News Column

TowneBank Reports Second Quarter Earnings

July 23, 2014

SUFFOLK, Va., July 23, 2014 (GLOBE NEWSWIRE) -- Hampton Roads based TowneBank (the "Bank") (Nasdaq:TOWN) reported earnings of $11.68 million for the quarter ended June 30, 2014, a 4.27% increase, or $478,000, over the $11.20 million reported for the comparative period in 2013. Earnings for the year-to-date period increased 5.25% to $22.81 million as compared to the $21.67 million earned in the same period last year.

Net income available to common shareholders increased 16.55% to $11.49 million after preferred dividend payments of $191,000. Fully diluted earnings per share increased 6.45% to $0.33 per share compared to $0.31 per share for the comparative period of 2013. For the six-month period ended June 30, 2014, fully diluted earnings per share increased 6.67% to $0.64 from $0.60 in the comparative prior year period.

The Bank's common dividend was $0.11 per share for the quarter with the common dividend totaling $3.90 million. The current dividend represents an increase of 22.22% over the dividend paid during the same quarter of 2013.

Earnings Highlights

Net interest income increased to $36.54 million, a $461,000, or 1.28%, increase from the second quarter of 2013. The primary driver of the increase was growth in average earning assets of $348.58 million, which was partially offset by a 24 basis point narrowing of the tax-equivalent net interest margin to 3.43% in the current quarter from 3.67% in the second quarter of 2013. On a linked quarter basis, net interest income increased $1.35million, or 3.82%, in second quarter 2014 versus the first quarter, while tax-equivalent net interest margin was essentially flat at 3.43% versus 3.44% for first quarter of 2014.

Noninterest income, excluding gains or losses on investment securities, increased by $883,000, or 3.61%, to $25.35million for the second quarter of 2014, compared to the second quarter of 2013.The majority of the increase is attributable to insurance commissions, which increased $2.06million, or 30.06%, from the comparative period in 2013 due to the acquisition of two insurance agencies in the third quarter of 2013 and the acquisition of Southern Insurance Agency, Inc., based in Kitty Hawk, North Carolina, in May 2014.The increase was partially offset by decreases in residential mortgage banking income, which decreased $1.18million, or 13.27%, from the comparative period in 2013 due to lower margins and decreased production volumes.However, Realty segment net income increased $1.46million from a $25,000 loss in the first quarter of 2014.Mortgage production was $334.88million in the second quarter of 2014, which was $131.11million higher than first quarter 2014.

Noninterest expense increased by $851,000, or 1.94%, compared to the comparative quarter of 2013.The insurance acquisitions and the opening of two new banking offices in the second half of 2013 and one new banking office in June 2014 led to $1.47 million in additional expenses when compared to the second quarter of 2013.These increases were partially offset with bank-wide cost cutting initiatives which continue to improve our operating efficiencies.

Balance Sheet

At June30, 2014, total Bank assets reached $4.91billion, an increase of $314.76million, or 6.85%, over June30, 2013.The Bank's loan portfolio ended the period at $3.33billion representing an increase of 4.61%, or $146.74million, from the prior year.

The Bank continued to experience solid deposit growth with total deposits increasing to $3.80billion, up $285.76million, or 8.14%, from June30, 2013.The Bank saw continued growth in noninterest bearing demand deposits, which ended the quarter at $1.20billion, an 11.71% increase from June30, 2013.Noninterest deposits represented 31.69% of total deposits at June30, 2014.

Capital Strength

The Bank's total equity at June30, 2014 rose to $604.81million, an increase of $33.42million, or 5.85%, from June30, 2013.Common equity increased 20.92%, or $89.90million, as the Bank's 8%Series A Preferred Stock mandatorily converted on September1, 2013 into 3.19million 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 13.79%, 12.83%, 10.16%, 10.53%, respectively.All ratios exceed the current regulatory standards for well capitalized status.

Credit Quality

Continued improvements in credit quality contributed to the Bank's financial results as nonperforming loans decreased to $7.50million from $11.75million, at June30, 2013 and $10.98million at March 31, 2014.As a result of the improvements in credit quality and a reduction in historical loss ratios, a negative provision for loan losses of $833,000 was recorded in the second quarter of 2014 a decrease of $631,000 as compared to the same quarter of 2013.Net charge-offs were $925,000 in the second quarter of 2014 compared to $1.41million in the second quarter of 2013 and $1.17 million in the linked quarter.Total nonperforming assets were $49.91million, or 1.02%, of Bank assets at June30, 2014, as compared to $59.34million, or 1.29%, at June30, 2013, and $52.49million, or 1.10%, at March 31, 2014.

Asset Quality Indicators
(in thousands)6/30/20143/31/201412/31/20139/30/20136/30/2013
Nonperforming loans $7,501 $10,977 $12,753 $13,683 $11,746
Foreclosed property 42,404 41,510 39,534 41,914 47,596
Total nonperforming assets $49,905 $52,487 $52,287 $55,597 $59,342
Quarterly net loans charged off $925 $1,167 $732 $804 $1,410
Year-to-date net loans charged off $2,092 $1,167 $6,295 $5,563 $4,759


On July 15, 2014, the Company announced the signing of a definitive agreement to acquire Franklin Financial Corporation ("Franklin") based in Richmond, Virginia.At March 31, 2014, Franklin had total assets of $1.10billion, gross loans of $554.79million, and total deposits of $670.62million.The Company anticipates closing the transaction in the fourth quarter of 2014, subject to customary closing conditions, including the receipt of regulatory approvals and the approval of each company's shareholders.

"We are pleased to report solid second quarter results, demonstrating improvements in both revenues and operating expenses.We are also excited about the opportunity to expand our business to the Richmond market, which has been provided to us through the transaction with Franklin.In addition to acquiring a great foundation for our entry into the Richmond market, because of Franklin's strong capital base, the transaction will provide capital for additional expansion and the retirement of preferred stock relating to our participation in the Small Business Lending Fund.As we look forward to this new opportunity, we are delighted with the progress our Company has achieved for our members, our community, and our shareholders," said G. Robert Aston, Jr., Chairman and Chief Executive Officer.

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 $4.91billion as of June30, 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, 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 Financial Corporation 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, TowneBank will file with the FDIC a proxy statement/prospectus.TowneBank will deliver a definitive joint proxy statement/prospectus 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 it becomes 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
June 30, 2014
(dollars in thousands, except per share data)
Increase/ % Increase/
Three months ended June 30, 2014 2013 (Decrease) (Decrease)
Results of Operations:
Net interest income $36,538 $36,077 $461 1.28%
Noninterest income (1) 25,346 24,463 883 3.61%
Loss on investment securities (62) (208) 146 (70.19)%
Noninterest expenses 44,668 43,817 851 1.94%
Provision for loan losses (833) (202) (631) 312.38%
Income before income tax and noncontrolling interest 17,987 16,717 1,270 7.60%
Provision for income tax expense 5,432 4,707 725 15.40%
Net income 12,555 12,010 545 4.54%
Net income attributable to noncontrolling interest (878) (811) (67) 8.26%
Net income attributable to TowneBank 11,677 11,199 478 4.27%
Preferred stock dividends 191 1,344 (1,153) (85.79)%
Net income available to common shareholders 11,486 9,855 1,631 16.55%
Net income per common share - basic 0.33 0.31 0.02 6.45%
Net income per common share - diluted 0.33 0.31 0.02 6.45%
Period End Data:
Total assets $4,909,843 $4,595,087 $314,756 6.85%
Total assets - tangible 4,779,709 4,477,114 302,595 6.76%
Earning assets (2) 4,536,817 4,230,005 306,812 7.25%
Loans (net of unearned income) 3,326,850 3,180,110 146,740 4.61%
Allowance for loan losses 35,786 39,037 (3,251) (8.33)%
Goodwill and other intangibles 130,134 117,973 12,161 10.31%
Nonperforming assets 49,905 59,342 (9,437) (15.90)%
Noninterest bearing deposits 1,203,040 1,076,898 126,142 11.71%
Interest bearing deposits 2,592,789 2,433,169 159,620 6.56%
Total deposits 3,795,829 3,510,067 285,762 8.14%
Total equity 604,812 571,388 33,424 5.85%
Total equity - tangible 474,678 453,415 21,263 4.69%
Common equity 519,536 429,636 89,900 20.92%
Common equity - tangible 389,402 311,663 77,739 24.94%
Book value per common share 14.63 13.38 1.25 9.34%
Book value per common share - tangible 10.96 9.70 1.26 12.99%
Daily Average Balances:
Total assets $4,810,582 $4,439,414 $371,168 8.36%
Total assets - tangible 4,683,697 4,321,112 362,585 8.39%
Earning assets (2) 4,413,137 4,064,556 348,581 8.58%
Loans (net of unearned income), excluding nonaccrual loans 3,290,610 3,150,527 140,083 4.45%
Allowance for loan losses 37,458 40,127 (2,669) (6.65)%
Goodwill and other intangibles 126,885 118,302 8,583 7.26%
Noninterest bearing deposits 1,118,051 1,023,045 95,006 9.29%
Interest bearing deposits 2,587,137 2,354,032 233,105 9.90%
Total deposits 3,705,188 3,377,077 328,111 9.72%
Total equity 601,203 571,955 29,248 5.11%
Total equity - tangible 474,319 453,653 20,666 4.56%
Common equity 516,102 430,652 85,450 19.84%
Common equity - tangible 389,217 312,350 76,867 24.61%
Key Ratios:
Return on average assets 0.97% 1.01% (0.04)% (3.96)%
Return on average assets - tangible 1.03% 1.04% (0.01)% (0.96)%
Return on average equity 7.79% 7.85% (0.06)% (0.76)%
Return on average equity - tangible 10.20% 9.90% 0.30% 3.03%
Return on average common equity 8.93% 9.18% (0.25)% (2.72)%
Return on average common equity - tangible 12.24% 12.66% (0.42)% (3.32)%
Net interest margin-fully tax equivalent (2)(3) 3.43% 3.67% (0.24)% (6.54)%
Net interest margin (2) 3.36% 3.60% (0.24)% (6.67)%
Average earning assets/total average assets 91.74% 91.56% 0.18% 0.20%
Average loans/average deposits 88.81% 93.29% (4.48)% (4.80)%
Average noninterest deposits/total average deposits 30.18% 30.29% (0.11)% (0.36)%
Allowance for loan losses/period end loans 1.08% 1.23% (0.15)% (12.20)%
Nonperforming assets to period end assets 1.02% 1.29% (0.27)% (20.93)%
Period end equity/period end total assets 12.32% 12.43% (0.11)% (0.88)%
Efficiency ratio (1) 72.18% 72.38% (0.20)% (0.28)%
(1) Excludes gain on investment securities
(2) Includes bank-owned life insurance
(3) Presented on a tax-equivalent basis
Selected Financial Highlights (unaudited)
TOWNEBANK
June 30, 2014
(dollars in thousands, except per share data)
Increase/ % Increase/
Six Months Ended June 30, 2014 2014 2013 (Decrease) (Decrease)
Results of Operations:
Net interest income $71,730 $71,287 $443 0.62%
Noninterest income (1) 48,073 48,218 (145) (0.30)%
Gain (loss) on investment securities (60) 396 (456) (115.15)%
Noninterest expenses 85,749 84,414 1,335 1.58)%
Provision for loan losses (503) 3,369 (3,872) (114.93)%
Income before income tax and noncontrolling interest 34,497 32,118 2,379 7.41%
Provision for income tax expense 10,337 9,073 1,264 13.93%
Net income 24,160 23,045 1,115 4.84%
Net income attributable to noncontrolling interest (1,352) (1,375) 23 (1.67)%
Net income attributable to TowneBank 22,808 21,670 1,138 5.25%
Preferred stock dividends 382 2,696 (2,314) (85.83)%
Net income available to common shareholders 22,426 18,974 3,452 18.19%
Net income per common share - basic 0.64 0.60 0.04 6.67%
Net income per common share - diluted 0.64 0.60 0.04 6.67%
Period End Data:
Total assets $4,909,843 $4,595,087 $314,756 6.85%
Total assets - tangible 4,779,709 4,477,114 302,595 6.76%
Earning assets (2) 4,536,817 4,230,005 306,812 7.25%
Loans (net of unearned income) 3,326,850 3,180,110 146,740 4.61%
Allowance for loan losses 35,786 39,037 (3,251) (8.33)%
Goodwill and other intangibles 130,134 117,973 12,161 10.31%
Nonperforming assets 49,905 59,342 (9,437) (15.90)%
Noninterest bearing deposits 1,203,040 1,076,898 126,142 11.71%
Interest bearing deposits 2,592,789 2,433,169 159,620 6.56%
Total deposits 3,795,829 3,510,067 285,762 8.14%
Total equity 604,812 571,388 33,424 5.85%
Total equity - tangible 474,678 453,415 21,263 4.69%
Common equity 519,536 429,636 89,900 20.92%
Common equity - tangible 389,402 311,663 77,739 24.94%
Book value per common share 14.63 13.38 1.25 9.34%
Book value per common share - tangible 10.96 9.70 1.26 12.99%
Daily Average Balances:
Total assets $4,748,079 $4,392,022 $356,057 8.11%
Total assets - tangible 4,624,679 4,273,464 351,215 8.22%
Earning assets (2) 4,357,786 4,014,059 343,727 8.56%
Loans (net of unearned income), excluding nonaccrual loans 3,258,031 3,126,525 131,506 4.21%
Allowance for loan losses 38,024 40,465 (2,441) (6.03)%
Goodwill and other intangibles 123,400 118,558 4,842 4.08%
Noninterest bearing deposits 1,078,200 987,648 90,552 9.17%
Interest bearing deposits 2,566,436 2,358,406 208,030 8.82%
Total deposits 3,644,637 3,346,054 298,583 8.92%
Total equity 596,472 568,930 27,542 4.84%
Total equity - tangible 473,072 450,372 22,700 5.04%
Common equity 511,295 427,788 83,507 19.52%
Common equity - tangible 387,895 309,230 78,665 25.44%
Key Ratios:
Return on average assets 0.97% 0.99% (0.02)% (2.02)%
Return on average assets - tangible 1.03% 1.02% 0.01% 0.98%
Return on average equity 7.71% 7.68% 0.03% 0.39%
Return on average equity - tangible 10.03% 9.70% 0.33% 3.40%
Return on average common equity 8.85% 8.94% (0.09)% (1.01)%
Return on average common equity - tangible 12.04% 12.37% (0.33)% (2.67)%
Net interest margin-fully tax equivalent (2)(3) 3.43% 3.69% (0.26)% (7.05)%
Net interest margin (2) 3.36% 3.62% (0.26)% (7.18)%
Average earning assets/total average assets 91.78% 91.39% 0.39% 0.43%
Average loans/average deposits 89.39% 93.44% (4.05)% (4.33)%
Average noninterest deposits/total average deposits 29.58% 29.52% 0.06% 0.20%
Allowance for loan losses/period end loans 1.08% 1.23% (0.15)% (12.20)%
Nonperforming assets to period end assets 1.02% 1.29% (0.27)% (20.93)%
Period end equity/period end total assets 12.32% 12.43% (0.11)% (0.88)%
Efficiency ratio (1) 71.57% 70.64% 0.93% 1.32%
(1) Excludes gain on investment securities
(2) Includes bank-owned life insurance
(3) Presented on a tax-equivalent basis
Selected Financial Highlights (unaudited)
TOWNEBANK
June 30, 2014
(dollars in thousands, except per share data)
June 30,March 31, Increase/ % Increase/
Three Months Ended 2014 2014 (Decrease) (Decrease)
Results of Operations:
Net interest income $36,538 $35,192 $1,346 3.82%
Noninterest income (1) 25,346 22,727 2,619 11.52%
Gain (loss) on investment securities (62) 2 (64) N/M
Noninterest expenses 44,668 41,081 3,587 8.73%
Provision for loan losses (833) 330 (1,163) (352.42)%
Income before income tax and noncontrolling interest 17,987 16,510 1,477 8.95%
Provision for income tax expense 5,432 4,905 527 10.74%
Net income 12,555 11,605 950 8.19%
Net income attributable to noncontrolling interest (878) (474) (404) 85.23%
Net income attributable to TowneBank 11,677 11,131 546 4.91%
Preferred stock dividends 191 191
Net income available to common shareholders 11,486 10,940 546 4.99%
Net income per common share - basic 0.33 0.31 0.02 6.45%
Net income per common share - diluted 0.33 0.31 0.02 6.45%
Period End Data:
Total assets $4,909,843 $4,775,234 $134,609 2.82%
Total assets - tangible 4,779,709 4,655,641 124,068 2.66%
Earning assets (2) 4,536,817 4,415,853 120,964 2.74%
Loans (net of unearned income) 3,326,850 3,269,362 57,488 1.76%
Allowance for loan losses 35,786 37,543 (1,757) (4.68)%
Goodwill and other intangibles 130,134 119,593 10,541 8.81%
Nonperforming assets 49,905 52,488 (2,583) (4.92)%
Noninterest bearing deposits 1,203,040 1,090,273 112,767 10.34%
Interest bearing deposits 2,592,789 2,591,437 1,352 0.05%
Total deposits 3,795,829 3,681,709 114,120 3.10%
Total equity 604,812 593,406 11,406 1.92%
Total equity - tangible 474,678 473,813 865 0.18%
Common equity 519,536 507,963 11,573 2.28%
Common equity - tangible 389,402 388,370 1,032 0.27%
Book value per common share 14.63 14.38 0.25 1.74%
Book value per common share - tangible 10.96 11.00 (0.04) (0.36)%
Daily Average Balances:
Total assets $4,810,582 $4,684,881 $125,701 2.68%
Total assets - tangible 4,683,697 4,565,004 118,693 2.60%
Earning assets (2) 4,413,137 4,301,821 111,316 2.59%
Loans (net of unearned income), excluding nonaccrual loans 3,290,610 3,225,089 65,521 2.03%
Allowance for loan losses 37,458 38,596 (1,138) (2.95)%
Goodwill and other intangibles 126,885 119,877 7,008 5.85%
Noninterest bearing deposits 1,118,051 1,037,907 80,144 7.72%
Interest bearing deposits 2,587,137 2,545,505 41,632 1.64%
Total deposits 3,705,188 3,583,412 121,776 3.40%
Total equity 601,203 591,688 9,515 1.61%
Total equity - tangible 474,319 471,811 2,508 0.53%
Common equity 516,102 506,435 9,667 1.91%
Common equity - tangible 389,217 386,558 2,659 0.69%
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 7.79% 7.63% 0.16% 2.10%
Return on average equity - tangible 10.20% 9.57% 0.63% 6.58%
Return on average common equity 8.93% 8.76% 0.17% 1.94%
Return on average common equity - tangible 12.24% 11.48% 0.76% 6.62%
Net interest margin-fully tax equivalent (2)(3) 3.43% 3.44% (0.01)% (0.29)%
Net interest margin (2) 3.36% 3.36%
Average earning assets/total average assets 91.74% 91.82% (0.08)% (0.09)%
Average loans/average deposits 88.81% 90.00% (1.19)% (1.32)%
Average noninterest deposits/total average deposits 30.18% 28.96% 1.22% 4.21%
Allowance for loan losses/period end loans 1.08% 1.15% (0.07)% (6.09)%
Nonperforming assets to period end assets 1.02% 1.10% (0.08)% (7.27)%
Period end equity/period end total assets 12.32% 12.43% (0.11)% (0.88)%
Efficiency ratio (1) 72.18% 70.93% 1.25% 1.76%
(1) Excludes gain on investment securities
(2) Includes bank-owned life insurance
(3) Presented on a tax-equivalent basis

CONTACT: For more information contact: G. Robert Aston, Jr. Chairman and CEO, 757-638-6780 Clyde E. McFarland, Jr. Senior Executive Vice President and CFO, 757-638-6801

Source: TowneBank


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