SUFFOLK, Va., July 28, 2016 (GLOBE NEWSWIRE) -- Hampton Roads based TowneBank (NASDAQ:TOWN) today reported financial results for the quarter and six months ended June 30, 2016. Earnings for the quarter ended June 30, 2016 were $6.26 million compared to $17.81 million for the same quarter in 2015. Fully diluted earnings per share were $0.12 compared to $0.35 for the second quarter of 2015. Earnings in the second quarter of 2016 included after-tax acquisition-related expenses of $12.26 million as compared to $0.24 million in the second quarter of 2015.

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

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

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

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

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

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

Second Quarter 2016 Performance Highlights

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

Second Quarter 2016 Earnings Compared to Second Quarter 2015

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

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

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

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

Second Quarter 2016 Earnings Compared to First Quarter 2016

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

Performance Highlights

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

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

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

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

Second Quarter 2016 Compared to Second Quarter 2015

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

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

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

Second Quarter 2016 Compared to First Quarter 2016

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

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

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

Balance Sheet

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

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