Should TOWN’s Mixed Q2 Results and Rising Charge-Offs Require Action From TowneBank (TOWN) Investors?

The numbers are in, folks, and TowneBank’s (TOWN) Q2 2025 earnings report is serving up a classic case of good news, bad news. On one hand, the bank beat Zacks Consensus Estimates with earnings of $0.57 per share—up from $0.52 the year before. On the other, net charge-offs are climbing, and that’s a red flag waving in the wind. So, what’s an investor to do? Let’s crack this case wide open.

The Good News: Earnings Beat and Growing Net Interest Income

First, the silver lining. TowneBank’s Q2 earnings beat wasn’t just a fluke—it was a solid performance. Year-to-date net income and net interest income are both up compared to last year, and that’s no small feat in today’s economic climate. Net interest income, the bread and butter of any bank, is growing, which means TowneBank is doing a decent job managing its lending and deposit strategies. That’s the kind of thing that keeps the lights on and shareholders happy.

But here’s the kicker: while the earnings look good, the underlying trends aren’t all sunshine and rainbows. The bank’s net charge-offs—the loans they’ve written off as uncollectible—are on the rise. And this isn’t just a TowneBank problem; it’s a national trend. Q2 bank net charge-offs hit a 12-year high, thanks to economic downturns and riskier lending practices. TowneBank’s charge-offs might not be skyrocketing yet, but they’re creeping up, and that’s a warning sign.

The Bad News: Rising Charge-Offs and CRE Concerns

Let’s talk about those charge-offs. TowneBank’s 2023 10K report showed net charge-offs of $2.88 million, up from $2.76 million in 2022. Small numbers, sure, but when you factor in the broader economic uncertainty and the fact that commercial real estate (CRE) delinquencies are climbing, it’s a recipe for trouble.

CRE is a big deal for banks, and TowneBank isn’t immune. Lenders are getting nervous, criticized loan rates are rising, and origination volume is slowing down. TowneBank’s allowance for loan losses is also increasing, which means they’re bracing for more bad loans down the road. That’s not exactly a vote of confidence in their current portfolio.

And then there’s the small business angle. Inflation and higher interest rates are squeezing small businesses, making it harder for them to repay loans. If TowneBank has a lot of exposure in this area, those charge-offs could keep climbing. The bank’s proactive adjustments to their loan loss models are a smart move, but they’re also a sign that they’re expecting rough waters ahead.

The Wild Card: Leadership Changes and Strategic Shifts

Now, let’s talk about the elephant in the room—the recent change in TowneBank’s board of directors. Leadership shifts can be a double-edged sword. On one hand, new blood might bring fresh ideas and better risk management. On the other, it introduces uncertainty. If this new director pushes for aggressive growth or a shift in strategy, it could either turn things around or make things worse.

Right now, the impact is unclear, but it’s something investors need to watch. Combined with the mixed Q2 results, this could be a “game changer” for the stock—depending on how things play out.

The Bottom Line: Should Investors Take Action?

So, should you be hitting the sell button? Not necessarily. TowneBank’s earnings beat is a good sign, and their proactive approach to loan loss reserves shows they’re not sticking their heads in the sand. But the rising charge-offs and CRE concerns can’t be ignored.

If you’re a long-term investor, this might just be a bump in the road. TowneBank has shown resilience, and if they can navigate the CRE challenges and tighten up their lending standards, they might come out stronger. But if you’re a short-term player or risk-averse, now might be the time to reassess.

The key takeaway? Keep an eye on those charge-offs. If they keep climbing, it’s a sign that TowneBank’s loan portfolio is under more strain than the earnings report lets on. And if the new board member shakes things up in a bad way, that could be another red flag.

For now, the case is still open. But if the evidence keeps piling up, investors might need to make a move. Stay sharp, folks—this one’s far from over.