Highlights for Fourth Quarter 2023:

• Total revenues were $155.55 million in fourth quarter 2023, a decrease of $19.76 million, or 11.27% from the prior year quarter. This decrease was attributable to the decline in net interest income of $21.05 million, or 16.35%, due to margin compression. Noninterest income increased $1.29 million, or 2.77%, in the quarterly comparison.

• Loans held for investment increased $156.05 million, or 5.54% on an annualized basis, from September 30, 2023.

• Total deposits were relatively flat compared to September 30, 2023, increasing $12.40 million, or 0.35% on an annualized basis.

• Noninterest-bearing deposits decreased $102.16 million, or 9.12%, on an annualized basis compared to the linked quarter.

• In the quarter ended December 31, 2023, annualized return on average common shareholders' equity was 5.79% and annualized return on average tangible common shareholders' equity (non-GAAP) was 8.62%.

• Net interest margin was 2.83% and taxable equivalent net interest margin (non-GAAP) was 2.86% compared to the prior year quarter net interest margin of 3.51% and taxable equivalent net interest margin (non-GAAP) of 3.53%.

• Effective tax rate of 8.46% compared to 19.90% in fourth quarter 2022 and 17.34% in the linked quarter. A decrease in state tax expense in fourth quarter 2023 and an adjustment to deferred taxes related to the sale of BHHS were the primary drivers of the decline in effective tax rates.
  

“2023 was a watershed year for our Towne Insurance team as revenue crossed over the $100 million mark to end the year at $109 million, while continuing to create significant intrinsic value for our shareholders," said William I. Foster III, President and Chief Executive Officer. "Looking ahead, we will continue to seek new investment opportunities to provide new and exciting products for our members."

Quarterly Net Interest Income:

• Net interest income was $107.73 million compared to $128.78 million for the quarter ended December 31, 2022. This decrease was driven by higher costs on deposits outpacing increases in loan and investment securities interest income.

• Taxable equivalent net interest margin (non-GAAP) was 2.86%, including purchase accounting accretion of 4 basis points, compared to 3.53%, including purchase accounting accretion of 1 basis point, for fourth quarter 2022.

• On an average basis, loans held for investment had a yield of 5.22%, which represented 74.39% of earning assets in the fourth quarter of 2023, compared to a yield of 4.60%, which represented 73.41% of earning assets in the fourth quarter of 2022.

• Total cost of deposits increased to 2.09% from 1.84% in the linked quarter and 0.60% in the quarter ended December 31, 2022.

• Average interest-earning assets totaled $15.10 billion at December 31, 2023 compared to $14.58 billion at December 31, 2022, an increase of 3.55%.

• Average interest-bearing liabilities totaled $9.87 billion, an increase of $1.62 billion, or 19.58%, compared to the prior year.

Quarterly Provision for Credit Losses:

• The provision for credit losses was an expense of $2.45 million in the current quarter and $1.01 million in the linked quarter, compared to $6.07 million one year ago.

• The allowance for credit losses on loans increased $1.30 million, compared to the linked quarter. The increase in the allowance was driven by a combination of modest loan growth and changes in our portfolio composition, partially offset by improvements to the macroeconomic forecast scenarios utilized in our models.

• Net charge-offs (recoveries) were $68 thousand compared to $2.90 million one year prior and $(1.07) million in the linked quarter. The ratio of net charge-offs (recoveries) to average loans on an annualized basis was 0.00% in fourth quarter 2023, 0.11% in fourth quarter 2022, and (0.04)% in the linked quarter.

• The allowance for credit losses on loans represented 1.12% of total loans at both December 31, 2023 and September 30, 2023, compared to 1.03% at December 31, 2022. The allowance for credit losses on loans was 18.48 times nonperforming loans compared to 17.60 times at September 30, 2023 and 17.67 times at December 31, 2022.

Quarterly Noninterest Income:

• Total noninterest income was $47.81 million compared to $46.52 million in 2022, an increase of $1.29 million, or 2.77%.

• Residential mortgage banking income was $8.04 million compared to $7.37 million in fourth quarter 2022. Loan volume in the current quarter was $428.95 million, with purchase activity comprising 95.06%. Loan volume in fourth quarter 2022 was $456.81 million, with purchase activity of 95.08%. Sustained levels of increased mortgage rates and limited housing inventory have contributed to a decline in production.

• Gross margins on residential mortgages increased 13 basis points from 2.93% in fourth quarter 2022 to 3.06% in the current quarter. Compared to the linked quarter, gross margins declined 11 basis points from 3.17%.

• Property management fee revenue decreased 5.13%, or $398 thousand, in comparison to fourth quarter 2022 driven by lower reservation levels.

• Total insurance commissions and other income increased $3.88 million, or 22.41%, to $21.21 million in the fourth quarter of 2023 due to organic growth and additional commissions from two acquisitions.
  

Quarterly Noninterest Expense:

• Total noninterest expense was $121.90 million compared to $111.14 million, an increase of $10.75 million, or 9.68%. This reflects increases in FDIC and other insurance of $6.24 million, salary and benefits expense of $4.73 million, software expenses of $1.63 million, and amortization of intangibles of $0.94 million.

• Salaries and benefits expense increases were driven by annual base salary adjustments that went into effect July 2023 and an increase in the year-over-year number of employees, primarily related to the Farmers acquisition.

• FDIC and other insurance increased primarily due to an accrued expense of $5.17 million before taxes, pursuant to the FDIC special assessment on certain banks to recover losses to the Deposit Insurance Funds associated with the protection of uninsured depositors in several bank failures that occurred in early 2023.

• Software expense increased due to growth related cost increases and a number of ongoing projects throughout the Company.

• The increase in amortization expense relates to core deposit intangible assets recognized from the recent Farmers acquisition.
  

Consolidated Balance Sheet Highlights:

• Total assets were $16.84 billion at December 31, 2023, an increase of 6.25%, compared to $15.85 billion at December 31, 2022. The increase was driven by modest growth in loans and investment securities in addition to assets acquired with the purchase of Farmers.

• Loans held for investment increased $534.42 million, or 4.95%, compared to year end 2022 and $156.05 million compared to the linked quarter. Management has focused on controlling loan growth in 2023 through pricing.

• Mortgage loans held for sale increased $47.65 million, or 46.56%, compared to prior year but declined $38.06 million, or 20.24%, compared to the linked quarter.

• Total deposits increased $598.98 million, or 4.51%, compared to December 31, 2022 and $12.40 million, or 0.09%, compared to the linked quarter.

• Noninterest-bearing deposits decreased $922.49 million, or 17.52%, compared to prior year, and $102.16 million, or 2.30%, compared to the linked quarter.

• Total loans held for investment to total deposits were 81.54% compared to 80.49% at September 30, 2023 and 81.20% at December 31, 2022.

• Total borrowings increased $174.57 million, or 54.89%, from prior year.
  

Investment Securities:

• Total investment securities were $2.64 billion compared to $2.54 billion at September 30, 2023 and $2.41 billion at December 31, 2022. The weighted average duration of the portfolio at December 31, 2023 was 3.2 years. The carrying value of the AFS debt securities portfolio included $162.12 million in net unrealized losses, related to rising rates, at December 31, 2023 compared to $191.05 million in net unrealized losses at December 31, 2022.
  

Loans and Asset Quality:

• Total loans held for investment were $11.33 billion at December 31, 2023 compared to $11.17 billion at September 30, 2023 and $10.79 billion at December 31, 2022.

• Nonperforming assets were $7.75 million, or 0.05% of total assets, compared to $6.83 million, or 0.04% of total assets, at December 31, 2022.

• Nonperforming loans were 0.06% of period end loans at both December 31, 2023 and 2022.

• Foreclosed property increased marginally, to $0.91 million from $0.56 million at December 31, 2022.

Deposits and Borrowings:

• Total deposits were $13.89 billion compared to $13.88 billion at September 30, 2023 and $13.29 billion at December 31, 2022.

• Noninterest-bearing deposits were 31.26% of total deposits at December 31, 2023 compared to 32.02% at September 30, 2023 and 39.61% at December 31, 2022. Noninterest-bearing deposits have been declining in 2023 driven by declines in noninterest-bearing commercial and escrow balances, a portion of which have moved to interest-bearing deposits.

• Total borrowings were $492.58 million compared to $407.03 million at September 30, 2023 and $318.01 million at December 31, 2022.
  

Capital:

• Common equity tier 1 capital ratio of 12.18% ⁽¹⁾.

• Tier 1 leverage capital ratio of 10.17% ⁽¹⁾.

• Tier 1 risk-based capital ratio of 12.29% ⁽¹⁾.

• Total risk-based capital ratio of 15.06% ⁽¹⁾.

• Book value per share was $27.24 compared to $26.28 at September 30, 2023 and $25.73 at December 31, 2022.

• Tangible book value per share (non-GAAP) was $20.28 compared to $19.28 at September 30, 2023 and $18.84 at December 31, 2022.

⁽¹⁾ Preliminary.

About TowneBank:
Founded in 1999, TowneBank is a company built on relationships, offering a full range of banking and other financial services, with a focus of serving others and enriching lives. Dedicated to a culture of caring, Towne values all employees and members by embracing their diverse talents, perspectives, and experiences.

Now celebrating 25 years, TowneBank operates 50 banking offices throughout Hampton Roads and Central Virginia, as well as Northeastern and Central North Carolina – serving as a local leader in promoting the social, cultural, and economic growth in each community. Towne offers a competitive array of business and personal banking solutions, delivered with only the highest ethical standards. Experienced local bankers providing a higher level of expertise and personal attention with local decision-making are key to the TowneBank strategy. TowneBank has grown its capabilities beyond banking to provide expertise through its affiliated companies that include Towne Wealth Management, Towne Insurance Agency, Towne Benefits, TowneBank Mortgage, TowneBank Commercial Mortgage, Berkshire Hathaway HomeServices, RW Towne Realty, Towne 1031 Exchange, LLC, and Towne Vacations. With total assets of $16.84 billion as of December 31, 2023, TowneBank is one of the largest banks headquartered in Virginia.

Non-GAAP Financial Measures:

This press release 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: core operating earnings, fully tax-equivalent net interest margin, 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.

Forward-Looking Statements:
This press release contains certain forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not historical facts, but instead represent only the beliefs, expectations, or opinions of TowneBank and its management regarding future events, many of which, by their nature, are inherently uncertain. Forward-looking statements may be identified by the use of such words as: "believe," "expect," "anticipate," "intend," "plan," "estimate," or words of similar meaning, or future or conditional terms, such as "will," "would," "should," "could," "may," "likely," "probably," or "possibly." These statements may address issues that involve significant risks, uncertainties, estimates, and assumptions made by management. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include competitive pressures in the banking industry that may increase significantly; changes in the interest rate environment that may reduce margins and/or the volumes and values of loans made or held as well as the value of other financial assets held; an unforeseen outflow of cash or deposits or an inability to access the capital markets, which could jeopardize our overall liquidity or capitalization; changes in the creditworthiness of customers and the possible impairment of the collectability of loans; insufficiency of our allowance for credit losses due to market conditions, inflation, changing interest rates or other factors; adverse developments in the financial industry generally, such as the recent bank failures, responsive measures to mitigate and manage such developments, related supervisory and regulatory actions and costs, and related impacts on customer and client behavior; general economic conditions, either nationally or regionally, that may be less favorable than expected, resulting in, among other things, a deterioration in credit quality and/or a reduced demand for credit or other services; unusual and infrequently occurring events, such as weather-related or natural disasters, acts of war or terrorism, or public health events (such as the COVID-19 pandemic); changes in the legislative or regulatory environment, including changes in accounting standards and tax laws, that may adversely affect our business; costs or difficulties related to the integration of the businesses we have acquired may be greater than expected; expected cost savings associated with pending or recently completed acquisitions may not be fully realized or realized within the expected time frame; cybersecurity threats or attacks, the implementation of new technologies, and the ability to develop and maintain reliable electronic systems; our competitors may have greater financial resources and develop products that enable them to compete more successfully; changes in business conditions; changes in the securities market; and changes in our local economy with regard to our market area. Any forward-looking statements made by us or on our behalf speak only as of the date they are made or as of the date indicated, and we do not undertake any obligation to update forward-looking statements as a result of new information, future events, or otherwise. For additional information on factors that could materially influence forward-looking statements included in this report, see the "Risk Factors" in TowneBank’s Annual Report on Form 10-K for the year ended December 31, 2022 and related disclosures in other filings that have been, or will be, filed by TowneBank with the Federal Deposit Insurance Corporation.

Media contact:
G. Robert Aston, Jr., Executive Chairman, 757-638-6780
William I. Foster III, President and Chief Executive Officer, 757-417-6482

Investor contact:
William B. Littreal, Chief Financial Officer, 757-638-6813

_{⁽¹⁾ Yields and interest income are presented on a taxable-equivalent basis using the federal statutory tax rate of 21%.
⁽²⁾ Interest spread is the average yield earned on earning assets less the average rate paid on interest-bearing liabilities. Fully tax equivalent.
⁽³⁾ Net interest margin is net interest income expressed as a percentage of average earning assets. Fully tax equivalent.
⁽⁴⁾ Non-GAAP.}

_{⁽¹⁾ Yields and interest income are presented on a taxable-equivalent basis using the federal statutory rate of 21%.
⁽²⁾ Interest spread is the average yield earned on earning assets less the average rate paid on interest-bearing liabilities. Fully tax equivalent.
⁽³⁾ Net interest margin is net interest income expressed as a percentage of average earning assets. Fully tax equivalent.
⁽⁴⁾ Non-GAAP.}