TowneBank (TOWN)

Regional banking company TowneBank (NASDAQ:TOWN) met Wall Streets revenue expectations in Q3 CY2025, with sales up 23.6% year on year to $215.7 million. Its non-GAAP profit of $0.83 per share was 9.2% above analysts’ consensus estimates.

Company Overview

Founded in 1998 with a commitment to community-centered banking in the Hampton Roads region, TowneBank (NASDAQ:TOWN) is a community-focused financial institution providing banking, lending, and wealth management services to individuals and businesses in Virginia and North Carolina.

Regional banks, financial institutions operating within specific geographic areas, serve as intermediaries between local depositors and borrowers. They benefit from rising interest rates that improve net interest margins (the difference between loan yields and deposit costs), digital transformation reducing operational expenses, and local economic growth driving loan demand. However, these banks face headwinds from fintech competition, deposit outflows to higher-yielding alternatives, credit deterioration (increasing loan defaults) during economic slowdowns, and regulatory compliance costs. Recent concerns about regional bank stability following high-profile failures and significant commercial real estate exposure present additional challenges.

TowneBank's primary competitors include regional banks like Atlantic Union Bank (NYSE:AUB), United Bankshares (NASDAQ:UBSI), and First Citizens BancShares (NASDAQ:FCNCA), as well as national institutions with strong regional presences such as Truist Financial (NYSE:TFC) and Wells Fargo (NYSE:WFC).

In general, banks make money from two primary sources. The first is net interest income, which is interest earned on loans, mortgages, and investments in securities minus interest paid out on deposits. The second source is non-interest income, which can come from bank account, credit card, wealth management, investing banking, and trading fees. Unfortunately, TowneBank’s 5.1% annualized revenue growth over the last five years was sluggish. This fell short of our benchmark for the banking sector and is a poor baseline for our analysis.

Long-term growth is the most important, but within financials, a half-decade historical view may miss recent interest rate changes and market returns. TowneBank’s annualized revenue growth of 6% over the last two years aligns with its five-year trend, suggesting its demand was consistently weak. Note: Quarters not shown were determined to be outliers, impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.

This quarter, TowneBank’s year-on-year revenue growth of 23.6% was excellent, and its $215.7 million of revenue was in line with Wall Street’s estimates.

Net interest income made up 64.3% of the company’s total revenue during the last five years, meaning lending operations are TowneBank’s largest source of revenue.

Markets consistently prioritize net interest income growth over fee-based revenue, recognizing its superior quality and recurring nature compared to the more unpredictable non-interest income streams.

The underlying profitability of top-line growth determines the actual bottom-line impact. Banking institutions measure this dynamic using the efficiency ratio, which is calculated by dividing non-interest expenses like personnel, facilities, technology, and marketing by total revenue.

Markets understand that a bank’s expense base depends on its revenue mix and what mostly drives share price performance is the change in this ratio, rather than its absolute value. It’s somewhat counterintuitive, but a lower efficiency ratio is better.

Over the last five years, TowneBank’s efficiency ratio has increased by 6.6 percentage points, going from 58.3% to 69%. Said differently, the company’s expenses have increased at a faster rate than revenue, which usually raises questions unless the company is in high-growth mode and reinvesting its profits into attractive ventures.

TowneBank’s efficiency ratio came in at 69.2% this quarter, falling short of analysts’ expectations by 548 basis points (100 basis points = 1 percentage point). This result was 1.7 percentage points better than the same quarter last year.

For the next 12 months, Wall Street expects TowneBank to rein in some of its expenses as it anticipates an efficiency ratio of 61.8%.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

TowneBank’s EPS grew at a decent 10.4% compounded annual growth rate over the last five years, higher than its 5.1% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For TowneBank, its two-year annual EPS growth of 9.6% is similar to its five-year trend, implying stable earnings.

In Q3, TowneBank reported adjusted EPS of $0.83, up from $0.58 in the same quarter last year. This print beat analysts’ estimates by 9.2%. Over the next 12 months, Wall Street expects TowneBank’s full-year EPS of $2.87 to grow 18.6%.

Banks profit by intermediating between depositors and borrowers, making them fundamentally balance sheet-driven enterprises. Market participants emphasize balance sheet quality and sustained book value growth when evaluating these institutions.

This is why we consider tangible book value per share (TBVPS) the most important metric to track for banks. TBVPS represents the real, liquid net worth per share of a bank, excluding intangible assets that have debatable value upon liquidation. Traditional metrics like EPS are helpful but face distortion from M&A activity and loan loss accounting rules.

TowneBank’s TBVPS grew at a mediocre 4.9% annual clip over the last five years. The last two years show a similar trajectory as TBVPS grew by 5.9% annually from $19.54 to $21.90 per share.

Over the next 12 months, Consensus estimates call for TowneBank’s TBVPS to grow by 2.3% to $22.41, inadequate growth rate.

Leverage is core to a financial firm’s business model (loans funded by deposits). To ensure economic stability and avoid a repeat of the 2008 GFC, regulators require certain levels of capital and liquidity, focusing on the Tier 1 capital ratio.

Tier 1 capital is the highest-quality capital that a firm holds, consisting primarily of common stock and retained earnings, but also physical gold. It serves as the primary cushion against losses and is the first line of defense in times of financial distress.

This capital is divided by risk-weighted assets to derive the Tier 1 capital ratio. Risk-weighted means that cash and US treasury securities are assigned little risk while unsecured consumer loans and equity investments get much higher risk weights, for example.

New regulation after the 2008 financial crisis requires that all firms must maintain a Tier 1 capital ratio greater than 4.5%. On top of this, there are additional buffers based on scale, risk profile, and other regulatory classifications, so that at the end of the day, firms generally must maintain a 7-10% ratio at minimum.

Over the last two years, TowneBank has averaged a Tier 1 capital ratio of 12.2%, which is considered safe and well capitalized in the event that macro or market conditions suddenly deteriorate.

Return on equity (ROE) measures how effectively banks generate profit from each dollar of shareholder equity - a critical funding source. High-ROE institutions typically compound shareholder wealth faster over time through retained earnings, share repurchases, and dividend payments.

Over the last five years, TowneBank has averaged an ROE of 9.3%, uninspiring for a company operating in a sector where the average shakes out around 7.5%.

We enjoyed seeing TowneBank beat analysts’ tangible book value per share expectations this quarter. We were also glad its EPS outperformed Wall Street’s estimates. On the other hand, its net interest income missed. Zooming out, we think this was a mixed quarter. The stock remained flat at $35.48 immediately following the results.

Updated: December 14, 2025 at 11:52 PM EST

When considering an investment in TowneBank, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

TowneBank isn’t a terrible business, but it doesn’t pass our bar. To kick things off, its revenue growth was uninspiring over the last five years. And while its estimated net interest income growth for the next 12 months is great, the downside is its estimated sales for the next 12 months are weak. On top of that, its worsening efficiency ratio shows the business has become less productive.

TowneBank’s P/B ratio based on the next 12 months is 1.2x. While this valuation is fair, the upside isn’t great compared to the potential downside. We're pretty confident there are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $40.50 on the company (compared to the current share price of $35.48).