TowneBank Reports Record First Quarter Earnings

SUFFOLK, Va., April 28, 2016 (GLOBE NEWSWIRE) -- Hampton Roads based TowneBank (the “Bank”) (NASDAQ:TOWN) reported record earnings of $17.82 million for the quarter ended March 31, 2016, a 22.57% increase, or $3.28 million, over the $14.54 million reported for the comparative period in 2015.  Fully diluted earnings per share were $0.35 per share, an increase from $0.29 per share for the comparative period of 2015.

The Bank’s common dividend was $0.12 per share for the quarter with the common dividend totaling $6.20 million.  The current dividend represents an increase of 9.1% over the dividend paid during the same quarter of 2015.

“We delivered another quarter of outstanding performance and demonstrated our earning power by reporting a record quarter of earnings and revenue, as we continued to build on the momentum generated in 2015,” said G. Robert Aston, Jr., Chairman and Chief Executive Officer.  “We increased diluted earnings per share by 20.69% and revenue by 8.81%, from the first quarter of 2015 while producing a return on average assets of 1.14% and a return on average tangible equity of 11.56%."

"Our pending acquisition of Chesapeake, Virginia based Monarch Financial Holdings is proceeding as anticipated and we are looking forward to the opportunity to welcome our new members and provide them with the exquisite personal service that defines TowneBank," said Aston.

First Quarter 2016 Performance Highlights

• Record total revenues of $78.75 million, a $6.38 million, or 8.81%, increase from first quarter 2015
  • Taxable equivalent net interest margin was 3.37%, including accretion of 0.06%, compared to 3.52%, including accretion of 0.08%, for first quarter 2015
  • Insurance segment total revenue increased 24.17% from first quarter 2015,to $16.08 million
     
• Loans held for investment increased $456.57 million, or 11.15%, from March 31, 2015
   
• Total deposits were $4.96 billion, an increase of $449.51 million, or 9.98%, from first quarter 2015
  • Noninterest bearing deposits increased by 14.92%, to $1.45 billion and represent 29.26% of total deposits
  • Total cost of deposits increased to 0.43% from 0.40% at March 31, 2015 reflective of an increase in higher cost time deposits
     
• Asset quality showed continued strength
  • Nonperforming assets were $37.68 million, or 0.59% of total assets compared to $58.74 million, or 1.01%, at March 31, 2015
  • Nonperforming loans declined to 0.17% of period end loans
  • Foreclosed property decreased 42.47% to $29.74 million
     
• The Bank remained well-capitalized
  • Common equity tier 1 capital ratio of 12.66%
  • Tier 1 leverage capital ratio of 10.70%
  • Tier 1 risk-based capital ratio of 12.73%
  • Total risk-based capital ratio of 13.46%
  • Tangible book value increased to $12.38
    
    

First Quarter 2016 Earnings Compared to First Quarter 2015

Net income for the first quarter was $17.82 million, or $0.35 per diluted share, versus $14.54 million, or $0.29 per diluted share, in first quarter 2015, reflecting strong growth in net interest income and growth in our Insurance segment leading to higher noninterest income.

Net Interest Income
Net interest income increased to $46.34 million, a $2.78 million, or 6.38%, increase from the first quarter of 2015.  The primary driver was the increase in average earning assets, which increased $524.82 million, or 9.92%, from first quarter 2015.  Tax-equivalent net interest margin was 3.37% in the current quarter as compared to 3.52% in first quarter 2015.  Accretion income added $0.65 million, or 6 basis points, to margin in the current quarter as compared to $0.78 million, or 8 basis points, in first quarter 2015.

Noninterest Income
Noninterest income, excluding gains or losses on investment securities, was $32.41 million for the first quarter of 2016, an increase of $3.65 million, or 12.68%, from the first quarter of 2015.  The majority of the increase from the comparative period in 2015 is attributable to insurance commissions, which increased $2.98 million, or 27.01%, primarily due to the acquisition of five insurance agencies in 2015.  Additionally, real estate brokerage and property management income increased $0.87 million, or 22.03%, from the first quarter of 2015 primarily due to the acquisition of a resort property management company in Oak Island, North Carolina in first quarter 2016 and increased revenue in our Hilton Head, South Carolina resort property management business ("Hilton Head").  This increase was partially offset by the sale of our Corolla, North Carolina-based property management business in 2015, which generated management fee revenue of $1.80 million in first quarter 2015.  Residential mortgage banking income decreased $1.33 million, or 15.69%, from first quarter 2015 due to a reduction in pricing and slightly lower production volumes.  Mortgage production was $313.14 million in the first quarter of 2016, which was $5.29 million less than first quarter 2015.

Noninterest Expense
Noninterest expense increased by $1.72 million, or 3.41%, from the comparative quarter of 2015.  Driving the increase were increased operating expenses of $1.05 million related to insurance agencies acquired in 2015 and operating expenses of $0.96 million related to the North Carolina resort property management acquisition.  Excluding the additional noninterest expense from the insurance agencies acquired in 2015 and the resort property management company acquired in 2016, core expenses decreased by $0.29 million in first quarter 2016.

First Quarter 2016 Earnings Compared to Fourth Quarter 2015

Net income for the first quarter was $17.82 million, or $0.35 per diluted share, versus $12.47 million, or $0.24 per diluted share, in fourth quarter 2015, reflecting seasonality and growth in our Insurance and Realty segments.  The seasonal increase in noninterest revenue was augmented by a decrease in noninterest expenses as personnel costs decreased from the previous quarter.

Performance Highlights

• Total revenues were $78.75 million, a $7.34 million, or 10.28%, increase from fourth quarter 2015
  • Taxable equivalent net interest margin was 3.37%, including accretion of 0.06%, compared to 3.36%, including accretion of 0.09%, for fourth quarter 2015
  • Noninterest income increased $7.34 million due to seasonality and growth in our Insurance and Realty segments
     
• Loans held for investment increased $32.87 million from December 31, 2015, with a strong loan pipeline heading into the second quarter
   
• Noninterest bearing deposits increased by $56.40 million, or 4.05% during the quarter
  
  
• Nonperforming assets decreased 12.55% during the quarter
  
  

Net Interest Income
On a linked quarter basis, net interest income increased slightly by $0.01 million, or 0.01%, in first quarter 2016 versus fourth quarter 2015, while tax-equivalent net interest margin was 3.37%, an increase of 1 basis point from the fourth quarter of 2015.  Accretion income added $0.65 million, or 6 basis points, to margin in the current quarter, as compared to $1.22 million, or 9 basis points, in the linked quarter.

Noninterest Income
In comparison to the fourth quarter of 2015, noninterest income, excluding gains or losses on investment securities, increased $7.34 million, or 29.25%.  The increase was driven by insurance commission income due to growth from prior year agency acquisitions, combined with higher contingent commission revenue, which is mostly received during the first quarter of each year.  Additionally, real estate brokerage and property management income increased due to a seasonal increase related to our resort property management business.  Residential mortgage banking income decreased by $0.14 million, or 1.89%, from the fourth quarter of 2015 as mortgage production saw a seasonally driven decrease of $40.38 million, which was partially offset by an increase in the value of rate lock commitments of $0.38 million recorded as of March 31, 2016, as compared to a decrease due to the value of rate lock commitments of $0.49 million recognized for the quarter ended December 31, 2015.

Noninterest Expense
Noninterest expense decreased by $0.58 million, or 1.10%, from the fourth quarter of 2015.  Driving the decrease were salary and benefits expenses, which decreased by $0.64 million due to lower personnel costs related to employee profit sharing and 401(k) matching expenses.

Segment Results

First Quarter 2016 Compared to First Quarter 2015

Banking
Net income for the three months ended March 31, 2016 for the Banking segment was $14.13 million, increasing $3.02 million, or 27.22%, from the comparative 2015 quarter.  The increase in earnings was driven by additional net interest income of $2.64 million caused by an increase in earning assets, as average loan balances increased $449.79 million.  Also contributing to the increase was a decrease in the loan loss provision driven by a reduction in historical loss ratios and an increase in noninterest income.  The increases in income were further augmented by lower noninterest expenses related to decreases in charitable contributions and foreclosed property expenses.

Realty
For the three months ended March 31, 2016, the Realty segment had net income of $1.03 million compared to $1.65 million the first quarter of 2015.  The current quarter results were driven by a decrease in residential mortgage banking income of $1.20 million, or 14.14%, due to a decline in margins combined with slightly lower production volumes.  The decrease was partially offset by an increase in property management fees of $0.73 million, or 27.00%, primarily due to increased revenue from Hilton Head and our purchase of a resort property management business based in Oak Island, North Carolina ("Oak Island") on January 14, 2016.

Insurance
The Insurance segment had net income of $2.65 million for the three months ended March 31, 2016, an increase of $0.87 million as compared to the first quarter of 2015.  Insurance agencies acquired in 2015 contributed additional revenue, net of commission expense, of $1.78 million in first quarter 2016.  Also contributing to increase was organic growth in commercial lines commissions and an increase in commissions from travel insurance. The acquired agencies resulted in additional noninterest expenses of $1.05 million of noninterest expenses, including acquisition-related expenses.

First Quarter 2016 Compared to Fourth Quarter 2015

Banking
The increase in earnings of $1.91 million, or 15.66% from the fourth quarter of 2015 was driven by a decrease in noninterest expenses of $1.40 million as personnel costs decreased along with acquisition-related expenses and advertising and marketing expenses.  Also contributing was a decrease in the loan loss provision of $1.11 million, primarily due to a reduction in historical loss ratios.  Additionally, revenue increased due to a combination of higher net interest income of $0.11 million and an increase in noninterest income of $0.13 million.

Realty
Net income in the Realty segment increased by $1.03 million from the linked quarter ended December 31, 2015.  The increase was primarily a result of a seasonal increase in resort property management fees of $2.63 million.  Partially offsetting the increase were additional operating expenses related to Oak Island operations.  Excluding Oak Island operations, expenses decreased from the linked quarter in the Realty segment.

Insurance
Net income increased $2.41 million from the fourth quarter of 2015.  The improvement from the linked quarter was driven by an increase in contingency and bonus revenue of $3.36 million.  Contingent commissions are seasonal in nature and are mostly received during the first half of each year.  Additionally, commissions from travel insurance increased by $0.83 million and a full quarter of operations from agencies acquired in the third and fourth quarters of 2015 resulted in additional revenue, net of commission expense, of $0.54 million.

Balance Sheet

At March 31, 2016, total Bank assets reached $6.37 billion, an increase of $0.54 billion, or 9.20%, over March 31, 2015.

Loans

The Bank’s loan portfolio ended the period at $4.55 billion representing an increase of 11.15%, or $456.57 million, from the prior year and an increase of 0.73%, or $32.87 million, from December 31, 2015.

Deposits

The Bank continued to experience solid deposit growth with total deposits increasing to $4.96 billion, up $449.51 million, or 9.98%, from March 31, 2015.  The Bank saw continued growth in noninterest bearing demand deposits, which ended the quarter at $1.45 billion, a 14.92% increase from March 31, 2015.  Noninterest deposits represented 29.26% of total deposits at March 31, 2016.

Capital Ratios

The Bank’s total equity at March 31, 2016 rose to $836.00 million, an increase of $44.42 million, or 5.61%, from March 31, 2015.  Total risk-based capital remained strong as total risk-based capital, Tier 1 capital, Tier 1 leverage ratios, and common equity Tier 1 capital ratios were 13.46%, 12.73%, 10.70%, 12.66%, respectively.  All ratios exceed the current regulatory standards for well capitalized status.

Asset Quality

Continued strength in credit quality contributed to the Bank's financial results as net charge-offs were $0.34 million in the first quarter of 2016 compared to $0.33 million in the first quarter of 2015 and net recoveries of $0.16 million in the linked quarter.  As a result of the strength in credit quality and a reduction in historical loss ratios, a negative provision for loan losses of $0.26 million was recorded in first quarter 2016, a decrease of $0.58 million as compared to the same quarter of 2015.  Total nonperforming assets were $37.68 million, or 0.59% of Bank assets, at March 31, 2016, as compared to $58.74 million, or 1.01%, at March 31, 2015, and $43.09 million, or 0.68%, at December 31, 2015.  The allowance for loan losses was $37.76 million, increased from $35.91 million at March 31, 2015 and decreased from $38.36 million at December 31, 2015.

About TowneBank:
As one of the top community banks in Virginia and North Carolina, TowneBank operates 37 banking offices serving Chesapeake, Chesterfield County, Glen Allen, Hampton, James City County, Mechanicsville, Newport News, Norfolk, Portsmouth, Richmond, Suffolk, Virginia Beach, Williamsburg, and York County in Virginia, along with Moyock, Grandy, Camden County, Southern Shores, Corolla and Nags Head in North Carolina. Towne also offers a full range of financial services through its controlled divisions and subsidiaries that include Towne Investment Group, Towne Insurance Agency, TFA Benefits, TowneBank Mortgage, TowneBank Commercial Mortgage, Berkshire Hathaway HomeServices Towne Realty, Towne 1031 Exchange, LLC, and Beach Properties of Hilton Head. Local decision-making is a hallmark of its hometown banking strategy that is delivered through the leadership of each group’s President and Board of Directors.  With total assets of $6.37 billion as of March 31, 2016, 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.  Since the presentation of these GAAP performance measures and their impact differ between companies, management believes presentations of these non-GAAP financial measures provide useful supplemental information that is essential to a proper understanding of the operating results of the Company’s core businesses.  These non-GAAP disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. Reconciliations of GAAP to non-GAAP disclosures are included as tables at the end of this release.

Forward-Looking Statements:
Statements made in this release, other than those concerning historical financial information, may be considered forward-looking statements, which speak only as of the date of this release and are based on current expectations and involve a number of assumptions. These include statements as to the anticipated benefits of the merger with Monarch, including future financial and operating results, cost savings and enhanced revenues that may be realized from the merger as well as other statements of expectations regarding the merger and any other statements regarding future results or expectations. 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. TowneBank’s ability to predict results, or the actual effect of future plans or strategies, is inherently uncertain. Factors which could have a material effect on the operations and future prospects of TowneBank, and the resulting company after the merger with Monarch, include but are not limited to: the businesses of TowneBank and Monarch may not be integrated successfully or such integration may be more difficult, time-consuming or costly than expected; expected revenue synergies and cost savings from the merger or other pending or recently completed acquisitions may not be fully realized or realized within the expected timeframe; revenues following the merger may be lower than expected; customer and employee relationships and business operations may be disrupted by the merger; the ability to obtain required regulatory and stockholder approvals, and the ability to complete the merger on the expected timeframe may be more difficult, time-consuming or costly than expected; 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; the quality and composition of the loan and securities portfolios; demand for loan products; deposit flows; competition; demand for financial services in TowneBank’s  market areas; TowneBank’s implementation of new technologies and the ability to develop and maintain secure and reliable electronic systems; changes in the securities markets; and 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 (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:
In connection with the proposed merger, TowneBank has filed with the FDIC a preliminary proxy statement/prospectus and Monarch has filed with the Securities and Exchange Commission (the “SEC”) a preliminary proxy statement.  TowneBank and Monarch will each deliver a definitive joint proxy statement/prospectus to their respective stockholders seeking approval of the merger and related matters.  In addition, each of TowneBank and Monarch may file other relevant documents concerning the proposed merger with the FDIC and SEC.

Investors and stockholders of both companies are urged to read the definitive joint proxy statement/prospectus when it becomes available and any other relevant documents to be filed with the FDIC and SEC in connection with the proposed merger because they will contain important information about TowneBank, Monarch and the proposed transaction.  Investors and stockholders may obtain free copies of certain of these documents through the website maintained by the SEC at http://www.sec.gov.  Free copies of the definitive joint proxy statement/prospectus, when available, also may be obtained 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 Monarch Financial Holdings, Inc., 1435 Crossways Boulevard, Suite 301, Chesapeake, Virginia 23320, Attention: Investor Relations (telephone: (757) 389-5112), or by accessing TowneBank’s website at https://townebank.com under “Investor Relations” or Monarch’s website at https://www.monarchbank.com under “Investor Relations.”  The information on TowneBank’s and Monarch’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 and Monarch, and their respective directors and executive officers, may be deemed to be participants in the solicitation of proxies from the stockholders of TowneBank and/or Monarch in connection with the merger. Information about the directors and executive officers of TowneBank is set forth in the proxy statement for TowneBank’s 2016 annual meeting of stockholders filed with the FDIC on April 15, 2016.  Information about the directors and executive officers of Monarch is set forth in the proxy statement for Monarch’s 2015 annual meeting of stockholders filed with the SEC on April 2, 2015.  Additional information regarding the interests of these participants and other persons who may be deemed participants in the merger may be obtained by reading the definitive joint proxy statement/prospectus regarding the merger when it becomes available.

This release does not constitute an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any offer, solicitation or sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction.

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