SUFFOLK, Va., July 23, 2020 (GLOBE NEWSWIRE) -- TowneBank (NASDAQ: TOWN) today reported earnings for the quarter ended June 30, 2020 of $34.61 million, or $0.48 per diluted share, compared to $34.64 million, or $0.48 per diluted share, for the quarter ended June 30, 2019.

“Our second quarter performance demonstrated the benefits of our diverse revenue model. Despite the headwinds from economic uncertainty and increased credit provisions, we delivered a solid quarter highlighted by rebounds in noninterest income from our Realty segment. Our deposits climbed to record levels enhancing liquidity and strong capital ratios position us well to navigate the challenging environment. We will also continue to be diligent in our focus on credit risk management,” said G. Robert Aston, Jr., Executive Chairman.

Highlights for Second Quarter 2020 Compared to Second Quarter 2019:

• Total revenues were a record $162.66 million, an increase of $18.12 million, or 12.54%.
• Loans held for investment were $9.80 billion, an increase of $1.68 billion, or 20.61%, from June 30, 2019, and $1.02 billion, or 11.59%, from March 31, 2020. The balance at June 30, 2020 included $1.09 billion of loans originated under the Small Business Administration’s Paycheck Protection Program (“PPP”).
• Total deposits were $11.26 billion, an increase of $2.00 billion, or 21.54%, compared to prior year and $1.96 billion, or 21.02%, from March 31, 2020.
• Noninterest bearing deposits increased by 43.23%, to $4.23 billion, representing 37.52% of total deposits. Compared to the linked quarter, noninterest bearing deposits increased 38.09%.
• Annualized return on common shareholders' equity was 8.24% and annualized return on average tangible common shareholders' equity was 12.44% (non-GAAP).
• Net interest margin for the quarter was 2.85% and taxable equivalent net interest margin (non-GAAP) was 2.87%.
• Effective tax rate of 17.74% in the quarter compared to 20.47% in the second quarter of 2019.

“I am especially proud of the outstanding service our teammates delivered to our members and the communities we serve. At Towne, we delivered over $1 billion in PPP funding to support businesses in our communities helping to save nearly 130,000 jobs for local families. In addition, we created more than 650 new relationships out of the PPP process,” stated J. Morgan Davis, President and Chief Executive Officer.

Quarterly Net Interest Income Compared to Second Quarter 2019:

• Net interest income was $93.27 million compared to $89.82 million at June 30, 2019.
• Taxable equivalent net interest margin (non-GAAP) was 2.87%, including accretion of 8 basis points, compared to 3.52%, including accretion of 11 basis points, for second quarter 2019.
• Average loans held for investment, with an average yield of 4.29%, represented 73.10% of average earning assets at June 30, 2020 compared to an average yield of 5.08% and 78.27% of average earning assets in the second quarter of 2019. Excluding PPP, loan yields were 4.42% in second quarter 2020.
• Total cost of deposits decreased to 0.58% from 0.99% at June 30, 2019.
• Average interest-earning assets totaled $13.16 billion at June 30, 2020 compared to $10.32 billion at June 30, 2019, an increase of 27.56%.
• Average interest-bearing liabilities totaled $8.64 billion, an increase of $1.69 billion from prior year.

Quarterly Provision for Credit Losses:

• Recorded a quarterly provision for credit losses for on-balance-sheet loans of $25.99 million compared to $2.82 million one year ago and $5.76 million in the linked quarter. This increase is primarily attributable to management's expectation of continued economic weakness driven by the impact of the COVID-19 pandemic. Expected loss estimates consider various factors including the impacts of the decreased economic activity and higher unemployment rates, customer specific credit information, and the potential mitigating benefits of government stimulus and industry wide loan modification efforts.
• Net loan recoveries were $0.10 million compared to charge-offs of $1.60 million one year prior. The ratio of net loan charge-offs to average loans on an annualized basis was 0.03% in the linked quarter and 0.08% in the second quarter of 2019.
• Recorded a provision for credit losses on off-balance-sheet commitments of $1.08 million compared to $1.10 million in the linked quarter.
• Recorded a recovery of credit losses on debt securities of $0.13 million compared to a credit loss of $0.16 million in the linked quarter.
• The allowance for credit losses on loans represented 0.92% of total loans compared to 0.73% at March 31, 2020 and 0.67% at June 30, 2019. Excluding PPP loans, which are fully government guaranteed, the allowance for credit losses was 1.04%. The allowance for credit losses on loans was 5.34 times nonperforming loans compared to 3.85 times at March 31, 2020 and 3.00 times at June 30, 2019.

Quarterly Noninterest Income Compared to Second Quarter 2019:

• Total noninterest income was $69.38 million compared to $54.72 million in 2019, an increase of $14.66 million, or 26.80%. Residential mortgage banking income increased $11.15 million and real estate brokerage and property management income increased $1.94 million, while service charges on deposit accounts decreased $1.30 million. Also included in noninterest income are net gains on investment securities of $2.93 million as compared to no gains or losses in the prior year.
• Residential mortgage banking recorded income of $29.72 million compared to $18.57 million in second quarter 2019. Loan volume in the current quarter was $1.47 billion, with purchase activity comprising 51.26% of that volume. Loan volume in second quarter 2019 was $821.13 million, with purchase activity comprising 84.97%. Increased refinancing activity due to the mortgage rate environment in second quarter 2020, coupled with improved margins were the primary drivers of improvement compared to the prior year quarter.
• Total Insurance segment revenue increased 3.30% to $20.87 million in the second quarter due to organic growth and additional income from a third quarter 2019 agency acquisition.
• Property management fee revenue increased 36.05%, or $2.15 million, compared to second quarter 2019. Reservations were down significantly in first quarter 2020 due to travel restrictions driven by COVID-19 and the uncertainty surrounding summer travel. The lifting of local travel restrictions, in the areas of our vacation rental companies, drove increased reservation activity during the quarter.
• Service charges are down $1.30 million, or 40.72%, compared to second quarter 2019 primarily due to a decrease in interchange fees related to Durbin Amendment compliance, combined with a lower transaction volumes and fees waived for members experiencing financial hardships.

Quarterly Noninterest Expense Compared to Second Quarter 2019:

• Total noninterest expense was $91.03 million compared to $96.56 million in 2019, a decrease of $5.53 million, or 5.73%. Declines across most expense categories were partially offset by increases in salary and benefits expense of $2.66 million and software expense of $0.70 million.
• Market expansion and infrastructure enhancements, that occurred in 2019, have resulted in generally higher levels of salary and benefits expense and software expense, while quarantines, travel restrictions, and other decreases in business activity related to COVID-19 have resulted in lower general spending.

Quarterly Income Taxes Compared to Second Quarter 2019:

• Income tax expense was $7.46 million compared to $8.92 million one year prior. This represents an effective tax rate of 17.74% compared to 20.47% in the second quarter of 2019.

Consolidated Balance Sheet Highlights:

• Total assets were $15.58 billion for the quarter ended June 30, 2020, an increase of $3.63 billion, or 30.40%, compared to $12.62 billion at March 31, 2020. Total assets increased $3.64 billion, or 30.46%, from $11.94 billion at June 30, 2019. The year-to-date increase was driven primarily by growth in cash and cash equivalents and loans held for investment tied to PPP lending activities.
• Loans held for investment increased $1.68 billion, or 20.61%, compared to prior year and $1.02 billion compared the linked quarter. Excluding PPP loans of $1.09 billion, loans held for investment increased $0.59 billion, or 7.20%, compared to prior year, but declined $72.31 million, or 0.82%, compared to the linked quarter.
• Mortgage loans held for sale increased $247.60 million, or 68.25%, compared to the prior year and $157.23 million, or 34.70%, compared to the linked quarter.
• Total deposits increased $2.0 billion, or 21.54%, compared to the prior year and $1.96 billion, or 21.02%, compared to the linked quarter.
• Total borrowings increased $1.49 billion, or 178.23%, from prior year and $0.94 billion, or 67.22%, compared to the linked quarter. These increases were driven by $1.11 billion in borrowings under the FRB PPP lending facility, which we used to facilitate funding of the PPP loans.

Investment Securities:

• Total investment securities were $1.36 billion compared to $1.35 billion at March 31, 2020 and $1.35 billion at June 30, 2019. The weighted average duration of the portfolio at June 30, 2020 was 4.1 years. The carrying value of the AFS debt securities portfolio included $59.89 million in net unrealized gains compared to $19.73 million in net unrealized gains at December 31, 2019. During the second quarter of 2020, we sold $40.0 million in AFS debt securities at a gain of $2.93 million to reposition the portfolio.

Loans and Asset Quality:

• Total loans held for investment were $9.80 billion at June 30, 2020 compared to $8.78 billion at March 31, 2020 and $8.13 billion at June 30, 2019.
• Nonperforming assets were $29.25 million, or 0.19% of total assets, compared to $34.23 million, or 0.29%, at June 30, 2019.
• Nonperforming loans were 0.17% of period end loans compared to 0.22% at June 30, 2019.
• Foreclosed property decreased to $12.32 million from $14.52 million at June 30, 2019.
• Expected loss estimates are subject to change based on continuing review of models and assumptions, portfolio performance, changes in forecasted macroeconomic conditions and loan mix which could result in material changes to the reserve in future periods.

Deposits and Borrowings:

• Total deposits were $11.26 billion compared to $9.31 billion at March 31, 2020 and $9.27 billion at June 30, 2019.
• Total loans to deposits were 87.01% compared to 94.37% at March 31, 2020 and 87.68% at June 30, 2019.
• Non-interest bearing deposits were 37.52% of total deposits at June 30, 2020 compared to 32.88% at March 31, 2020 and 31.83% at June 30, 2019.
• Total borrowings were $2.33 billion compared to $1.39 billion at March 31, 2020 and $0.84 billion at June 30, 2019.

Capital:

• Common equity tier 1 capital ratio of 11.54%.
• Tier 1 leverage capital ratio of 9.05%.
• Tier 1 risk-based capital ratio of 11.67%.
• Total risk-based capital ratio of 14.91%.
• Book value was $23.50 compared to $22.77 at March 31, 2020 and $21.95 at June 30, 2019.
• Tangible book value (non-GAAP) was $16.68 compared to $15.91 at March 31, 2020 and $15.05 at June 30, 2019.

About TowneBank:
As one of the top community banks in Virginia and North Carolina, TowneBank operates 42 banking offices serving Chesapeake, Chesterfield County, Glen Allen, Hampton, James City County, Mechanicsville, Newport News, Norfolk, Portsmouth, Richmond, Suffolk, Virginia Beach, Williamsburg, and York County in Virginia, along with Raleigh, Cary, Charlotte, Greensboro, Greenville, Moyock, Grandy, Camden County, Southern Shores, Corolla, Duck and Nags Head in North Carolina. TowneBank also offers a full range of financial services through its controlled divisions and subsidiaries that include Towne Investment Group, Towne Wealth Management, Towne Insurance Agency, Towne Benefits, TowneBank Mortgage, TowneBank Commercial Mortgage, Berkshire Hathaway HomeServices Towne Realty, Towne 1031 Exchange, LLC, and Towne 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 $15.58 billion as of June 30, 2020, TowneBank is one of the largest banks headquartered in Virginia.