Forward-Looking Statements Certain statements contained in this - - PowerPoint PPT Presentation

2016 AND FOURTH QUARTER UPDATE

Forward-Looking Statements

Certain statements contained in this presentation constitute forward-looking statements within the meaning of U.S. federal securities laws. These forward-looking statements speak only as of the date of this presentation, are based on current expectations, and involve a number of assumptions. These include statements regarding future economic performance, financial condition, prospects, growth, strategies and expectations, and objectives of management, and are generally identified by the use

• f words such as “believe,” “expect,” “intend,” “anticipate,” “estimate,” or “project,” or similar expressions. TowneBank intends

such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and is including this statement for purposes of these safe harbor provisions. You should not place undue reliance on forward-looking statements, which are subject to assumptions that are subject to change. TowneBank’s ability to predict results, or the actual effect of future plans or strategies, is inherently uncertain. These forward- looking statements are subject to a number of factors and uncertainties that could cause actual results to differ from those indicated or implied in the forward-looking statements and such differences may be material. Factors which could have a material effect on the operations and future prospects of TowneBank include but are not limited to: changes in interest rates, general economic and business conditions; legislative/regulatory changes; the monetary and fiscal policies of the U.S. government, including policies of the U.S. Treasury and the Board of Governors of the Federal Reserve System; the quality and composition of the loan and securities portfolios; demand for loan products; deposit flows; competition; demand for financial services in TowneBank’s market area; implementation of new technologies and the ability to develop and maintain secure and reliable electronic systems; changes in the securities markets; changes in accounting principles, policies and guidelines; the ability to identify attractive acquisition targets, complete acquisitions at a reasonable cost and integrate the operations of acquired businesses; the ability to successfully integrate the business of Paragon Commercial Bank in the expected timeframe, and to achieve expected revenue synergies and cost savings from the merger; and other risk factors detailed from time to time in filings made by TowneBank with the Federal Deposit Insurance Corporation. TowneBank undertakes no obligation to update or clarify these forward-looking statements, whether as a result of new information, future events or otherwise.

6001 Harbour View Blvd Suffolk, VA 23435 757-638-6701 www.townebank.com

Additional Information

Please Contact: William B. Littreal 757-638-6813 William.Littreal@townebank.net

Corporate Headquarters

2

Non-GAAP Financial Measures

This presentation contains certain financial measures determined by methods other than in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Such non-GAAP financial measures include the following: fully tax-equivalent net interest margin, core operating earnings, core net income, tangible book value per common share, total risk-based capital ratio, tier one leverage ratio, tier one capital ratio, and the tangible common equity to tangible assets ratio. Management uses these non-GAAP financial measures to assess the performance of TowneBank’s core business and the strength of its capital

• position. Management believes that these non-GAAP financial measures provide meaningful additional

information about TowneBank to assist investors in evaluating operating results, financial strength, and

• capitalization. The non-GAAP financial measures should be considered as additional views of the way our

financial measures are affected by significant charges for credit costs and other factors. These non-GAAP financial measures should not be considered as a substitute for operating results determined in accordance with GAAP and may not be comparable to other similarly titled measures of other companies. The computations of the non-GAAP financial measures used in this presentation are referenced in a footnote or in the appendix to this presentation.

3

Sincerely,

• G. Robert Aston, Jr.

Executive Chairman of the Board The Towne story began in my home garage in the summer of 1998 when a small group of long-time friends and banking associates came together to lay the foundation for what was to become

• TowneBank. With caring as a specific business strategy and a deep-rooted passion for service to others,
• ur defined 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 and expanded to Richmond, VA MSA. Our initial stock offering was substantially oversubscribed as over 4,000 community shareholders invested over $50 million in what was the largest capitalization of a new bank in Virginia history. In another first, 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 reputation our bankers enjoyed with the banking regulators allowed the bank to open with 90 hometown bankers and three banking centers located in the cities 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, residential and vacation property management along with commercial and residential mortgage services. As a tribute to our early investors and community supporters, Towne now has assets over $11.1 billion, an enviable record of 18 consecutive years of increased earnings, and has returned over $220 million in common dividends since our opening on April 8, 1999. As you review the information contained in this Investor Presentation, please know that we welcome you to join our TowneBank family of investors and supporters as we embark on a new and continued journey as a growth company.

Welcome to TowneBank (TOWN)

4

Continued Growth and Execution

Total Assets ($mm) Total Gross Loans ($mm) Total Deposits ($mm)

$4,982 $6,297 $7,974 $8,522 $11,121 2014 2015 2016 2017 2018Q3 $3,564 $4,519 $5,807 $5,947 $7,882 2014 2015 2016 2017 2018Q3 $3,847 $4,914 $6,035 $6,448 $8,299 2014 2015 2016 2017 2018Q3

5

Why TowneBank?

¹ Financial information as of or for the nine-month period ended September 30, 2018. Data as of 6/30/2018 FDIC Summary of Deposits ² Nonperforming assets excluding restructured loans (nonaccrual loans, real estate owned and repossessed assets) as a percent of total assets.

Dominant Deposit Market Share

Dominant deposit market share in legacy markets and a scalable deposit platform in Paragon Bank’s NC (PBNC) high-growth Raleigh and Charlotte markets

Efficient Branch Strategy

$202.4 million average branch size ¹

Disciplined Acquirer and Experienced Integrator

Successfully completed and integrated three bank acquisitions since 2014 including the recently completed acquisition and integration of Paragon Bank NC (PBNC)

Consistent Earnings Growth

18 consecutive years of earnings growth (inclusive of the financial crisis)

Diversified Business Model

37.2% of revenue base is comprised

• f non-interest income driven by

insurance and mortgage banking businesses ¹

Strong Asset Quality & Credit Focused Culture

NPAs ²/ Assets - 0.25% & NCOs / Average Loans HFI - 0.03% ¹

6

$0.2 $0.4 $0.6 $0.8 $0.9 $1.4 $1.8 $2.2 $2.5 $3.1 $3.6 $3.9 $4.1 $4.4 $4.7 $5.0 $6.3 $8.0 $8.5 $11.1 $- $2.0 $4.0 $6.0 $8.0 $10.0 $12.0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 3Q18

Total Assets

(Dollars in billions)

19% compounded annual growth rate for the last 5 years 12% compounded annual growth rate during credit cycle (‘07-’12)

7

$(3.7) $1.2 $2.6 $5.5 $6.6 $11.3 $17.7 $21.8 $23.3 $23.9 $26.8 $30.3 $33.3 $37.9 $41.8 $42.2 $62.4 $67.3 $87.7 $75.3 $97.8 $(20.0) $- $20.0 $40.0 $60.0 $80.0 $100.0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 YTD 2017 YTD 2018

Net Income

27% compounded annual growth rate for the past 18 years

8

TowneBank Growth History

Acquired - $4.5 Billion Organic - $6.6 Billion

Harbor Bank $272 million in Total Assets

Newport News-Hampton, VA

Bank of Currituck $173 million in Total Assets

NE N. Carolina (Outer Banks) Franklin Financial Corporation

$1.1 billion in Total Assets

Richmond, VA MSA

Monarch Financial Holdings, Inc. $1.2 billion in Total Assets Hampton Roads, VA MSA

$1.8 billion in Total Assets Charlotte and Raleigh MSA $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 $6,297 $7,974 $8,522 $11,121

$0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Millions

Organic Acquired Paragon Commercial Corporation 9

1 TowneBank (VA) 26 5,644 22.29 217.08 2 Wells Fargo Bank, NA (SD) 46 4,823 19.05 104.85 3 SunTrust Banks Inc. (GA) 33 4,121 16.28 124.88 4 BB&T Corp. (NC) 44 3,207 12.68 72.89 5 Bank of America Corp. (NC) 32 3,134 12.38 97.94 6 Union Bank & Trust (VA) 25 1,045 4.13 41.80 7 Old Point Financial Corp. (VA) 22 842 3.33 38.27 8 Southern Bank and Trust (NC) 11 469 1.85 42.64 9 Chesapeake Bank (VA) 8 405 1.60 50.63 10 PNC Bank (DE) 10 396 1.56 39.60 Total For Institutions In Market 307 25,321

Dominant Market Position

1)Data as of 6/30/2018 FDIC Summary of Deposits for the Virginia Beach – Norfolk – Newport News, VA – NC MSA

Average Branch Size ($mm) Market Share (%) Deposits in Market ($mm) Number of Branches Institution (ST)

Virginia Beach-Norfolk-Newport News, VA-NC ¹

Rank

10

Bank of America Corp. (NC) 22 14,168 37.6 $ 644.00 Wells Fargo & Co. (CA) 59 6,820 18.1 $ 115.59 SunTrust Banks Inc. (GA) 39 4,490 11.9 $ 115.13 BB&T Corp. (NC) 36 3,161 8.4 $ 87.81 Big Four (2) 76.0 76.0 TowneBank Richmond 9 860 860 2.3 2.3 $ 95.56

Hampton Roads & Richmond Market Share Overview

1

1) Data as of 6/30/2018 FDIC Summary of Deposits 2) Excludes Capital One

Average Branch Size ($mm) Market Share (%)

(2)

Deposits in Market ($mm) Number of Branches Institution (ST)

Richmond Deposit Market Share 1

Bank 1999 2005 2010 2017 TowneBank 1.9 8.9 14.4 22.3 Wells Fargo 28.7 22.7 20.3 19.1 SunTrust 15.6 14.0 15.6 16.3 BB&T 22.1 14.5 12.2 12.7 Bank of America 15.6 15.2 10.2 12.4 Total 83.9 75.3 72.7 82.8 Bank 2018 1999 2010 2005

Hampton Roads Market Share 1

11

Rank Institution (ST) 1 TowneBank (VA) 6 1,581 23.61 263.50 2 Wells Fargo & Co (CA) 14 1,403 20.95 100.21 3 Bank of America Corp. (NC) 9 951 14.21 105.67 4 BB&T Corp. (NC) 12 884 13.21 73.67 5 SunTrust Banks Inc. (GA) 8 822 12.28 102.75 6 Union Bank & Trust (VA) 6 299 4.46 49.83 7 PNC Bank (DE) 5 268 4.00 53.60 8 Southern Bank and Trust (NC) 4 183 2.73 45.75 9 Fulton Bank (PA) 3 135 2.02 45.00 10 Dollar Bank FSB (PA) 2 77 1.15 38.50 Total For Institutions In Market 76 6,697 Rank Institution (ST) 1 TowneBank (VA) 2 910 30.46 455.00 2 Wells Fargo & Co (CA) 7 591 19.79 84.43 3 BB&T Corp. (NC) 5 473 15.83 94.60 4 Bank of America Corp. (NC) 4 331 11.09 82.75 5 SunTrust Banks Inc. (GA) 3 225 7.53 75.00 6 Union Bank & Trust (VA) 6 215 7.21 35.83 7 Fulton Bank (PA) 2 72 2.42 36.00 8 Southern Bank and Trust (NC) 3 65 2.18 21.67 9 PNC Bank (DE) 1 43 1.43 43.00 10 Old Point Financial Corp. (VA) 2 30 0.99 15.00 Total For Institutions In Market 40 2,986 Rank Institution (ST) 1 TowneBank (VA) 3 722 62.95 240.67 2 Wells Fargo & Co (CA) 3 174 15.17 58.00 3 BB&T Corp. (NC) 3 171 14.92 57.00 4 Bank of America Corp. (NC) 1 52 4.50 52.00 5 SunTrust Banks Inc. (GA) 1 27 2.33 27.00 6 Woodforest Financial Grp Inc. (TX) 1 1 0.13 1.00 Total For Institutions In Market 12 1,147 Rank Institution (ST) 1 TowneBank (VA) 3 171 88.62 57.00 2 Union Bank & Trust (VA) 1 22 11.38 22.00 Total For Institutions In Market 4 193 Currituck County, NC Number of Branches Deposits in Market ($mm) Market Share (%) Average Branch Size ($mm) Number of Branches Deposits in Market ($mm) Market Share (%) Average Branch Size ($mm) Number of Branches Deposits in Market ($mm) Market Share (%) Average Branch Size ($mm) Virginia Beach, VA Chesapeake, VA Portsmouth, VA Number of Branches Deposits in Market ($mm) Market Share (%) Average Branch Size ($mm)

#1 Market Share by City/County

1

1) Data as of 6/30/2018 FDIC Summary of Deposits

Rank Virginia Beach, VA

Rank Institution (ST) Number of Branches Deposits in Market ($mm) Market Share (%) Average Branch Size ($mm)

Chesapeake, VA

Rank Institution (ST) Number of Branches Deposits in Market ($mm) Market Share (%) Average Branch Size ($mm)

Portsmouth, VA

Rank Institution (ST) Number of Branches Deposits in Market ($mm) Market Share (%) Average Branch Size ($mm)

Currituck County, NC

Rank Institution (ST) Number of Branches Deposits in Market ($mm) Market Share (%) Average Branch Size ($mm)

Rank Institution (ST) 1 TowneBank (VA) 2 622 32.28 311.00 2 Bank of America Corp. (NC) 3 288 14.96 96.00 3 Wells Fargo & Co (CA) 4 261 13.55 65.25 4 SunTrust Banks Inc. (GA) 4 239 12.42 59.75 5 BB&T Corp. (NC) 3 188 9.79 62.67 6 Old Point Financial Corp. (VA) 4 149 7.76 37.25 7 SONABANK (VA) 1 49 2.57 49.00 8 Union Bank & Trust (VA) 1 39 2.03 39.00 9 Citizens and Farmers Bank (VA) 1 33 1.71 33.00 10 PNC Bank (DE) 1 33 1.70 33.00 Total For Institutions In Market 26 1,925 Rank Institution (ST) 1 TowneBank (VA) 2 336 27.92 168.00 2 PNC Bank (DE) 5 208 17.29 41.60 3 Wells Fargo & Co (CA) 3 164 13.63 54.67 4 First National Bank of Pennsylvania (PA) 5 164 13.60 32.80 5 BB&T Corp. (NC) 2 111 9.25 55.50 6 Southern Bank and Trust (NC) 3 104 8.59 34.67 7 Union Bank & Trust (VA) 1 55 4.56 55.00 8 CresCom Bank 2 43 3.59 21.50 9 First Bank (NC) 1 19 1.58 19.00 Total For Institutions In Market 24 1,204 Number of Branches Deposits in Market ($mm) Market Share (%) Average Branch Size ($mm) Dare County, NC Newport News, VA Number of Branches Deposits in Market ($mm) Market Share (%) Average Branch Size ($mm)

Newport News, VA

Rank Institution (ST) Number of Branches Deposits in Market ($mm) Market Share (%) Average Branch Size ($mm)

Dare County, NC

Institution (ST) Number of Branches Deposits in Market ($mm) Market Share (%) Average Branch Size ($mm)

12

• Targeting 6%-8% Annualized Loan Growth
• Stable asset quality and charge-offs
• Continued reduction in NPAs
• Paragon Acquisition closed and converted January 26, 2018
• Primary focus on Richmond 15% and Paragon 20% expected loan growth
• Strong capital and liquidity to support continued growth
• Opportunistic M&A focused on fee income businesses

Loans and Asset Quality Strategic

• Core Net Interest Margin expansion of 10 basis points throughout 2018 as excess

liquidity is deployed into higher Earning Assets

• Focused noninterest expense control estimated $87-$88 million per quarter on

average

• Continued effort to drive Efficiency Ratio
• Near term Return on Average Assets range of 1.30-1.40%

Profitability

2018 Outlook Summary

13

Key Takeaways

• #1 Market share in Virginia Beach-Norfolk-Newport News, VA-NC MSA¹
• Sustainability - Efficient branching strategy; $202.4 million Average Branch Size 2
• Consistency - 18 consecutive years of Increased Earnings
• 32.2% Noninterest DDAs 2
• 37.2% Noninterest Income 2
• Experienced and successful acquirer
• Culture of Caring
• Historically strong credit culture

1) Data as of 6/30/2018 FDIC Summary of Deposits for the Virginia Beach – Norfolk – Newport News, VA – NC MSA 2) As of 9/30/2018

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APPENDIX

15

The Towne Model



Caring as the Foundation for our Company Culture and as a Specific 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



$200 Million Branch Strategy



Diversified Financial Services driving Noninterest Income

16

Towne Business Model

• Regional Bank
• Private Bank
• Super Community Bank

17

Towne Family of Companies

18

Noninterest Income¹ (in thousands) 49,217 $ 49,416 $ 50,235 $ 149,381 $ 144,646 $ Total Revenues (in thousands) 137,914 $ 115,339 $ 137,058 $ 401,249 $ 340,101 $ Net Income (in thousands) 38,293 $ 27,150 $ 34,804 $ 97,803 $ 75,330 $ Diluted Earnings per Share 0.53 $ 0.44 $ 0.48 $ 1.38 $ 1.21 $ Dividends Declared per Share 0.16 $ 0.14 $ 0.16 $ 0.46 $ 0.41 $ Total Assets (in millions) 11,121 $ 8,615 $ 10,832 $ 11,121 $ 8,615 $ Total Loans (in millions) 7,882 $ 5,910 $ 7,775 $ 7,882 $ 5,910 $ Total Deposits (in millions) 8,299 $ 6,548 $ 7,991 $ 8,299 $ 6,548 $ Return on Average Assets 1.40% 1.26% 1.32% 1.26% 1.22% Return on Average Tangible Common Equity ² 16.30% 13.86% 15.36% 14.45% 13.28% Net Interest Margin ² 3.64% 3.43% 3.71% 3.64% 3.55% Nonperforming Assets/Total Assets 0.25% 0.39% 0.24% 0.25% 0.39% Allowance for Loan and Losses/Total Loans 0.64% 0.75% 0.64% 0.64% 0.75% Net Loan Charge-offs/Average loans 0.03% 0.03% 0.01% 0.02% 0.05% Common Equity Tier I 11.53% 12.36% 11.33% 11.53% 12.36%

• YTD Net Income of $97.8

million, up $22.5 million or 29.8% compared to 2017 YTD

• Total Revenues climbed 18.0%

from 2017 YTD to $401.2 million

• Loans outstanding grew $1.9

billion or 32.5% from 4Q17 including $1.4 billion from Paragon merger

• Deposits up $1.9 billion or

28.7%, Noninterest DDA up 23.8% or $514.2 million from 4Q17

Performance Highlights

1) Excludes gain(loss) on investment securities 2) Non-GAAP financial measure. See appendix for reconciliation

Financial Highlights 3Q 2018 YTD 18 YTD 17

Highlights:

3Q 2017 2Q 2018

19

Income Statement

1) Excludes gain(loss) on investment securities and properties 2) Non-GAAP financial measure. See Appendix for reconciliation

June 30, Y/Y Linked Quarter Y/Y

Dollars in Thousands

2018 2017 2018 r r 2018 2017 r Net Interest Income $88,697 $65,923 $86,823 35% 2% $251,865 $195,456 29% Provision for Loan Losses 1,241 696 3,056 78% (59%) 6,249 4,557 37% Total Noninterest Income1 49,237 49,562 50,141 (1%) (2%) 149,284 144,799 3% Gain/(Loss) on Securities and Properties (20) (146) 94 86% (121%) 100 (154) (165%) Merger and Acquisition Expense 424 466 797 (9%) (47%) 9,947 1,743 471% Other Noninterest Expense 87,838 73,720 88,424 19% (1%) 259,840 220,810 18% Net Income before Taxes and NCI 48,411 40,457 44,781 20% 8% 125,213 112,991 11% Tax Provision 9,159 11,862 8,643 (23%) 6% 23,879 33,488 (29%) Effective Tax Rate (%) 19.30% 30.41% 19.89% (37%) (3%) 19.62% 30.77% (36%) Net Income 39,252 28,595 36,138 37% 9% 101,334 79,503 27% Noncontrolling Interest 959 1,445 1,334 (34%) (28%) 3,531 4,173 (15%) Net Income 38,293 $ 27,150 $ 34,804 $ 41% 10% 97,803 $ 75,330 $ 30% Purchase Accounting Corrections

• (3,889)
• Acquisition-related expenses

424 466 797 (9%) (47%) 9,947 1,743 471% Non-core charges 424 466 797 (9%) (47%) 9,947 (2,146) (564%) Income tax expense (benefit) (44) (117) (93) (62%) (53%) (1,776) 1,125 (258%) Non-core charges, net of taxes 380 349 704 9% (46%) 8,171 (1,021) (900%) Core operating earnings (non-GAAP) 38,673 $ 27,499 $ 35,508 $ 41% 9% 105,974 $ 74,309 $ 43% Diluted EPS $0.53 $0.44 $0.48 20% 10% $1.38 $1.21 14% Common Dividend $0.16 $0.14 $0.16 14% 0% $0.46 $0.41 12% NIM - fully tax equivalent2 3.64% 3.43% 3.71% 21bps (7bps) 3.64% 3.55% 9bps September 30, September 30,

20

Earnings Per Share Book Value

Financial Performance Trends

1) Non-GAAP financial measure. See appendix for reconciliation. See reconciliation of Non-GAAP measures in our annual reports on Form 10-K for prior periods

1 0.00 5.00 10.00 15.00 20.00 25.00 2018Y 2017Y 2016Y 2015Y 2014Y 2013Y 2012Y Tangible Book Value Per Share¹ Book Value Per Share $20.54 $13.83

Diluted EPS 21

Net Income

(Dollars in thousands) *Excluding Tax Reform adjustment for 4Q 2017 - $10,112

$17,819 $6,259 $24,176 $18,996 $21,968 $26,213 $27,150 $22,445 $24,705 $34,804 $38,293 $- $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000 $40,000 $45,000 2016Q1 2016Q2 2016Q3 2016Q4 2017Q1 2017Q2 2017Q3 2017Q4 * 2018Q1 2018Q2 2018Q3

2016 Total (GAAP)$67,250 Core (non-GAAP) $80,148 2017 Total (GAAP) $87,663 Core (non-GAAP) $97,181 YTD 2018 Total (GAAP) $97,803 Core (non-GAAP) $105,974

* * *

22

Net Interest Income (Fully Taxable Equivalent)

(Dollars in thousands)

23

Net Interest Margin

NII Sensitivity

2

1) Non-GAAP financial measure. See appendix for reconciliation. See reconciliation of Non-GAAP measures in our annual reports on Form 10-K for prior periods 2) The interest sensitivity chart is a 1 year result on net interest income of an instantaneous and permanent rate shock. The results include assumptions about deposit rate changes that may or may not occur.

Tax Equivalent Net Interest Margin

1 3.43% 3.41% 3.54% 3.71% 3.64% 3.30% 3.32% 3.39% 3.48% 3.46% 3.00% 3.10% 3.20% 3.30% 3.40% 3.50% 3.60% 3.70% 3.80% 3Q 17 4Q 17 1Q 18 2Q 18 3Q 18 Margin Margin exPAA

24

Noninterest Income

• Total noninterest income up

3.28% year over year and represents 37.23% of Total Operating Income

• Residential Mortgage income

down 10.57% compared to prior year

• Insurance segment impacted by

new accounting guidance resulting in reduction of approximately $0.72 million 2018

(Dollars in thousands) Excludes investment securities gains

$89,917 $96,744 $116,379 $155,216 $188,122 $144,646 $149,381 $- $20,000 $40,000 $60,000 $80,000 $100,000 $120,000 $140,000 $160,000 $180,000 $200,000 2013Y 2014Y 2015Y 2016Y 2017Y 2017 YTD 2018 YTD

25

Noninterest Income

June 30, Y/Y Linked Quarter Y/Y

Dollars in Thousands

2018 2017 2018 r r 2018 2017 r

Residential mortgage banking income, net 15,804 $ 19,087 $ 18,745 $ (17.20%) (15.69%) 52,152 $ 58,314 $ (10.57%) Insurance commissions and other title fees and income, net 14,493 12,116 15,087 19.62% (3.94%) 42,952 39,818 7.87% Real estate brokerage and property management, net 8,542 10,042 6,910 (14.94%) 23.62% 25,881 22,664 14.19% Service charges on deposit accounts 3,028 2,670 2,969 13.41% 1.99% 8,880 7,785 14.07% Credit card merchant fees, net 1,563 1,388 1,443 12.61% 8.32% 4,174 3,804 9.73% BOLI 1,657 1,425 1,633 16.28% 1.47% 4,822 4,321 11.59% Other income 4,130 2,688 3,448 53.65% 19.78% 10,520 7,940 32.49% Subtotal before gain on investments 49,217 49,416 50,235 (0.40%) (2.03%) 149,381 144,646 3.27% Net gain on investment securities

• N/M

N/M 3 (1) N/M Total noninterest income 49,217 $ 49,416 $ 50,235 $ (0.40%) (2.03%) 149,384 $ 144,645 $ 3.28%

Three Months Ended September 30, Nine-Months Ended September 30,

26

Towne Insurance

Insurance Highlights:

• Ranked 56th of Top 100 Business

Insurance Agencies

• Broad areas of specialty and products
• Successful Acquirer and Integrator - 21

acquisitions since 2001; highly competitive landscape

• Strong consistent cash flows
• Dominant market share in legacy

footprint

• Opportunities to diversify in

complementary markets

(Dollars in millions)

Gross Commissions

2015 Best Practices Agency

27

Towne Insurance

Commission and fee income Property and casualty 10,762 $ 9,768 $ 994 $ 10.18% Employee benefits 3,813 3,132 681 21.74% Travel insurance 871 970 (99) (10.21%) Specialized benefit services 166 165 1 0.61% Total commissions and fees 15,612 14,035 1,577 11.24% Contingency and bonus revenue 1,137 180 957 531.67% Other income 75 67 8 11.94% Total revenue 16,824 $ 14,282 $ 2,542 $ 17.80% Employee commission expense 2,742 2,557 185 7.24% Revenue, net of commission expense 14,082 $ 11,725 $ 2,357 $ 20.10% Total operating expenses 10,718 9,452 1,266 13.39% 3,364 2,273 1,091 48.00% Corporate allocation (168) (133) (35) 26.32% Income before taxes and noncontrolling interest 3,196 $ 2,140 $ 1,056 $ 49.35% Net Income before tax, allocations, and noncontrolling interest Three Months Ended September 30, 2018 September 30, 2017

Variance $ %

• Year over year growth in

commission and fee revenue driven by the acquisition of Michael R. Bare agency and

• rganic growth across all

lines

• Property and Casualty

commission and fee revenue up 10.18% over 2017

• New accounting guidance

resulted in $0.72 million decrease in contingency and bonus revenue during first nine months of 2018 and a $0.94 million increase in Q3 2018

Highlights:

(Dollars in thousands)

28

Towne Investment Group

Assets Under Management (Includes Direct Held Assets)

Wealth Management Highlights:

• 2,500+ households
• Recurring revenue for 2017 was 84% of

total revenue

(Dollars in millions)

29

• A Top 19 Berkshire Hathaway HomeServices Affiliate
• 398 Real Estate Agents
• No. 2 in Market Share
• Generates Mortgage Activity
• Manages 1459 Housing Units
• Beach Properties Manages 417 Vacation Homes in Hilton

Head, South Carolina

• Oak Island Accommodations Manages 630 Vacation

Homes in Oak Island, North Carolina

• Railey Mountain Lake Vacations Manages 363 Vacation

Homes in Deep Creek, Maryland

Realty Highlights :

Berkshire Hathaway HomeServices

Towne Realty

(Dollars in billions)

Sales Volume

30

TowneBank Mortgage

Mortgage Highlights :

• 11.7% Refinance activity YTD
• Historically strong purchase

money volumes driven

• Disciplined underwriting; No

material losses through cycle

• Continued expansion in target

markets

• Focusing on efficiencies and
• ptimization of our operational

platforms

(Dollars in millions) *includes Joint Venture volumes

Origination Volume*

31

Noninterest Expense

• Noninterest expense increases

across most major categories driven by Paragon integration and acquisition-related expenses

• f $9.95 million
• Insurance and Property

Management acquisitions in 2017 also impacted prior year comparisons

• Banking segment efficiency ratio

improved 2,127 bps year over year driven by Monarch integration

2018

(Dollars in thousands)

32

Noninterest Expense

June 30, Y/Y Linked Quarter

Dollars in Thousands

2018 2017 2018 r r

Salaries and benefits 50,497 $ 43,101 $ 50,324 $ 17.16% 0.34% Occupancy expense 7,013 6,635 6,802 5.70% 3.10% Furniture and equipment 3,646 3,710 3,546

• 1.73%

2.82% Acquisition-related expenses 424 466 797 (9.01%) (46.80%) Other expenses 26,682 20,274 27,752 31.61% (3.86%) Total noninterest expense 88,262 $ 74,186 $ 89,221 $ 18.97% (1.07%)

September 30,

33

Efficiency Ratio

Efficiency Ratio (excluding securities, gains, and M&A cost)

50.0% 60.0% 70.0% 80.0% 90.0% 100.0%

2017 Q3 2017 Q4 2018 Q1 2018 Q2 2018 Q3

54% 56% 61% 56% 54% 79% 92% 76% 89% 88% 79% 80% 73% 70% 75% 64% 67% 66% 65% 64%

Efficiency Ratio

Bank Segment Realty Segment Insurance Segment Consolidated

34

Total Cash & Securities 1,865,181 $ 1,621,019 $ 1,592,226 $ Gross Loans 7,881,692 7,774,956 5,910,479 Loan Loss Reserve (50,236) (49,535) (44,398) Total Net Loans 7,831,456 7,725,421 5,866,081 Other Assets 1,424,595 1,485,213 1,156,487 Total Assets 11,121,232 10,831,653 8,614,794 Total Deposits 8,299,431 7,991,211 6,548,462 FHLB Borrowings 873,469 873,622 527,072 Other Debt 293,303 298,544 270,323 Total Debt 1,166,772 1,172,166 797,395 Total Other Liabilities 155,205 191,490 128,086 Total Liabilities 9,621,408 9,354,867 7,473,943 Equity ($000) Common Equity 1,485,970 1,462,761 1,129,588 Equity Attributable to Parent Company 1,485,970 1,462,761 1,129,588 Noncontrolling Interests 13,854 14,025 11,263 Total Equity 1,499,824 1,476,786 1,140,851

Balance Sheet Summary

• Total Assets climbed to

$11.12 billion

• Average earning assets grew

by $2.02 billion or 26.2% from 9/30/2017

• Strong Liquidity to support

growth

• Stable core funding; 32.2%

noninterest DDA

• Conservative securities

portfolio with 3.3 year average duration

• Strong Capital ratios

September 30, 2018 September 30, 2017 June 30, 2018 (Dollars in Thousands)

Highlights:

35

Loans and Deposits by Region

Deposit Growth Actual Actual Region 9/30/2018 6/30/2018 $ r % r Hampton Roads 5,745 $ 5,537 $ 208 $ 14.90% North Carolina 1,736 1,727 9 2.07% Richmond 933 860 73 33.68% Corporate (115) (133) 18 (53.69%) Consolidated 8,299 $ 7,991 $ 308 $ 15.29% Actual 3/31/2018 $ ∆ % ∆ Actual 12/31/2017

(Dollars In millions)

Loan Growth Actual Actual Annualized Region 9/30/2018 6/30/2018 $ r % r Hampton Roads 4,976 $ 5,003 $ (27) $ (2.14%) North Carolina 1,973 1,881 92 19.40% Richmond 884 842 42 19.79% Corporate 49 49

• 0.00%

Consolidated 7,882 $ 7,775 $ 107 $ 5.46% Loan Growth Region Actual 9/30/2018 Actual 6/30/2018 $ ∆ Annualized % ∆ $ ∆ Annualized % ∆ Actual 9/30/2018 Actual 6/30/2018 Deposit Growth Region

36

Loan Portfolio at September 30, 2018 High-Quality, Stable Portfolio

• Loans Held for Investment increased

$1.93 billion or 32.5% from 12/31/2017

• NPAs / Assets of 0.25%; Outstanding

asset quality metrics

• Allowance to NPLs of 7.25x
• Top 10 loan relationships represent

7.26% of the held for investment portfolio $7.9 billion Yield on Loans: 4.95% QTD Highlights:

37

38

Commercial Real Estate Overview (excluding Owner Occupied)

Total Commercial Loan Exposure by Industry Classification Commercial Real Estate Loans / Total Risk-Based Capital (%)

214% 220% 245% 250% 249%

2017Q3 2017Q4 2018Q1 2018Q2 2018Q3

38

Strong Capital Position

1) Non-GAAP financial measure. See appendix for reconciliation * As of June 30, 2018

11.53% 11.57% 14.90% 9.98% 12.92% 13.00% 14.40% 9.70% 14.32% 14.84% 16.72% 10.97% 4.50% 6.00% 8.00% 4.00% 0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00% 16.00% 18.00% Tier 1 Common Equity (CET1) RB Ratio¹ Tier 1 Ratio¹ Total RBC Ratio¹ Tier 1 Leverage¹ TOWN US Commercial Banks * VA Commercial Banks * Regulatory Minimum 39

Total assets

11,121,232 $ 10,831,653 $

Less: Goodwill

(427,117) (425,625)

Less: Intangible assets, net

(58,165) (60,668)

Tangible assets

10,635,950 $ 10,345,360 $

Total equity

1,499,824 $ 1,476,786 $

Less: Goodwill

(427,117) (425,625)

Less: Intangible assets, net

(58,165) (60,668)

Less: Noncontrolling interest

(13,855) (14,025)

Tangible common equity

1,000,687 $ 976,468 $

Risk-based capital: Common equity tier 1 capital

1,031,164 $ 1,002,617 $

Tier 1

1,034,501 $ 1,005,441 $

Total

1,332,449 $ 1,302,539 $

Risk weighted assets

8,942,084 $ 8,853,100 $

Total assets for leverage capital purposes

10,367,415 $ 10,058,759 $

Tier 1 capital ratio

11.57% 11.36%

Total

14.90% 14.71%

Common equity Tier 1

11.53% 11.33%

Tier 1 leverage ratio

9.98% 10.00%

Non-GAAP Reconciliations

(Dollars in thousands)

Quarter Ended September 30, 2018 Quarter Ended June 30, 2018

40

Quarter Ended Quarter Ended Quarter Ended March 31, 2018 March 31, 2018 March 31, 2017 Net interest margin - tax-equivalent (Non-GAAP) 3.64% 3.71% 3.54% Adjustments to net interest margin: Tax-equivalent basis adjustment (0.02) (0.02) (0.03) Net interest margin (GAAP) 3.62% 3.69% 3.51% March 31, 2017 Book value (GAAP) 20.54 $ Impact of excluding average goodwill and other intangibles and amortization (6.71) Tangible book value (Non-GAAP) 13.83 $

Non-GAAP Reconciliations

Quarter Ended September 30, 2018 Quarter Ended June 30, 2018 Quarter Ended March 31, 2018 September 30, 2018

41

Non-GAAP Reconciliations

Q2 '18 Q1 '18 Q4 '17 Q3 '17 Q2 '17

Total revenue 137,914 $ 137,058 $ 126,276 $ 109,141 $ 115,340 $ Net gain (loss) on investment securities

• 3
• Adjusted non-int inc

137,914 137,055 126,276 109,141 115,340 Total noninterest expenses 88,262 89,222 92,303 73,660 74,186 Less: Excl Expenses - M&A expenses 424 798 8,726 526 466 Adj Non int exp 87,838 $ 88,424 $ 83,577 $ 73,134 $ 73,720 $ Efficiency ratio 64.0% 65.1% 73.1% 67.5% 64.3% Adjusted efficiency ratio (non-GAAP) 63.7% 64.5% 66.2% 67.0% 63.9%

Q2 '18 Q1 '18 Q4 '17 Q3 '17 Q2 '17

Total revenue 94,314 $ 92,160 $ 82,052 $ 71,362 $ 70,411 $ Net gain (loss) on investment securities

• 3
• Adjusted non-int inc

94,314 92,157 82,052 71,362 70,411 Total noninterest expenses 51,430 51,498 58,719 39,986 38,547 Less: Excl Expenses - M&A expenses 185 343 8,346 234 285 Adj Non int exp 51,245 $ 51,155 $ 50,373 $ 39,752 $ 38,262 $ Efficiency ratio 54.5% 55.9% 71.6% 56.0% 54.7% Adjusted efficiency ratio (non-GAAP) 54.3% 55.5% 61.4% 55.7% 54.3%

Banking Q2 '18 Q1 '18 Q4 '17 Q3 '17 Q2 '17

Total revenue 29,518 $ 30,276 $ 31,045 $ 25,964 $ 33,203 $ Net gain (loss) on investment securities

• Adjusted non-int inc

29,518 30,276 31,045 25,964 33,203 Total noninterest expenses 26,113 27,032 23,717 23,963 26,187 Less: Excl Expenses - M&A expenses 50 41 155 34 27 Adj Non int exp 26,063 $ 26,991 $ 23,562 $ 23,929 $ 26,160 $ Efficiency ratio 88.5% 89.3% 76.4% 92.3% 78.9% Adjusted efficiency ratio (non-GAAP) 88.3% 89.1% 75.9% 92.2% 78.8%

Q2'18 Q1'18 Q4'17 Q3'17 Q2 '17

Total revenue 14,082 $ 14,623 $ 13,179 $ 11,815 $ 11,725 $ Net gain (loss) on investment securities

• Adjusted non-int inc

14,082 14,623 13,179 11,815 11,725 Total noninterest expenses 10,718 10,691 9,867 9,711 9,452 Less: Excl Expenses - M&A expenses 188 413 226 257 154 Adj Non int exp 10,530 $ 10,278 $ 9,641 $ 9,454 $ 9,298 $ Efficiency ratio 76.1% 73.1% 74.9% 82.2% 80.6% Adjusted efficiency ratio (non-GAAP) 74.8% 70.3% 73.2% 80.0% 79.3%

Realty Insurance

Q3’18

Consolidated

Q2’18 Q1’18 Q4’17 Q3’17 Q3’18

Realty

Q2’18 Q1’18 Q4’17 Q3’17 Q3’18

Banking

Q2’18 Q1’18 Q4’17 Q3’17 Q3’18

Insurance

Q2’18 Q1’18 Q4’17 Q3’17

(Dollars in thousands)

42

Non-GAAP Reconciliations

Year Ended March 31, 2018 Consolidated Banking Realty Insurance Totals Net income available to common shareholders (GAAP) 83,358 $ 7,878 $ 6,567 $ 97,803 $ Acquisition-related expenses 8,874 246 827 9,947 Non-core charges 8,874 246 827 9,947 Income tax expense (1,713) (22) (41) (1,776) Non-core charges, net of taxes 7,161 224 786 8,171 Core net income (non-GAAP) 90,519 $ 8,102 $ 7,353 $ 105,974 $ Average tangible equity 972,567 $ Amortization expense on intangibles, net of taxes 6,784 $ Core return on average tangible equity (non-GAAP) 15.50% Year Ended March 31, 2017 Consolidated Banking Realty Insurance Totals Net income available to common shareholders (GAAP) 62,083 $ 7,575 $ 5,672 $ 75,330 $ Purchase Accounting Adjustment (3,889)

• (3,889)

Acquisition-related expenses 1,100 181 462 1,743 Non-core charges (2,789) 181 462 (2,146) Income tax (expense) benefit 1,283 (36) (122) 1,125 Non-core charges, net of taxes (1,506) 145 340 (1,021) Core net income (non-GAAP) 60,577 $ 7,720 $ 6,012 $ 74,309 $ Average tangible equity 807,891 $ Amortization expense on intangibles, net of taxes 3,785 $ Core return on average tangible equity (non-GAAP) 12.92%

Nine-Months Ended September 30, 2018 Banking Realty Insurance Consolidated Totals Nine-Months Ended September 30, 2017 Banking Realty Insurance Consolidated Totals

(Dollars in thousands)

43

2016 AND FOURTH QUARTER UPDATE

10 10 44

NOTES

NOTES

NOTES