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TowneBank Reports Third Quarter Earnings

SUFFOLK, Va., Oct. 23, 2014 (GLOBE NEWSWIRE) -- Hampton Roads based TowneBank (the "Bank") (Nasdaq:TOWN) reported earnings of $12.13 million for the quarter ended September 30, 2014, a 16.39% increase, or $1.71 million, over the $10.42 million reported for the comparative period in 2013. Earnings for the year-to-date period increased 8.87% to $34.93 million as compared to the $32.09 million earned in the same period last year.

Net income available to common shareholders increased 31.47% to $11.93 million after preferred dividend payments of $191,000. Fully diluted earnings per share increased 21.43% to $0.34 per share compared to $0.28 per share for the comparative period of 2013. For the nine-month period ended September 30, 2014, fully diluted earnings per share increased 12.64% to $0.98 from $0.87 in the comparative prior year period.

The Bank's common dividend was $0.11 per share for the quarter with the common dividend totaling $3.91 million. The current dividend represents an increase of 10.0% over the dividend paid during the same quarter of 2013.

Third Quarter 2014 Performance Highlights

  • Total revenues were $63.18 million, an increase of $3.89 million, or 6.56%, compared to the third quarter of 2013
    • Taxable equivalent net interest margin was 3.32% compared to 3.53% for the third quarter of 2013
    • Residential mortgage banking income increased 16.85% from the third quarter of 2013 to $7.86 million on production volume of $362.54 million
    • Insurance commissions increased 18.51% to $8.86 million
  • Loan growth continued as total loans held for investment increased $150.33 million, or 4.69%, from September 30, 2013
    • Commercial and industrial loans increased by $27.94 million, or 6.15%
    • Owner occupied commercial real estate loans decreased $17.40 million, or 2.27%
    • Income producing commercial real estate loans increased $95.18 million, or 15.70%
    • Construction and development loans increased $13.64 million, or 2.95%
    • Consumer and other loans increased $14.05 million, or 29.12%
  • Total deposits were $3.85 billion, an increase of $368.47 million, or 10.58%, from the third quarter of 2013
    • Noninterest bearing deposits increased by 17.72%, to $1.25 billion
    • Average interest-bearing deposit costs were 0.52%, unchanged from the prior year
    • Noninterest bearing deposits were 32.36% of total deposits compared to 30.40% at September 30, 2013
  • Asset quality showed continued improvement
    • Nonperforming assets were $43.80 million, a decrease of 21.21% from third quarter 2013
    • Nonperforming loans decreased 57.22% to $5.85 million
    • Foreclosed property decreased by 9.46% to $37.95 million
  • The Bank remained well-capitalized
    • Tier 1 leverage capital ratio of 10.04%
    • Tier 1 risk-based capital ratio of 12.88%
    • Total risk-based capital ratio of 13.84%

Net Interest Income

Net interest income increased to $36.87 million, a $715,000, or 1.98%, increase from the third quarter of 2013. The primary driver of the increase was growth in average earning assets of $373.44 million, which

was partially offset by a 21 basis point narrowing of the tax-equivalent net interest margin to 3.32% in the current quarter from 3.53% in the third quarter of 2013.

On a linked quarter basis, net interest income increased $329,000 or 0.90%, in third quarter 2014 versus the second quarter, while tax-equivalent net interest margin was 3.32% versus 3.43% for the second quarter of 2014.

Noninterest Income

% Change
Q3 Q3 Q2 Q3 14 vs. Q3 14 vs.
(in millions) 2014 2013 2014 Q3 13 Q2 14
Residential mortgage banking income, net $ 7,858 $ 6,725 $ 7,735 16.85% 1.59%
Real estate brokerage and property management, net 3,645 3,577 3,248 1.90% 12.22%
Insurance commissions and other title fees and income, net 8,861 7,477 8,893 18.51% (0.36)%
Service charges on deposit accounts 2,406 2,256 2,366 6.65% 1.69%
Credit card merchant fees, net 927 968 965 (4.24)% (3.94)%
Other income 2,572 1,985 2,139 29.57% 20.24%
Subtotal before gain on investment securities 26,269 22,988 25,346 14.28% 3.64%
Net gain (loss) on investment securities 44 150 (62) (70.67)% (170.97)%
Total noninterest income $ 26,313 $ 23,138 $ 25,284 13.72% 4.07%

Noninterest income, excluding gains or losses on investment securities, was $26.27 million for the third quarter of 2014, an increase of $3.28 million, or 14.28%, from the third quarter of 2013. A large portion of the increase from the comparative period in 2013 is attributable to insurance commissions, which increased $1.38 million, or 18.51%, due to the acquisition of two insurance agencies in 2013 and one agency in May 2014. Also contributing to the increase, residential mortgage banking income increased $1.13 million, or 16.85%, from the third quarter of 2013 primarily due to improved pricing and margins. Mortgage production was $362.54 million in the third quarter of 2014, which was $25.78 million less than third quarter 2013. The variance in other income was driven by an increase in gains on foreclosed property sales of $360,000, combined with a variance of $350,000 related to losses on low income housing tax credit investments that are currently included in the provision for income tax expense using the proportional amortization method due to a change in accounting principle adopted during the first quarter of 2014.

In comparison to the second quarter of 2014, noninterest income, excluding gains or losses on investment securities, increased $923,000, or 3.64%. Residential mortgage banking income increased slightly by $123,000, or 1.59%, from the second quarter of 2014 primarily due to an increase in mortgage production of $27.66 million. Real estate brokerage and property management income increased due to a seasonal increase related to our resort property management business while insurance commissions were essentially flat from the linked quarter period. The increase in other income was primarily due to an increase in gains on foreclosed property sales of $269,000, combined with an increase of $184,000 related to production from the Towne Investment Group.

Noninterest Expense

% Change
Q3 Q3 Q2 Q3 14 vs. Q3 14 vs.
(in millions) 2014 2013 2014 Q3 13 Q2 14
Salaries and benefits $ 25,080 $ 25,642 $ 25,325 (2.19)% (0.97)%
Occupancy expense 4,618 4,171 4,393 10.72% 5.12%
Furniture and equipment 2,040 1,931 2,040 5.64% —%
Other 12,416 11,635 12,910 6.71% (3.83)%
Total noninterest expense $ 44,154 $ 43,379 $ 44,668 1.79% (1.15)%

Noninterest expense increased by $775,000, or 1.79%, from the comparative quarter of 2013. Driving the increase was the Company incurring $1.09 million of nonrecurring merger expense in the third quarter of 2014 related to the acquisition of Southern Insurance Agency, Inc. in the second quarter of 2014 and the proposed merger with Franklin Financial Corporation. These merger expenses were included in the other noninterest expense category. Occupancy expense increased 10.72% as the opening of two new banking offices in the second half of 2013 and one new banking office in June 2014 led to additional expenses. These increases were partially offset by a decrease in salaries and benefits expense of 2.19% driven by previously announced cost-control initiatives launched by the Company in the first quarter of 2014.

Noninterest expense decreased by $514,000, or 1.15%, from the second quarter of 2014. Driving the decline was a decrease in other noninterest expense of 3.83%, or $494,000, as the previously mentioned increase in merger expenses was more than offset by a decrease in foreclosed property expense of $1.61 million. Salaries and benefits expense decreased 0.97%, while occupancy expense increased 5.12%.

Segment Results

$ Change
(in millions) Q3 Q3 Q2 Q3 14 vs. Q3 14 vs.
Segment Net Income 2014 2013 2014 Q3 13 Q2 14
Banking $ 9,569 $ 8,920 $ 8,919 $ 649 $ 650
Realty 1,532 466 1,434 1,066 98
Insurance 1,025 1,032 1,324 (7) (299)
Total net income $ 12,126 $ 10,418 $ 11,677 $ 1,708 $ 449

Banking

Net income for the three months ended September 30, 2014 for the Banking segment was $9.57 million, increasing $649,000, or 7.28%, from the comparative 2013 quarter. The increase in earnings was primarily driven by an increase in net interest income of $824,000, an increase in noninterest income of $867,000, and a decrease in personnel expenses of $507,000. These factors were partially offset by increases in the provision for loan losses and nonrecurring merger related expenses.

The increase in earnings of $650,000, or 7.29% from the second quarter of 2014 was primarily driven by increases in net interest income of $293,000 and noninterest income of $505,000 combined with decreases in personnel expenses of $844,000 and foreclosed property expenses of $1.61 million. These factors were partially offset by increases in the provision for loan losses and the aforementioned nonrecurring merger related expenses.

Realty

For the three months ended September 30, 2014, the Realty segment had net income of $1.53 million, an increase of $1.07 million compared to the third quarter of 2013. Contributing to the improvement was an increase in residential mortgage banking income of $1.09 million. Also contributing to the improvement was a decrease in noninterest expense of $1.06 million, or 9.93%, primarily related to continued cost management measures.

Net income in the Realty segment increased by $98,000 from the linked quarter ended June 30, 2014. Residential mortgage banking income increased $107,000 and seasonal increases in resort property management fees for Corolla Classic Vacations increased total revenues by $301,000 in the linked quarter comparison. Total noninterest expenses increased by 4.87%, or $445,000, compared to the linked quarter.

Insurance

The Insurance segment had net income of $1.03 million for the three months ended September 30, 2014, essentially flat as compared to the third quarter of 2013. An increase in commissions and fees from the comparative 2013 period was impacted by three insurance agency acquisitions, which contributed additional commission and fee income of $1.11 million. The increase in income was offset by an increase of $944,000 in noninterest expenses related to the acquisitions of insurance agencies.

Net income decreased $299,000, or 22.58%, from the second quarter of 2014. The decline from the linked quarter was driven by a decrease in contingency and bonus revenue of $444,000. Contingent commissions are seasonal in nature and are mostly received during the first half of each year. The insurance agency acquisition in the second quarter of 2014 accounted for an increase in commission and fee income of $330,000 and an increase in noninterest expenses of $326,000.

Balance Sheet

At September 30, 2014, total Bank assets reached $4.97 billion, an increase of $401.54 million, or 8.78%, over September 30, 2013.

Loans

% Change
Q3 Q2 Q3 Q3 14 vs. Q3 14 vs.
(in thousands) 2014 2014 2013 Q2 14 Q3 13
Construction and land development $ 476,379 $ 487,613 $ 462,739 (2.30)% 2.95%
Commercial real estate - investment related properties 701,286 649,040 606,109 8.05% 15.70%
Commercial real estate - owner occupied 749,985 738,008 767,385 1.62% (2.27)%
Multifamily real estate 53,368 55,620 85,783 (4.05)% (37.79)%
1-4 family residential real estate 833,208 828,832 783,881 0.53% 6.29%
Commercial and industrial business loans 481,985 516,491 454,041 (6.68)% 6.15%
Consumer loans and other 62,321 51,246 48,266 21.61% 29.12%
Total $ 3,358,532 $ 3,326,850 $ 3,208,204 0.95% 4.69%

The Bank's loan portfolio ended the period at $3.36 billion representing an increase of 4.69%, or $150.33 million, from the prior year and an increase of 0.95%, or $31.68 million, from June 30, 2014.

Deposits

% Change
Q3 Q2 Q3 Q3 14 vs. Q3 14 vs.
(in thousands) 2014 2014 2013 Q2 14 Q3 13
Noninterest-bearing demand $ 1,245,925 $ 1,203,040 $ 1,058,338 3.56% 17.72%
Interest-bearing:
Demand and money market accounts 1,309,085 1,306,595 1,170,491 0.19% 11.84%
Savings 190,562 192,932 203,640 (1.23)% (6.42)%
Certificates of deposits 1,104,360 1,093,262 1,048,990 1.02% 5.28%
Total $ 3,849,932 $ 3,795,829 $ 3,481,459 1.43% 10.58%

The Bank continued to experience solid deposit growth with total deposits increasing to $3.85 billion, up $368.47 million, or 10.58%, from September 30, 2013. The Bank saw continued growth in noninterest bearing demand deposits, which ended the quarter at $1.25 billion, a 17.72% increase from September 30, 2013. Noninterest deposits represented 32.36% of total deposits at September 30, 2014.

Capital Ratios

Q3 Q2 Q3
2014 2014 2013
Tier 1 12.88% 12.83% 13.02%
Total 13.84% 13.79% 14.11%
Tier 1 leverage ratio 10.04% 10.16% 10.28%

The Bank's total equity at September 30, 2014 rose to $613.41 million, an increase of $36.00 million, or 6.23%, from September 30, 2013. Common equity increased 7.07%, or $34.83 million, as the Bank's 8% Series A Preferred Stock mandatorily converted on September 1, 2013 into 3.19 million shares of TowneBank common stock, reflecting a conversion price of $18.02 per share of common stock. Total risk-based capital remained strong as total risk-based capital, Tier 1 capital, Tier 1 leverage ratios, and Tier 1 common capital ratios were 13.84%, 12.88%, 10.04%, 10.61%, respectively. All ratios exceed the current regulatory standards for well capitalized status.

Asset Quality

(in thousands) 9/30/2014 6/30/2014 3/31/2014 12/31/2013 9/30/2013
Nonperforming loans $ 5,853 $ 7,501 $ 10,977 $ 12,753 $ 13,683
Foreclosed property 37,951 42,404 41,510 39,534 41,914
Total nonperforming assets $ 43,804 $ 49,905 $ 52,487 $ 52,287 $ 55,597
Quarterly net loans charged off $ 602 $ 925 $ 1,167 $ 732 $ 804
Year-to-date net loans charged off $ 2,694 $ 2,092 $ 1,167 $ 6,295 $ 5,563
Change
Q3 Q2 Q3 Q3 14 vs. Q3 14 vs.
(dollars in thousands) 2014 2014 2013 Q2 14 Q3 13
Total loans 90 days past due and still accruing $ — $ 28 $ — $ (28) $ —
Total loans 30-89 days past due $ 7,918 $ 9,664 $ 8,677 $ (1,746) $ (759)
Allowance for loan losses $ 36,180 $ 35,786 $ 38,560 $ 394 $ (2,380)
Total performing TDRs $ 39,776 $ 40,500 $ 44,564 $ (720) $ (4,784)
Nonperforming loans to period end loans 0.17% 0.23% 0.43% (0.06) (0.26)
Nonperforming assets to period end assets 0.88% 1.02% 1.22% (0.14) (0.34)
Allowance for loan losses to period end loans 1.08% 1.08% 1.20% (0.12)
Net charge-offs to average loans (annualized) 0.07% 0.11% 0.10% (0.04) (0.03)
Ratio of allowance for loan losses to nonperforming loans 6.18x 4.77x 2.82x 1.41x 3.36x

Continued improvements in credit quality contributed to the Bank's financial results as nonperforming loans decreased to $5.85 million from $13.68 million, at September 30, 2013 and $7.50 million at June 30, 2014. Net charge-offs were $602,000 in the third quarter of 2014 compared to $804,000 in the third quarter of 2013 and $925,000 in the linked quarter. Total nonperforming assets were $43.80 million, or 0.88%, of Bank assets at September 30, 2014, as compared to $55.60 million, or 1.22%, at September 30, 2013, and $49.91 million, or 1.02%, at June 30, 2014.

Pending Merger

On July 15, 2014, the Company announced the signing of a definitive agreement to acquire Franklin Financial Corporation ("Franklin") and its wholly owned subsidiary, Franklin Federal Savings Bank, based in Richmond, Virginia. At June 30, 2014, Franklin had total consolidated assets of $1.11 billion, consolidated gross loans of $543.79 million, and total consolidated deposits of $684.51 million. The Bank anticipates closing the transaction in the first quarter of 2015, subject to customary closing conditions, including the receipt of regulatory and stockholder approvals.

"We are pleased with our third quarter results as we continue to deliver solid growth in net income and earnings per share despite an increase in costs related to our pending acquisition of Franklin and the continued challenging low rate environment. We remain excited about the opportunity to expand our business to the Richmond market and we look forward to providing this community with the exquisite service to which our existing members have become accustomed. I am proud of the hard work of our employees and directors as we continue to strive to create value for our shareholders and for the communities we serve," said G. Robert Aston, Jr., Chairman and Chief Executive Officer.

About TowneBank:

As one of the top community banks in Virginia and North Carolina, TowneBank operates 28 banking offices serving Chesapeake, Hampton, Newport News, Norfolk, Portsmouth, Suffolk, Virginia Beach, Williamsburg, James City County and York County in Virginia along with Moyock, Grandy, Camden, Southern Shores, Corolla and Kill Devil Hills 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, Prudential Towne Realty, Towne 1031 Exchange, LLC, and Corolla Classic 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 $4.97 billion as of September 30, 2014, TowneBank is one of the largest banks headquartered in Virginia.

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 Franklin, 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, include but are not limited to: (1) the businesses of TowneBank and Franklin may not be integrated successfully or such integration may be more difficult, time-consuming or costly than expected; (2) 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; (3) revenues following the merger may be lower than expected; (4) customer and employee relationships and business operations may be disrupted by the merger; (5) 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; (6) 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, the implementation of new technologies, the ability to develop and maintain secure and reliable electronic systems, changes in the securities markets, and accounting principles, policies and guidelines, and (7) 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 with Franklin, TowneBank has filed with the FDIC a preliminary proxy statement/prospectus. TowneBank will deliver a definitive proxy statement to its stockholders seeking their approval of the merger and related matters. In addition, TowneBank may file other relevant documents concerning the proposed merger with the FDIC.

Investors and stockholders are urged to read the definitive joint proxy statement/prospectus when available and any other relevant documents to be filed with the FDIC in connection with the proposed merger because they will contain important information. 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 by accessing TowneBank's website at https://townebank.com under "Investor Relations." The information on TowneBank's website is not, and shall not be deemed to be, a part of this release or incorporated into other filings TowneBank makes with the FDIC.

TowneBank and its directors and executive officers may be deemed to be participants in the solicitation of proxies from the stockholders of TowneBank in connection with the merger. Information about the directors and executive officers of TowneBank is set forth in the proxy statement for TowneBank's 2014 annual meeting of stockholders filed with the FDIC on April 18, 2014. 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.

Selected Financial Highlights (unaudited)
TOWNEBANK
September 30, 2014
(dollars in thousands, except per share data)
Increase/ % Increase/
Three months ended September 30, 2014 2013 (Decrease) (Decrease)
Results of Operations:
Net interest income $ 36,867 $ 36,152 $ 715 1.98%
Noninterest income (1) 26,269 22,987 3,282 14.28%
Gain (loss) on investment securities 44 150 (106) (70.67)%
Noninterest expenses 44,154 43,379 775 1.79%
Provision for loan losses 996 328 668 203.66%
Income before income tax and noncontrolling interest 18,030 15,583 2,447 15.70%
Provision for income tax expense 5,044 4,407 637 14.45%
Net income 12,986 11,176 1,810 16.20%
Net income attributable to noncontrolling interest (860) (758) (102) 13.46%
Net income attributable to TowneBank 12,126 10,418 1,708 16.39%
Preferred stock dividends 191 1,340 (1,149) (85.75)%
Net income available to common shareholders 11,935 9,078 2,857 31.47%
Net income per common share - basic 0.34 0.28 0.06 21.43%
Net income per common share - diluted 0.34 0.28 0.06 21.43%
Period End Data:
Total assets $ 4,972,448 $ 4,570,905 $ 401,543 8.78%
Total assets - tangible 4,842,966 4,450,221 392,745 8.83%
Earning assets (2) 4,606,030 4,204,942 401,088 9.54%
Loans (net of unearned income) 3,358,532 3,208,204 150,328 4.69%
Allowance for loan losses 36,180 38,560 (2,380) (6.17)%
Goodwill and other intangibles 129,482 120,684 8,798 7.29%
Nonperforming assets 43,804 55,597 (11,793) (21.21)%
Noninterest bearing deposits 1,245,925 1,058,338 187,587 17.72%
Interest bearing deposits 2,604,007 2,423,121 180,886 7.47%
Total deposits 3,849,932 3,481,459 368,473 10.58%
Total equity 613,408 577,409 35,999 6.23%
Total equity - tangible 483,926 456,725 27,201 5.96%
Common equity 527,727 492,894 34,833 7.07%
Common equity - tangible 398,245 372,210 26,035 6.99%
Book value per common share 14.85 13.95 0.90 6.45%
Book value per common share - tangible 11.21 10.54 0.67 6.36%
Daily Average Balances:
Total assets $ 4,961,204 $ 4,580,200 $ 381,004 8.32%
Total assets - tangible 4,831,294 4,459,213 372,081 8.34%
Earning assets (2) 4,558,857 4,185,420 373,437 8.92%
Loans (net of unearned income), excluding nonaccrual loans 3,314,756 3,168,042 146,714 4.63%
Allowance for loan losses 36,355 39,113 (2,758) (7.05)%
Goodwill and other intangibles 129,910 120,987 8,923 7.38%
Noninterest bearing deposits 1,228,807 1,053,588 175,219 16.63%
Interest bearing deposits 2,610,027 2,439,789 170,238 6.98%
Total deposits 3,838,834 3,493,377 345,457 9.89%
Total equity 612,250 576,257 35,993 6.25%
Total equity - tangible 482,341 455,270 27,071 5.95%
Common equity 526,994 452,180 74,814 16.55%
Common equity - tangible 397,084 331,193 65,891 19.90%
Key Ratios:
Return on average assets 0.97% 0.90% 0.07% 7.78%
Return on average assets - tangible 1.03% 0.93% 0.10% 10.75%
Return on average equity 7.86% 7.17% 0.69% 9.62%
Return on average equity - tangible 10.32% 9.08% 1.24% 13.66%
Return on average common equity 8.98% 7.97% 1.01% 12.67%
Return on average common equity - tangible 12.34% 10.88% 1.46% 13.42%
Net interest margin-fully tax equivalent (2)(3) 3.32% 3.53% (0.21)% (5.95)%
Net interest margin (2) 3.25% 3.47% (0.22)% (6.34)%
Average earning assets/total average assets 91.89% 91.38% 0.51% 0.56%
Average loans/average deposits 86.35% 90.69% (4.34)% (4.79)%
Average noninterest deposits/total average deposits 32.01% 30.16% 1.85% 6.13%
Allowance for loan losses/period end loans 1.08% 1.20% (0.12)% (10.00)%
Nonperforming assets to period end assets 0.88% 1.22% (0.34)% (27.87)%
Period end equity/period end total assets 12.34% 12.63% (0.29)% (2.30)%
Efficiency ratio (1) 69.94% 73.35% (3.41)% (4.65)%
(1) Excludes gain (loss) on investment securities
(2) Includes bank-owned life insurance
(3) Presented on a tax-equivalent basis
Selected Financial Highlights (unaudited)
TOWNEBANK
September 30, 2014
(dollars in thousands, except per share data)
Increase/ % Increase/
Nine Months Ended September 30, 2014 2014 2013 (Decrease) (Decrease)
Results of Operations:
Net interest income $ 108,598 $ 107,439 $ 1,159 1.08%
Noninterest income (1) 74,342 71,205 3,137 4.41%
Gain (loss) on investment securities (15) 546 (561) (102.75)%
Noninterest expenses 129,905 127,792 2,113 1.65%
Provision for loan losses 493 3,696 (3,203) (86.66)%
Income before income tax and noncontrolling interest 52,527 47,702 4,825 10.11%
Provision for income tax expense 15,381 13,480 1,901 14.10%
Net income 37,146 34,222 2,924 8.54%
Net income attributable to noncontrolling interest (2,212) (2,133) (79) 3.70%
Net income attributable to TowneBank 34,934 32,089 2,845 8.87%
Preferred stock dividends 573 4,036 (3,463) (85.80)%
Net income available to common shareholders 34,361 28,053 6,308 22.49%
Net income per common share - basic 0.98 0.87 0.11 12.64%
Net income per common share - diluted 0.98 0.87 0.11 12.64%
Period End Data:
Total assets $ 4,972,448 $ 4,570,905 $ 401,543 8.78%
Total assets - tangible 4,842,966 4,450,221 392,745 8.83%
Earning assets (2) 4,606,030 4,204,942 401,088 9.54%
Loans (net of unearned income) 3,358,532 3,208,204 150,328 4.69%
Allowance for loan losses 36,180 38,560 (2,380) (6.17)%
Goodwill and other intangibles 129,482 120,684 8,798 7.29%
Nonperforming assets 43,804 55,597 (11,793) (21.21)%
Noninterest bearing deposits 1,245,925 1,058,338 187,587 17.72%
Interest bearing deposits 2,604,007 2,423,121 180,886 7.47%
Total deposits 3,849,932 3,481,459 368,473 10.58%
Total equity 613,408 577,409 35,999 6.23%
Total equity - tangible 483,926 456,725 27,201 5.96%
Common equity 527,727 492,894 34,833 7.07%
Common equity - tangible 398,245 372,210 26,035 6.99%
Book value per common share 14.85 13.95 0.90 6.45%
Book value per common share - tangible 11.21 10.54 0.67 6.36%
Daily Average Balances:
Total assets $ 4,819,901 $ 4,455,437 $ 364,464 8.18%
Total assets - tangible 4,694,307 4,336,061 358,246 8.26%
Earning assets (2) 4,425,547 4,071,807 353,740 8.69%
Loans (net of unearned income), excluding nonaccrual loans 3,277,147 3,140,516 136,631 4.35%
Allowance for loan losses 37,461 40,009 (2,548) (6.37)%
Goodwill and other intangibles 125,594 119,376 6,218 5.21%
Noninterest bearing deposits 1,128,954 1,009,870 119,084 11.79%
Interest bearing deposits 2,581,126 2,385,832 195,294 8.19%
Total deposits 3,710,081 3,395,702 314,379 9.26%
Total equity 601,789 571,399 30,390 5.32%
Total equity - tangible 476,195 452,023 24,172 5.35%
Common equity 516,586 436,008 80,578 18.48%
Common equity - tangible 390,992 316,631 74,361 23.49%
Key Ratios:
Return on average assets 0.97% 0.96% 0.01% 1.04%
Return on average assets - tangible 1.03% 0.99% 0.04% 4.04%
Return on average equity 7.76% 7.51% 0.25% 3.33%
Return on average equity - tangible 10.13% 9.49% 0.64% 6.74%
Return on average common equity 8.89% 8.60% 0.29% 3.37%
Return on average common equity - tangible 12.14% 11.85% 0.29% 2.45%
Net interest margin-fully tax equivalent (2)(3) 3.39% 3.64% (0.25)% (6.87)%
Net interest margin (2) 3.32% 3.57% (0.25)% (7.00)%
Average earning assets/total average assets 91.82% 91.39% 0.43% 0.47%
Average loans/average deposits 88.33% 92.49% (4.16)% (4.50)%
Average noninterest deposits/total average deposits 30.43% 29.74% 0.69% 2.32%
Allowance for loan losses/period end loans 1.08% 1.20% (0.12)% (10.00)%
Nonperforming assets to period end assets 0.88% 1.22% (0.34)% (27.87)%
Period end equity/period end total assets 12.34% 12.63% (0.29)% (2.30)%
Efficiency ratio (1) 71.01% 71.53% (0.52)% (0.73)%
(1) Excludes gain (loss) on investment securities
(2) Includes bank-owned life insurance
(3) Presented on a tax-equivalent basis
Selected Financial Highlights (unaudited)
TOWNEBANK
September 30, 2014
(dollars in thousands, except per share data)
September 30, June 30, Increase/ % Increase/
Three Months Ended 2014 2014 (Decrease) (Decrease)
Results of Operations:
Net interest income $ 36,867 $ 36,538 $ 329 0.90%
Noninterest income (1) 26,269 25,346 923 3.64%
Gain (loss) on investment securities 44 (62) 106 (170.97)%
Noninterest expenses 44,154 44,668 (514) (1.15)%
Provision for loan losses 996 (833) 1,829 (219.57)%
Income before income tax and noncontrolling interest 18,030 17,987 43 0.24%
Provision for income tax expense 5,044 5,432 (388) (7.14)%
Net income 12,986 12,555 431 3.43%
Net income attributable to noncontrolling interest (860) (878) 18 (2.05)%
Net income attributable to TowneBank 12,126 11,677 449 3.85%
Preferred stock dividends 191 191 —%
Net income available to common shareholders 11,935 11,486 449 3.91%
Net income per common share - basic 0.34 0.33 0.01 3.03%
Net income per common share - diluted 0.34 0.33 0.01 3.03%
Period End Data:
Total assets $ 4,972,448 $ 4,909,843 $ 62,605 1.28%
Total assets - tangible 4,842,966 4,779,709 63,257 1.32%
Earning assets (2) 4,606,030 4,536,817 69,213 1.53%
Loans (net of unearned income) 3,358,532 3,326,850 31,682 0.95%
Allowance for loan losses 36,180 35,786 394 1.10%
Goodwill and other intangibles 129,482 130,134 (652) (0.50)%
Nonperforming assets 43,804 49,905 (6,101) (12.23)%
Noninterest bearing deposits 1,245,925 1,203,040 42,885 3.56%
Interest bearing deposits 2,604,007 2,592,789 11,218 0.43%
Total deposits 3,849,932 3,795,829 54,103 1.43%
Total equity 613,408 604,812 8,596 1.42%
Total equity - tangible 483,926 474,678 9,248 1.95%
Common equity 527,727 519,536 8,191 1.58%
Common equity - tangible 398,245 389,402 8,843 2.27%
Book value per common share 14.85 14.63 0.22 1.50%
Book value per common share - tangible 11.21 10.96 0.25 2.28%
Daily Average Balances:
Total assets $ 4,961,204 $ 4,810,582 $ 150,622 3.13%
Total assets - tangible 4,831,294 4,683,697 147,597 3.15%
Earning assets (2) 4,558,857 4,413,137 145,720 3.30%
Loans (net of unearned income), excluding nonaccrual loans 3,314,756 3,290,610 24,146 0.73%
Allowance for loan losses 36,355 37,458 (1,103) (2.94)%
Goodwill and other intangibles 129,910 126,885 3,025 2.38%
Noninterest bearing deposits 1,228,807 1,118,051 110,756 9.91%
Interest bearing deposits 2,610,027 2,587,137 22,890 0.88%
Total deposits 3,838,834 3,705,188 133,646 3.61%
Total equity 612,250 601,203 11,047 1.84%
Total equity - tangible 482,341 474,319 8,022 1.69%
Common equity 526,994 516,102 10,892 2.11%
Common equity - tangible 397,084 389,217 7,867 2.02%
Key Ratios:
Return on average assets 0.97% 0.97% —% —%
Return on average assets - tangible 1.03% 1.03% —% —%
Return on average equity 7.86% 7.79% 0.07% 0.90%
Return on average equity - tangible 10.32% 10.20% 0.12% 1.18%
Return on average common equity 8.98% 8.93% 0.05% 0.56%
Return on average common equity - tangible 12.34% 12.24% 0.10% 0.82%
Net interest margin-fully tax equivalent (2)(3) 3.32% 3.43% (0.11)% (3.21)%
Net interest margin (2) 3.25% 3.36% (0.11)% (3.27)%
Average earning assets/total average assets 91.89% 91.74% 0.15% 0.16%
Average loans/average deposits 86.35% 88.81% (2.46)% (2.77)%
Average noninterest deposits/total average deposits 32.01% 30.18% 1.83% 6.06%
Allowance for loan losses/period end loans 1.08% 1.08% —% —%
Nonperforming assets to period end assets 0.88% 1.02% (0.14)% (13.73)%
Period end equity/period end total assets 12.34% 12.32% 0.02% 0.16%
Efficiency ratio (1) 69.94% 72.18% (2.24)% (3.10)%
(1) Excludes gain (loss) on investment securities
(2) Includes bank-owned life insurance
(3) Presented on a tax-equivalent basis
TOWNEBANK
Average Balances, Yields and Rate Paid
(dollars in thousands)
Three Months Ended Three Months Ended Three Months Ended
September 30, 2014 June 30, 2014 September 30, 2013
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 $ 3,314,756 $ 39,291 4.70% $ 3,290,610 $ 38,963 4.75% $ 3,168,042 $ 39,143 4.90%
Taxable investment securities 656,438 2,059 1.25% 645,396 2,071 1.28% 371,817 1,102 1.19%
Tax-exempt investment securities 175,774 1,913 4.35% 170,636 1,811 4.25% 167,313 1,729 4.13%
Interest-bearing deposits 275,634 174 0.25% 177,045 111 0.25% 318,944 202 0.25%
Loans held for sale 78,325 787 4.02% 71,883 719 4.00% 102,923 962 3.74%
Bank-owned life insurance 57,930 674 4.62% 57,567 667 4.65% 56,381 672 4.73%
Total earning assets 4,558,857 44,898 3.91% 4,413,137 44,342 4.03% 4,185,420 43,810 4.15%
Less: allowance for loan losses (36,355) (37,458) (39,113)
Total nonearning assets 438,702 434,903 433,892
Total assets $ 4,961,204 $ 4,810,582 $ 4,580,199
Liabilities and Equity:
Interest-bearing deposits
Demand and money market $ 1,317,611 $ 717 0.22% $ 1,305,681 $ 806 0.25% $ 1,177,446 $ 762 0.26%
Savings 308,466 707 0.91% 311,732 723 0.93% 324,220 778 0.95%
Certificates of deposit 983,950 1,981 0.80% 969,724 1,766 0.73% 938,123 1,673 0.71%
Total interest-bearing deposits 2,610,027 3,405 0.52% 2,587,137 3,295 0.51% 2,439,789 3,213 0.52%
Borrowings 424,746 3,396 3.13% 426,424 3,332 3.09% 438,739 3,330 2.97%
Total interest-bearing liabilities 3,034,773 6,801 0.89% 3,013,561 6,627 0.88% 2,878,528 6,543 0.90%
Demand deposits 1,228,807 1,118,051 1,053,588
Other noninterest-bearing liabilities 85,374 77,767 71,826
Total liabilities 4,348,954 4,209,379 4,003,942
Shareholders' equity 612,250 601,203 576,257
Total liabilities and equity $ 4,961,204 $ 4,810,582 $ 4,580,199
Net interest income (tax-equivalent basis) $ 38,097 $ 37,715 $ 37,267
Reconcilement of Non-GAAP Financial Measures
Bank-owned life insurance (674) (667) (672)
Tax-equivalent basis adjustment (556) (510) (443)
Net interest income (GAAP) $ 36,867 $ 36,538 $ 36,152
Interest rate spread (1) 3.02% 3.15% 3.25%
Interest expense as a percent of average earning assets 0.59% 0.60% 0.62%
Net interest margin (tax equivalent basis) (2) 3.32% 3.43% 3.53%
Total cost of deposits 0.35% 0.36% 0.36%
(1) Interest spread is the average yield earned on earning assets less the average rate paid on interest-bearing liabilities. Fully tax equivalent.
(2) Net interest margin is net interest income expressed as a percentage of average earning assets. Fully tax equivalent.
TOWNEBANK
Average Balances, Yields and Rates Paid
(dollars in thousands)
Nine Months Ended Nine Months Ended
September 30, 2014 September 30, 2013
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
Assets:
Loans (net of unearned income and deferred costs), excluding nonaccrual loans $ 3,277,147 $ 116,472 4.75% $ 3,140,516 $ 116,962 4.98%
Taxable investment securities 591,303 5,850 1.32% 316,370 2,973 1.25%
Tax-exempt investment securities 172,885 5,495 4.24% 168,720 5,218 4.12%
Interest-bearing deposits 262,057 493 0.25% 278,613 526 0.25%
Loans held for sale 64,483 1,934 4.00% 111,633 2,876 3.44%
Bank-owned life insurance 57,672 2,090 4.85% 55,954 1,981 4.73%
Total earning assets 4,425,547 132,334 4.00% 4,071,806 130,536 4.29%
Less: allowance for loan losses (37,461) (40,009)
Total nonearning assets 431,815 423,640
Total assets $ 4,819,901 $ 4,455,437
Liabilities and Equity:
Interest-bearing deposits
Demand and money market $ 1,294,093 $ 2,264 0.23% $ 1,152,841 $ 2,400 0.28%
Savings 313,114 2,155 0.92% 323,436 2,368 0.98%
Certificates of deposit 973,919 5,624 0.77% 909,555 5,195 0.76%
Total interest-bearing deposits 2,581,126 10,043 0.52% 2,385,832 9,963 0.56%
Borrowings 428,870 10,028 3.12% 419,082 9,787 3.11%
Total interest-bearing liabilities 3,009,996 20,071 0.89% 2,804,914 19,750 0.94%
Demand deposits 1,128,954 1,009,870
Other noninterest-bearing liabilities 79,161 69,254
Total liabilities 4,218,111 3,884,038
Shareholders' equity 601,790 571,399
Total liabilities and equity $ 4,819,901 $ 4,455,437
Net interest income (tax-equivalent basis) $ 112,263 $ 110,786
Reconcilement of Non-GAAP Financial Measures
Bank-owned life insurance (2,090) (1,981)
Tax-equivalent basis adjustment (1,575) (1,366)
Net interest income (GAAP) $ 108,598 $ 107,439
Interest rate spread (1) 3.11% 3.34%
Interest expense as a percent of average earning assets 0.61% 0.65%
Net interest margin (tax equivalent basis) (2) 3.39% 3.64%
Total cost of deposits 0.36% 0.39%
(1) Interest spread is the average yield earned on earning assets less the average rate paid on interest-bearing liabilities. Fully tax equivalent.
(2) Net interest margin is net interest income expressed as a percentage of average earning assets. Fully tax equivalent.
TOWNEBANK
Consolidated Statement of Income (unaudited)
(dollars in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
2014 2013 2014 2013
INTEREST INCOME:
Loans, including fees $ 39,271 $ 39,138 $ 116,420 $ 116,923
Investment securities 3,436 2,393 9,822 6,864
Interest-bearing deposits in financial institutions and federal funds sold 174 202 493 526
Mortgage loans held for sale 787 962 1,934 2,876
Total Interest Income 43,668 42,695 128,669 127,189
INTEREST EXPENSE:
Deposits 3,405 3,213 10,043 9,963
Advances from the Federal Home Loan Bank 3,385 3,309 9,990 9,722
Repurchase agreements and other borrowings 11 21 38 65
Total Interest Expense 6,801 6,543 20,071 19,750
Net Interest Income 36,867 36,152 108,598 107,439
PROVISION FOR LOAN LOSSES 996 328 493 3,696
Net Interest Income after Provision for Loan Losses 35,871 35,824 108,105 103,743
NONINTEREST INCOME:
Residential mortgage banking income, net 7,858 6,725 20,655 23,461
Real estate brokerage and property management income, net 3,645 3,577 10,184 10,409
Insurance commissions and other title fees and income, net 8,861 7,477 26,815 22,297
Service charges on deposit accounts 2,406 2,256 6,904 6,471
Credit card merchant fees, net 927 968 2,665 2,726
Other income 2,572 1,985 7,119 5,841
Net gain (loss) on investment securities 44 150 (15) 546
Total Noninterest Income 26,313 23,138 74,327 71,751
NONINTEREST EXPENSE:
Salaries and employee benefits 25,080 25,642 73,801 74,511
Occupancy expense 4,618 4,171 13,188 11,874
Furniture and equipment 2,040 1,931 6,080 5,477
Other expenses 12,416 11,635 36,836 35,930
Total Noninterest Expense 44,154 43,379 129,905 127,792
Income before income tax expense and noncontrolling interest 18,030 15,583 52,527 47,702
Provision for income tax expense 5,044 4,407 15,381 13,480
Net income 12,986 11,176 37,146 34,222
Net income attributable to noncontrolling interest (860) (758) (2,212) (2,133)
Net income attributable to TowneBank $ 12,126 $ 10,418 $ 34,934 $ 32,089
Preferred stock dividends 191 1,340 573 4,036
Net income available to common shareholders $ 11,935 $ 9,078 $ 34,361 $ 28,053
Per common share information
Basic earnings $ 0.34 $ 0.28 $ 0.98 $ 0.87
Diluted earnings $ 0.34 $ 0.28 $ 0.98 $ 0.87
Cash dividends declared $ 0.11 $ 0.10 $ 0.32 $ 0.28
TOWNEBANK
Consolidated Statement of Comprehensive Income (unaudited)
(dollars in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
2014 2013 2014 2013
Net income $ 12,986 $ 11,176 $ 37,146 $ 34,222
Other comprehensive income
Unrealized gains (losses) on securities
Unrealized holding gains (losses) arising during the period (229) (328) 1,575 (3,199)
Deferred tax benefit (expense) 80 115 (551) 1,119
Realized (gains) losses reclassified into earnings (44) (88) 14 (89)
Deferred tax expense 15 31 (5) 31
Net unrealized gains (losses) (178) (270) 1,033 (2,138)
Defined benefit retirement plan
Actuarial gains (losses) 977 977
Deferred tax benefit (expense) (342) (342)
Amortization 15 28 15 155
Deferred tax expense (5) (10) (5) (54)
Change in defined benefit retirement plan, net of tax 10 653 10 736
Other comprehensive income (loss), net of tax (168) 383 1,043 (1,402)
Comprehensive income $ 12,818 $ 11,559 $ 38,189 $ 32,820
TOWNEBANK
Consolidated Balance Sheet (unaudited)
(dollars in thousands)
September 30, December 31,
2014 2013 2013
(unaudited) (audited)
ASSETS
Cash and due from banks $ 230,889 $ 162,688 $ 203,782
Interest-bearing deposits in financial institutions 1,000 1,105 1,011
Total Cash and Cash Equivalents 231,889 163,793 204,793
Securities available for sale, at fair value 607,931 533,762 543,521
Securities held to maturity, at amortized cost 249,337 158,471 204,348
Federal Home Loan Bank stock, at amortized cost 22,150 22,830 23,069
Total Securities 879,418 715,063 770,938
Mortgage loans held for sale 86,034 77,448 58,642
Loans, net of unearned income and deferred costs:
Real estate-residential 1-4 family 833,208 783,881 797,723
Real estate-commercial 1,451,271 1,373,494 1,365,572
Real estate-construction and land development 476,379 462,739 469,679
Real estate-multi-family 53,368 85,783 53,562
Commercial and industrial business 481,985 454,041 500,755
Consumer and other loans 62,321 48,266 48,698
Loans, net of unearned income and deferred costs 3,358,532 3,208,204 3,235,989
Less: Allowance for loan losses (36,180) (38,560) (38,380)
Net Loans 3,322,352 3,169,644 3,197,609
Premises and equipment, net 154,343 152,713 153,436
Goodwill 111,761 104,518 104,446
Other intangible assets, net 17,721 16,167 15,615
Bank-owned life insurance policies 58,217 56,666 57,372
Other assets 110,713 114,893 110,146
TOTAL ASSETS $ 4,972,448 $ 4,570,905 $ 4,672,997
LIABILITIES AND EQUITY
Liabilities
Deposits:
Noninterest-bearing demand $ 1,245,925 $ 1,058,338 $ 1,037,028
Interest-bearing:
Demand and money market accounts 1,309,085 1,170,491 1,240,949
Savings 190,562 203,640 321,103
Certificates of deposit 1,104,360 1,048,990 968,024
Total Deposits 3,849,932 3,481,459 3,567,104
Advances from the Federal Home Loan Bank 398,477 389,344 395,087
Repurchase agreements and other borrowings 24,594 48,223 47,659
Total Borrowings 423,071 437,567 442,746
Other liabilities 86,037 74,470 77,828
TOTAL LIABILITIES 4,359,040 3,993,496 4,087,678
Shareholders' Equity
Preferred stock: 2,000,000 shares authorized 76,458; 76,458; and 76,458 shares issued at September 30, 2014 and 2013 and December 31, 2013, respectively 76,458 76,458 76,458
Common stock, $1.667 par: 90,000,000 shares authorized 35,538,144; 35,324,000; and 35,306,281 shares issued at September 30, 2014 and 2013 and December 31, 2013, respectively 59,242 57,971 58,856
Capital surplus 316,240 312,888 312,812
Retained earnings 151,547 122,576 128,527
Common stock issued to deferred compensation trust, at cost 617,886; 548,331; and 558,638 shares at September 30, 2014 and 2013 and December 31, 2013, respectively (9,508) (8,429) (8,595)
Deferred compensation trust 9,508 8,429 8,595
Accumulated other comprehensive income (loss) 698 (586) (344)
TOTAL SHAREHOLDERS' EQUITY 604,185 569,307 576,309
Noncontrolling interests 9,223 8,102 9,010
TOTAL EQUITY 613,408 577,409 585,319
TOTAL LIABILITIES AND EQUITY $ 4,972,448 $ 4,570,905 $ 4,672,997

CONTACT: For more information contact: G. Robert Aston, Jr. Chairman and CEO 757-638-6780 or 757-418-3215 Clyde E. McFarland, Jr. Senior Executive Vice President and CFO 757-638-6801 William B. Littreal Chief Investment Relations Officer and COO 757-638-6813Source: TowneBank