2015 KBW Community Bank Investor Conference Welcome to TowneBank - - PowerPoint PPT Presentation

2015 KBW Community Bank Investor Conference

Welcome to TowneBank (TOWN)

The Towne story began in my home garage in the summer of 1998 when a small group of long-tjme friends and banking associates came together to lay the foundatjon for what was to become TowneBank. With caring as a specifjc business strategy and a deep-rooted passion for service to others, our defjned culture for Towne set us on a course to begin building a great community asset for our hometown community in the Hampton Roads Region of Virginia. Our initjal stock ofgering was substantjally oversubscribed as over 4,000 community shareholders invested over $50 million in what was the largest capitalizatjon of a new bank in Virginia history. In another fjrst, we actually returned $13 million to our subscribers and limited any one shareholder to a maximum investment of $250,000. This extraordinary level of capital coupled with the reputatjon our bankers enjoyed with the banking regulators allowed the bank to open with 90 hometown bankers and three banking centers located in the citjes of Virginia Beach, Chesapeake and Portsmouth. More than a bank, Towne has emerged as a family of companies providing wealth management, insurance, real estate brokerage, residentjal and vacatjon property management along with commercial and residentjal mortgage services. As a tribute to our early investors and community supporters, Towne now has assets exceeding $6 billion, an enviable record of 15 consecutjve years of increased earnings, and has returned over $79 million in common dividends since our opening on April 8, 1999. Today, our journey contjnues as we prepare to take

• ur special style of hometown banking to the Richmond, Virginia market with the acquisitjon of the $1.1

billion Franklin Financial Corporatjon (FRNK). As you review the informatjon contained in this Investor Presentatjon, please know that we welcome you to join our TowneBank family of investors and supporters as we embark on a new and contjnued journey as a growth company. Sincerely,

• G. Robert Aston, Jr.

Chairman and Chief Executjve Offjcer

Towne’s Model

• Caring as the Foundation for our Company Culture and as a Specifjc Marketing Strategy
• Deep Commitment to Community Engagement
• 8 Banking Regions with Local Decision Making and the “Best Bankers”
• “HomeTowne Banker” Approach to Delivering Exquisite Service
• $100 Million Branch Strategy
• Diversifjed Financial Services driving Noninterest Income

Towne Family of Companies

Hampton Roads Market Share Overview

Deposit Data as of June 30, 2014

Bank 1999 2005 2010 2014 Wells Fargo 28.7 22.7 20.3 20.4 SunTrust 15.6 14.0 15.6 16.2 BB&T 22.1 14.5 12.2 13.5 Bank of America 15.6 15.2 10.2 10.8 Total Top Four 81.8 66.5 58.2 60.8

Hampton Roads Market Share Overview

Deposit Data as of June 30, 2014

Bank 1999 2005 2010 2014 Wells Fargo 28.7 22.7 20.3 20.4 TowneBank 1.9 8.8 14.4 16.7 SunTrust 15.6 14.0 15.6 16.2 BB&T 22.1 14.5 12.2 13.5 Bank of America 15.6 15.2 10.2 10.8 Total 83.9 75.2 72.7 77.6

Strong Market Position

1) Data as of 6/30/2014 FDIC Summary of Deposits

Virginia Beach-Norfolk-Newport News, VA-NC ¹ Rank Institution (ST) Branches Deposits in Market ($mm) Market Share (%) Average Branch Size ($mm) 1 Wells Fargo & Co. (CA) 54 4,405 20.37 81.57 2 TowneBank (VA) 26 3,612 16.70 138.91 3 SunTrust Banks Inc. (GA) 39 3,496 16.16 89.64 4 BB&T Corp. (NC) 51 2,917 13.48 57.19 5 Bank of America Corp. (NC) 36 2,343 10.83 65.08 6 Monarch Financial Hldgs (VA) 11 774 3.58 70.40 7 Old Point Financial Corp. (VA) 20 717 3.32 35.87 8 Hampton Roads Bankshares Inc. (VA) 17 622 2.87 36.56 9 PNC Financial Services Group (PA) 12 360 1.67 30.02 10 Farmers Bankshares Inc. (VA) 5 333 1.54 66.53

• Closed transaction on January 2, 2015
• Successfully completed systems integration and conversion
• Offering complete array of Towne products and services
• Launched brand awareness campaign during Q1 2015
• Cost save targets fully achieved
• Executed lease for expansion into Downtown Richmond
• $67 MM YTD new originations; Strong pipeline
• Building out Loan team with deep Richmond backgrounds –

8 experienced producers:

• 3 New Producers with extensive middle market C&I and

private banking experience

• Relocated CRE producer back to Richmond market
• Senior Credit Administrator
• Treasury Management Sales

Recent M&A Acquisition Fueling Growth Strategy

Franklin Financial Update Growth

Excellent Foundation for Market Expansion

Deposit Data as of June 30, 2014

Institution (ST) Number of Branches Deposits ($mm) Market Share Average Branch Size ($mm) Bank of America Corp. (NC) 25 12,528 38.6 $ 501 Wells Fargo & Co. (CA) 63 6,350 19.5 $ 101 SunTrust Banks Inc. (GA) 45 3,630 11.2 $ 81 BB&T Corp. (NC) 43 2,870 8.8 $ 67 Total 78.1 TowneBank Richmond 8 688 2.1 $ 86

Richmond Deposit Market Share

Virginia Beach - Norfolk- Newport News, VA-NC 1,729,758 3.16 3.83 60,591 8.25 Richmond, VA 1,260,476 4.34 4.64 59,762 4.97 Outer Banks, NC 39,645 3.44 4.13 57,313 8.83 MSA Totals 3,029,879 MSA Projected HH Income Change 2015-2020 (%) Median HH Income 2015 ($) Projected Population Change 2015-2020 (%) Population Change 2010-2015 (%) Total Population 2015 (Actual)

Market Statistics

Source: SNL

Total Assets

Dollars in Millions

$203 $385 $560 $764 $932 $1,448 $1,803 $2,195 $2,501 $3,134 $3,606 $3,871 $4,082 $4,406 $4,673 $4,982 $6,055 $- $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

12% compounded annual growth rate during credit cycle (‘07-’12)

$(10.0) $- $10.0 $20.0 $30.0 $40.0 $50.0

Net Income

(Dollars in Millions)

26.8% compounded annual growth rate for the past 15 years

2015 Performance Highlights YTD

• Record Q2 earnings of $18 Million;

an increase of 53% Y/Y

• YTD Earnings of $32 Million; an

increase of 42% Y/Y

• Total Revenues climbed 26% to

$78 Million for the fjrst six months

• f 2015
• Strong Loan and Deposit growth
• Continued build out of Richmond

platform and Insurance M&A activity

1 Excludes gain(loss) on investment securitjes 2 Non-GAAP fjnancial measure. See appendix for reconciliatjon 3 YTD Annualized

Financial Highlights 2015 YTD 2014 2013 Noninterest Income¹ 61,732 $ 96,744 $ 89,916 $ Net Income 32,350 $ 42,169 $ 41,762 $ Diluted Earnings per Share 0.63 $ 1.18 $ 1.14 $ Dividends Declared per Share 0.23 $ 0.43 $ 0.38 $ Total Assets 6,055,181 $ 4,982,485 $ 4,672,997 $ Total Loans 4,228,127 $ 3,564,389 $ 3,381,194 $ Total Deposits 4,686,652 $ 3,846,602 $ 3,567,104 $ Return on Average Assets 1.11% 0.87% 0.93% Return on Average Tangible Common Equity 11.24% 10.95% 11.30% Net Interest Margin ² 3.52% 3.38% 3.61% Nonperforming Assets/Total Assets 0.89% 0.84% 1.12% Allowance for Loan and Losses/Total Loans 0.88% 1.06% 1.19% Net Loan Charge-offs/Average loans3 0.03% 0.09% 0.20% Common Equity Tier I 12.93%

Loan Portfolio at June 30, 2015

High-Quality, Stable Portfolio

• Organic loan growth during Q2 of $134 MM
• r 12.6% annualized
• Richmond platform contributed $67 Million
• f organic growth during fjrst half of 2015
• NPAs / Assets of .89%
• Allowance to NPLs of 5.0x
• Top 10 loan relationships represent 9.31% of

the held for investment portfolio

Construction 13% 1-4 Family 23% Multifamily 3% CRE- Investment related properties 23% CRE-Owner Occupied 18% C&I 17% Consumer and Other 3% $4.2 billion Yield on Loans: 4.7%

Highlights

Strong Capital Position

(1) Non-GAAP fjnancial measure. See appendix for reconciliatjon.

Distinguished Performance

For the five-year period between 2009 and 2014, the KBW Bank Honor Roll members significantly

• utperformed their banking peers and the market.

Attractively Valued Versus Peers

• Using a comparable group of similar asset-size public banks, TOWN is attractively priced
• TOWN has solid asset and capital ratios and profjtability metrics but trades at a discount to peers

(1) Comparable peer group consists of UBSH, CARE, YDKN, BNCN, CFNL, FBNC, SSB (2) Nonperforming assets defjned as nonaccrual loans and leases, 90 days or more past due and leases, and real estate owned (3 )Pricing data as of 7/21/2015 and fjnancial data as of 3/31/2015 (4) Pricing data as of 7/21/2015 and fjnancial data as 0f 6/30/2015 Source: SNL Financial

Capital Position Profitability Asset Quality Valuation Price/ LLR/ NPAs²/ Tang. Total TCE/ Leverage Gross Total Book LTM Market Assets TA Ratio ROAA ROATCE Loans Assets Value EPS Value ($) (% ) (% ) (% ) (% ) (% ) (% ) (% ) (x) ($) Peers1,3 4,269 8.39 9.60 0.87 11.34 0.92 0.95 190 17.8 743 TOWN4 6,055 10.52 11.14 1.21 11.93 0.88 0.89 140 14.3 851

Key Takeaways

• #2 Market share in Hampton Roads ; Effjcient branching strategy
• 29% Noninterest DDAs
• Noninterest income represents 41% of Total Revenues
• Franklin transaction creates Richmond platform for Second Stage Growth
• 2nd largest independent Community Bank headquartered in Virginia
• Attractive valuation
• Opportunity to diversify shareholder base to support growth

Market Data as of 7/21/2015. Book Values as of 6/30/2015

Market Data

Nasdaq Global Select: TOWN Book Value: $15.40 Tangible Book Value: $12.00 Price: $16.79 Market Cap: (Million) $851.0 Dividend Yield 3.0% P/E (TTM) 14.3

Summary Market Data Community Capital Offerings

APPENDIX

Financial Performance Trends

(1) Non-GAAP fjnancial measure. See appendix for 2014 reconciliatjon. See reconciliatjon of Non-GAAP measures in our annual reports form 10-K for prior periods.

Book Value Earnings Per Share (Diluted)

0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00 16.00 18.00 2015YTD 2014Y 2013Y 2012Y 2011Y 2010Y Tangible Book Value Per Share¹ Book Value Per Share 0.71 0.76 1.03 1.14 1.18 0.63 (0.40) (0.20) 0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40 2010 2011 2012 2013 2014 2015 YTD

Balance Sheet Summary

• Stable core funding; 29%

Noninterest DDA

• Strong loan growth of

$209 Million year to date (excluding acquired loans)

• 10.52% Tangible Common

Equity to Tangible Assets

• Conservative Securities

Portfolio with 2.3 year Average Duration

June 30, March 31, June 30,

(Dollars in Thousands)

2015 2015 2014 Total Cash & Securities 1,048,787 $ 1,022,540 $ 928,334 $ Gross Loans 4,394,121 4,198,545 3,560,961 Loan Loss Reserve 37,290 35,907 35,786 Total Net Loans 4,356,831 4,162,638 3,525,175 Other Assets 649,563 643,525 456,334 Total Assets 6,055,181 $ 5,828,703 $ 4,909,843 $ Total Deposits 4,686,652 $ 4,505,618 $ 3,795,829 $ FHLB Borrowings 437,584 397,884 394,620 Other Debt 35,737 37,202 27,525 Total Debt 473,321 435,086 422,145 Total Other Liabilities 92,317 96,419 87,057 Total Liabilities 5,252,290 $ 5,037,123 $ 4,305,031 $ Equity ($000) SBLF Preferred Equity

• $
• $

76,458 $ Common Equity 794,018 783,156 519,536 Equity Attributable to Parent Company 794,018 783,156 595,994 Noncontrolling Interests 8,873 8,424 8,817 Total Equity 802,891 $ 791,580 $ 604,812 $

Net Income

Dollars in Millions

$10,472 $11,199 $10,418 $9,674 $11,131 $11,677 $12,126 $7,235 $14,538 $17,812 $- $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 $14,000 $16,000 $18,000 $20,000 2013Q1 2013Q2 2013Q3 2013Q4 2014Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2

2013 Total $41.8 2013 Total $41.8 2013 Total $41.8 2013 Total $41.8 2013 Total $41.8 2015 Total $32.3 2014 Total $42.2

Summary 2015 Earnings

(1) Non-GAAP fjnancial measure. See Appendix for reconciliatjon. June 30, Y/Y March 31, Linked Quarter Dollars in Thousands 2015 2014  2015  Net Interest Income $44,884 $36,538 23% $43,556 3% Provision for Loan Losses 1,723 (833) (307%) 323 433% Total Noninterest Income 32,966 25,346 30% 28,767 15% Realized Gain on Securities 119 (62) (292%) 49 143% Merger and Acquisition Expense 370 35 957% 415 (11%) Other Noninterest Expense 48,697 44,633 9% 50,025 (3%) Net Income before Taxes and NCI 27,179 17,987 51% 21,609 26% Tax Provision 8,201 5,432 51% 6,385 28% Effective Tax Rate (%) 31.53% 31.75% (1%) 30.52% 3% Net Income 18,978 12,555 51% 15,224 25% Noncontrolling Interest 1,166 878 33% 686 70% Preferred Dividends

• 191

(100%) 13 (100%) Net Income Avail to Common 17,812 $ 11,486 $ 55% 14,525 $ 23% Diluted EPS $0.35 $0.33 6% $0.29 75% Common Dividend $0.12 $0.11 9% $0.11 9% NIM - fully tax equivalent1 3.52% 3.43% 9bps 3.52%

• ROA

1.21% 0.97% 25% 1.01% 20% Three Months Ended Three Months Ended

Net Interest Income (Fully Taxable Equivalent)

$45,858 $47,488 268 59 571 596 291 76 231 40,000 41,000 42,000 43,000 44,000 45,000 46,000 47,000 48,000 1st Qtr 2015 Change in Loan PAA Change in Deposit PAA Loan impact net of PAA Loans HFS impact BOLI impact Deposits impact net of PAA Other, net 2nd Qtr 2015

Net Interest Margin

3.43% 3.32% 3.35% 3.52% 3.52% 3.43% 3.32% 3.35% 3.44% 3.42% 3.00% 3.20% 3.40% 3.60% 2Q 14 3Q 14 4Q 14 1Q 15 2Q 15 Margin Margin ex PAA 1.78% 3.34% 5.04% 0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% Up 100bp Up 200bp Up 300bp Sensitivity 6/30/2015

NII Sensitivity Net Interest Margin

Non-Interest Income

• Noninterest income (excluding

Securities gains/losses) up 14.6%

• Residential Mortgage Banking income

up $1.8 Million or 21.4%

• Driven by increased Mortgage

volumes; up $147.8 Million

• Includes nonrecurring gain on sale of

$1.3 Million; Strategic Divestiture

20,000 40,000 60,000 80,000 100,000 120,000 2010Y 2011Y 2012Y 2013Y 2014Y 2015YTD

2Q15 vs 1Q15

Non-Interest Expense

• Noninterest expense declined 2.7%

during the quarter to $49.1 Million

• Franklin cost saves completed

during 1Q 15

• Decrease costs related to foreclosed

properties

$- $20,000 $40,000 $60,000 $80,000 $100,000 $120,000 $140,000 $160,000 $180,000 $200,000 2010Y 2011Y 2012Y 2013Y 2014Y 2015YTD

2Q15 vs 1Q15

• Targeting high single-digit loan growth
• No signifjcant ALLL releases anticipated
• Stable asset quality and charge-offs
• Stable Net Interest Margin
• Focused expense control
• Drive Effjciency Ratio
• Near term Return on Average Assets range of 1.0% - 1.1%
• Primary focus on organic growth to build out existing markets
• Leverage excess Capital
• Opportunistic M&A

2015 Outlook Summary

Loans and Asset Quality Profitability Strategic

Towne Mortgage

• Historically strong purchase money

volumes driven by Real Estate companies

• Aggressive efforts to scale
• perations consistent with

production

• Disciplined underwriting; No

material losses through cycle

(Dollars in millions) *includes Joint Venture volumes

$948 $771 $1,327 $1,434 $1,222 $785 $- $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 2010 2011 2012 2013 2014 2015YTD

Mortgage Highlights Origination Volume

Towne Insurance - TFA

• Ranked 77th of Top 100 Business

Insurance Agencies

• Broad areas of specialty and

products

• Successful Acquirer and Integrator-

17 acquisitions since 2001

• Strong consistent cash fmows
• Dominant market share in legacy

footprint

• Opportunities to diversify in

complementary markets

(Dollars in millions)

$22.6 $25.8 $27.1 $33.4 $42.1 $24.9 $- $5.0 $10.0 $15.0 $20.0 $25.0 $30.0 $35.0 $40.0 $45.0 2010 2011 2012 2013 2014 2015YTD

Insurance Highlights Gross Commissions

Towne Investment Group

Assests Under Management (Includes Direct Held Assets)

• 2,000+ households
• Stable fee income
• Expansion to Richmond in 2015 with

1 advisor to add about 8-10% assets

(Dollars in millions)

$752 $870 $997 $1,194 $1,376 $1,556 $- $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 $1,800 2010 2011 2012 2013 2014 2015 YTD

Wealth Management Highlights

Berkshire Hathaway HomeServices

Towne Realty

• A Top 20 Berkshire Hathaway

HomeServices Affjliate

• 373 Real Estate Agents
• No. 3 in Market Share
• Generates Mortgage Activity
• Manages 1,888 Housing Units
• Beach Properties Manages 315 Vacation

Homes in Hilton Head, South Carolina

(Dollars in millions)

$817 $827 $850 $994 $1,009 $488 $- $200 $400 $600 $800 $1,000 $1,200 2010 2011 2012 2013 2014 2015 YTD

Sales Volume Realty Highlights

Forward-Looking Statements

Statements made in this presentatjon, other than those concerning historical fjnancial informatjon, may be considered forward-looking statements, which speak only as of the date of this presentatjon and are based on current expectatjons and involve a number of assumptjons. TowneBank intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securitjes Litjgatjon 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 efgect of future plans or strategies, is inherently uncertain. Factors which could have a material efgect on the

• peratjons and future prospects of TowneBank include but are not limited to: the businesses of TowneBank and the

recently-acquired Franklin Financial Corporatjon may not be integrated successfully or such integratjon may be more diffjcult, tjme-consuming or costly than expected, and expected revenue synergies and cost savings from the merger may not be fully realized or realized within the expected tjmeframe; changes in interest rates, general economic and business conditjons; legislatjve/regulatory changes; the monetary and fjscal 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 compositjon

• f the loan and securitjes portgolios; demand for loan products; deposit fmows; competjtjon; demand for fjnancial

services in TowneBank’s respectjve market areas; the implementatjon of new technologies; the ability to develop and maintain secure and reliable electronic systems; changes in the securitjes markets; and accountjng principles, policies and guidelines, and other risk factors detailed from tjme to tjme in fjlings made by TowneBank with the Federal Deposit Insurance Corporatjon. TowneBank undertakes no obligatjon to update or clarify these forward-looking statements, whether as a result of new informatjon, future events or otherwise.

Non-GAAP Financial Measures

This slide presentatjon contains certain non-GAAP fjnancial measures determined by methods other than in accordance with generally accepted accountjng principles. Such non-GAAP fjnancial measures include the following: fully tax- equivalent net interest margin, tangible book value per common share, total risk-based capital ratjo, tjer one leverage ratjo, tjer one capital ratjo, and the tangible common equity to tangible assets ratjo. Management uses these non- GAAP fjnancial measures to assess the performance of TowneBank’s core business and the strength of its capital

• positjon. Management believes that these non-GAAP fjnancial measures provide meaningful additjonal informatjon

about TowneBank to assist investors in evaluatjng operatjng results, fjnancial strength, and capitalizatjon. The non- GAAP fjnancial measures should be considered as additjonal views of the way our fjnancial measures are afgected by signifjcant charges for credit costs and other factors. These non-GAAP fjnancial measures should not be considered as a substjtute for operatjng results determined in accordance with GAAP and may not be comparable to other similarly tjtled measures of other companies. The computatjons of the non-GAAP fjnancial measures used in this presentatjon are referenced in a footnote or in the appendix to this presentatjon.

Non-GAAP Reconciliations

(Dollars in thousands)

Quarter Ended June 30, 2015 Total assets

6,055,181 $

Less: Goodwill

(153,191)

Less: Intangible assets, net

(22,016)

Tangible asset

5,879,974 $

Total shareholders' equity

794,018 $

Less: Goodwill

(153,191)

Less: Intangible assets, net

(22,016)

Less: Preferred stock

• Tangible common equity

618,811 $

Risk-based capital: Common equity tier 1 capital

634,109 $

Tier 1

639,654 $

Total

676,944 $

Risk weighted assets

4,904,117 $

Total assets for leverage capital purposes

5,741,197 $

Tier 1 capital ratio

13.04%

Total

13.80%

Common equity Tier 1

12.93%

Tier 1 leverage ratio

11.14%

Non-GAAP Reconciliations

Quarter Ended Quarter Ended Year Ended Year Ended June 30, 2015 March 31, 2015 December 31, 2014 June 30, 2014 Net interest margin - tax-equivalent (Non-GAAP) 3.52% 3.52% 3.38% 3.43% Adjustments to net interest margin: Income from bank-owned life insurance (0.15) (0.13) (0.07) (0.06) Tax-equivalent basis adjustment (0.04) (0.05) (0.05) (0.05) Net interest margin (GAAP) 3.33% 3.34% 3.26% 3.26% June 30, 2015 Book value (GAAP)

15.40 $

Impact of excluding average goodwill and other intangibles and amortization (3.40) Tangible book value (Non-GAAP)

12.00 $

Contact Information

William B. Littreal Chief Investment Relations Offjcer and COO 757-638-6813

• G. Robert Aston, Jr.

Chairman and CEO 757-638-6780 Clyde E. McFarland, Jr. Senior Executive Vice President and CFO 757-638-6801