 37,358     34,183     36,535     142,328     131,149     11,179     8.52 %
Occupancy expense 5,681     4,959     5,829     21,237     20,419     818     4.01 %
Furniture and equipment 2,625     2,577     2,424     10,425     10,240     185     1.81 %
Amortization of intangible assets 1,013     1,214     1,063     4,354     5,160     (806 )   (15.62 )%
Other expenses 19,892     14,078     15,793     65,107     66,295     (1,188 )   (1.79 )%
Total expenses 66,569     57,011     61,644     243,451     233,263     10,188     4.37 %
Income before income tax, corporate allocation and noncontrolling interest 38,282     35,930     10,224     102,736     143,400     (40,664 )   (28.36 )%
Corporate allocation 643     627     595     2,534     2,011     523     26.01 %
Income before income tax provision and noncontrolling interest 38,925     36,557     10,819     105,270     145,411     (40,141 )   (27.61 )%
Provision for income tax expense 5,163     6,368     474     14,467     25,706     (11,239 )   (43.72 )%
Net income 33,762     30,189     10,345     90,803     119,705     (28,902 )   (24.14 )%
Noncontrolling interest 4     (1 )   (2 )   6     2     4     n/m
Net income attributable to TowneBank $ 33,766     $ 30,188     $ 10,343     $ 90,809     $ 119,707     $ (28,898 )   (24.14 )%
                           
Efficiency ratio (non-GAAP) 61.57 %   57.80 %   59.84 %   59.42 %   58.96 %        
                                     
TOWNEBANK
Realty Segment Financial Information
(dollars in thousands)
 
       
  Three Months Ended   Year Ended   Increase/(Decrease)
  December 31,   September 30,   December 31,   2020 over 2019
  2020   2019   2020   2020   2019   Amount   Percent
Revenue                          
Residential mortgage brokerage income, net $ 38,040     $ 16,617     $ 38,074     $ 114,589     $ 68,443     $ 46,146     67.42 %
Real estate brokerage income, net 3,564     2,550     3,688     11,776     9,865     1,911     19.37 %
Title insurance and settlement fees 669     531     654     2,397     2,111     286     13.55 %
Property management fees, net 5,665     4,187     7,613     26,473     24,427     2,046     8.38 %
Income from unconsolidated subsidiary 398     75     451     1,336     516     820     158.91 %
Net interest and other income 3,627     2,787     4,101     13,889     7,724     6,165     79.82 %
Total revenue 51,963     26,747     54,581     170,460     113,086     57,374     50.73 %
                           
Provision for (recovery of) credit losses (11 )       528     1,378         $ 1,378     n/m
                           
Expenses                          
Salaries and employee benefits $ 16,168     $ 12,941     $ 15,744     $ 58,263     $ 52,619     $ 5,644     10.73 %
Occupancy expense 1,869     1,857     1,906     7,465     8,285     (820 )   (9.90 )%
Furniture and equipment 614     773     620     2,622     3,099     (477 )   (15.39 )%
Amortization of intangible assets 658     655     658     2,630     2,741     (111 )   (4.05 )%
Other expenses 8,779     7,030     9,226     33,143     27,982     5,161     18.44 %
Total expenses 28,088     23,256     28,154     104,123     94,726     9,397     9.92 %
                           
Income (loss) before income tax, corporate allocation, and noncontrolling interest 23,886     3,491     25,899     64,959     18,360     46,599     253.81 %
Corporate allocation (403 )   (362 )   (356 )   (1,522 )   (1,163 )   (359 )   30.87 %
Income (loss) before income tax provision and noncontrolling interest 23,483     3,129     25,543     63,437     17,197     46,240     268.88 %
Provision for income tax 4,421     416     4,780     12,035     3,707     8,328     224.66 %
Net income (loss) 19,062     2,713     20,763     51,402     13,490     37,912     281.04 %
Noncontrolling interest (3,813 )   (715 )   (4,790 )   (11,809 )   (3,711 )   (8,098 )   218.22 %
Net income (loss) attributable to TowneBank $ 15,249     $ 1,998     $ 15,973     $ 39,593     $ 9,779     $ 29,814     304.88 %
                           
Efficiency ratio (non-GAAP) 52.79 %   84.50 %   50.38 %   59.54 %   81.34 %        
                                     
TOWNEBANK
Insurance Segment Financial Information
(dollars in thousands)
 
                           
  Three Months Ended   Year Ended   Increase/(Decrease)
  December 31,   September 30,   December 31,   2020 over 2019
  2020   2019   2020   2020   2019   Amount   Percent
Commission and fee income                          
Property and casualty $ 11,942     $ 11,957     $ 14,072     $ 52,726     $ 50,380     $ 2,346     4.66 %
Employee benefits 3,725     3,758     3,825     15,259     14,726     533     3.62 %
Travel insurance (1)     794     1,399     3,526     4,085     (559 )   (13.68 )%
Specialized benefit services 175     173     165     664     672     (8 )   (1.19 )%
Total commissions and fees 15,842     16,682     19,461     72,175     69,863     2,312     3.31 %
Contingency and bonus revenue 1,087     1,396     1,112     6,230     6,307     (77 )   (1.22 )%
Other income (1) 69     1,805     17,697     17,976     2,032     15,944     784.65 %
Total revenue 16,998     19,883     38,270     96,381     78,202     18,179     23.25 %
Employee commission expense 3,592     3,501     3,654     14,492     13,379     1,113     8.32 %
Revenue, net of commission expense 13,406     16,382     34,616     81,889     64,823     17,066     26.33 %
                           
Expenses                          
Salaries and employee benefits $ 7,949     $ 8,889     $ 9,129     $ 35,085     $ 35,152     $ (67 )   (0.19 )%
Occupancy expense 643     700     661     2,615     2,677     (62 )   (2.32 )%
Furniture and equipment 223     248     203     867     1,012     (145 )   (14.33 )%
Amortization of intangible assets 1,126     1,136     1,130     4,514     4,469     45     1.01 %
Other expenses 1,334     1,096     1,060     5,170     7,003     (1,833 )   (26.17 )%
Total operating expenses 11,275     12,069     12,183     48,251     50,313     (2,062 )   (4.10 )%
Income before income tax and noncontrolling interest 2,131     4,313     22,433     33,638     14,510     19,128     131.83 %
Corporate allocation (240 )   (265 )   (239 )   (1,012 )   (848 )   (164 )   19.34 %
Income before income tax provision and noncontrolling interest 1,891     4,048     22,194     32,626     13,662     18,964     138.81 %
Provision for income tax expense 824     1,002     2,587     5,398     3,183     2,215     69.59 %
Net income 1,067     3,046     19,607     27,228     10,479     16,749     159.83 %
Noncontrolling interest (1)     (157 )   (11,459 )   (12,095 )   (1,182 )   (10,913 )   923.27 %
Net income attributable to TowneBank $ 1,067     $ 2,889     $ 8,148     $ 15,133     $ 9,297     $ 5,836     62.77 %
                           
Provision for income taxes 824     1,002     2,587     5,398     3,183     2,215     69.59 %
Depreciation, amortization and interest expense 1,274     1,333     1,285     5,151     5,312     (161 )   (3.03 )%
EBITDA (non-GAAP) $ 3,165     $ 5,224     $ 12,020     $ 25,682     $ 17,792     $ 7,890     44.35 %
                           
Efficiency ratio (non-GAAP) 75.70 %   66.74 %   65.06 %   68.06 %   70.72 %        
(1) In third quarter 2020 we sold Red Sky Insurance, our travel insurance joint venture. We recorded a gross gain on sale in other income of $17,626. Our re-tax net gain, after distributions to noncontrolling interest was $6,521.
 
TOWNEBANK
Reconciliation of Non-GAAP Financial Measures:
             
               
  Three Months Ended   Twelve Months Ended
  December 31,   September 30,   December 31,   December 31,
  2020   2020   2019   2020   2019
                   
Return on average assets (GAAP) 1.35 %   0.89 %   1.16 %   1.03 %   1.19 %
Impact of excluding average goodwill and other intangibles and amortization 0.11 %   0.08 %   0.14 %   0.10 %   0.15 %
Return on average tangible assets (non-GAAP) 1.46 %   0.97 %   1.30 %   1.13 %   1.33 %
                   
Return on average equity (GAAP) 11.26 %   7.85 %   8.44 %   8.46 %   8.69 %
Impact of excluding average goodwill and other intangibles and amortization 5.02 %   3.81 %   4.53 %   4.16 %   4.89 %
Return on average tangible equity (non-GAAP) 16.28 %   11.66 %   12.97 %   12.62 %   13.58 %
                   
Return on average common equity (GAAP) 11.36 %   7.91 %   8.51 %   8.52 %   8.75 %
Impact of excluding average goodwill and other intangibles and amortization 5.12 %   3.88 %   4.61 %   4.24 %   4.98 %
Return on average tangible common equity (non-GAAP) 16.48 %   11.79 %   13.12 %   12.76 %   13.73 %
                   
Book value (GAAP) $ 24.31     $ 23.83     $ 22.58     $ 24.31     $ 22.58  
Impact of excluding average goodwill and other intangibles and amortization (6.85 )   (6.77 )   (6.89 )   (6.85 )   (6.89 )
Tangible book value (non-GAAP) $ 17.46     $ 17.06     $ 15.69     $ 17.46     15.69  
                   
Efficiency ratio (GAAP) 61.64 %   53.08 %   66.11 %   59.58 %   67.08 %
Impact of excluding g/l on investments and amortization expense (1.62 )%   4.28 %   (2.15 )%   (0.88 )%   (2.29 )%
Efficiency ratio (non-GAAP) 60.02 %   57.36 %   63.96 %   58.70 %   64.79 %
                   
Average assets (GAAP) $ 14,722,385     $ 15,487,152     $ 11,970,593     $ 14,172,206     $ 11,638,426  
Less: average goodwill and intangible assets 491,453     494,238     502,767     495,707     503,108  
Average tangible assets (non-GAAP) $ 14,230,932     $ 14,992,914     $ 11,467,826     $ 13,676,499     $ 11,135,318  
                   
Average equity (GAAP) $ 1,768,906     $ 1,747,033     $ 1,647,929     $ 1,721,059     $ 1,597,281  
Less: average goodwill and intangible assets 491,453     494,238     502,767     495,707     503,108  
Average tangible equity (non-GAAP) $ 1,277,453     $ 1,252,795     $ 1,145,162     $ 1,225,352     $ 1,094,173  
                   
Average common equity (GAAP) $ 1,753,596     $ 1,732,881     $ 1,635,394     $ 1,707,635     $ 1,585,238  
Less: average goodwill and intangible assets 491,453     494,238     502,767     495,707     503,108  
Average tangible common equity (non-GAAP) $ 1,262,143     $ 1,238,643     $ 1,132,627     $ 1,211,928     $ 1,082,130  
                   
Net income (GAAP) $ 50,082     $ 34,464     $ 35,075     $ 145,535     $ 138,783  
Amortization of intangibles, net of tax 2,210     2,252     2,374     9,086     9,772  
Tangible net income (non-GAAP) $ 52,292     $ 36,716     $ 37,449     $ 154,621     $ 148,555  
                   
Net income (GAAP) $ 50,082     $ 34,464     $ 35,075     $ 145,535     $ 138,783  
Provision for credit losses 1,617     31,598     3,601     67,177     9,371  
Provision for income taxes 10,408     7,841     7,786     31,900     32,596  
Pre-provision, pre-tax net revenues (non-GAAP) $ 62,107     $ 73,903     $ 46,462     $ 244,612     $ 180,750  
                   
Total revenue (GAAP) $ 171,848     $ 192,135     $ 139,671     $ 664,335     $ 563,943  
Net (gain) loss on equity investment     (17,625 )            
Net (gain)/loss on investment securities     (1,701 )       (9,634 )   845  
Total revenue for efficiency calculation (non-GAAP) $ 171,848     $ 172,809     $ 139,671     $ 654,701     $ 564,788  
                   
Noninterest expense (GAAP) $ 105,932     $ 101,981     $ 92,336     $ 395,825     $ 378,302  
Less: Amortization of intangibles 2,797     2,851     3,005     11,498     12,370  
Noninterest expense net of amortization (non-GAAP) $ 103,135     $ 99,130     $ 89,331     $ 384,327     $ 365,932  
                                       
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