TowneBank (TOWN)

Regional banking company TowneBank (NASDAQ:TOWN) announced better-than-expected revenue in Q2 CY2025, with sales up 18.6% year on year to $207.4 million. Its non-GAAP profit of $0.81 per share was 25.6% 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. Luckily, TowneBank’s revenue grew at a decent 5.4% compounded annual growth rate over the last five years. Its growth was slightly above the average banking company and shows its offerings resonate with customers.

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 recent performance shows its demand has slowed as its annualized revenue growth of 2.8% over the last two years was below its five-year trend. 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 reported year-on-year revenue growth of 18.6%, and its $207.4 million of revenue exceeded Wall Street’s estimates by 3.8%.

Net interest income made up 63.4% 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 emphasize efficiency ratio trends over static measurements, recognizing that revenue compositions drive different expense bases. Lower efficiency ratios signal superior performance by indicating that banks are controlling costs effectively relative to their income.

Over the last four years, TowneBank’s efficiency ratio has swelled by 12.1 percentage points, going from 57.5% to 69.6%. 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 70.7% this quarter, falling short of analysts’ expectations by 163.5 basis points (100 basis points = 1 percentage point). This result was 1.7 percentage points worse 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 66%.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

TowneBank’s EPS grew at a remarkable 7.6% compounded annual growth rate over the last five years, higher than its 5.4% 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 more recent period because it can provide insight into an emerging theme or development for the business.

For TowneBank, its two-year annual EPS growth of 2.6% was lower than its five-year trend. We still think its growth was good and hope it can accelerate in the future.

In Q2, TowneBank reported adjusted EPS of $0.81, up from $0.57 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects TowneBank’s full-year EPS of $2.62 to grow 14.7%.

Banks are balance sheet-driven businesses because they generate earnings primarily through borrowing and lending. They’re also valued based on their balance sheet strength and ability to compound book value (another name for shareholders’ equity) over time.

This explains why tangible book value per share (TBVPS) stands as the premier banking metric. TBVPS strips away questionable intangible assets, revealing concrete per-share net worth that investors can trust. EPS can become murky due to acquisition impacts or accounting flexibility around loan provisions, and TBVPS resists financial engineering manipulation.

TowneBank’s TBVPS grew at a decent 5.7% annual clip over the last five years. TBVPS growth has accelerated recently, growing by 6.8% annually over the last two years from $19.57 to $22.30 per share.

Over the next 12 months, Consensus estimates call for TowneBank’s TBVPS to remain flat at roughly $22.52, a disappointing projection.

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 12.4%, which is considered safe and well capitalized in the event that macro or market conditions suddenly deteriorate.

Return on equity, or ROE, tells us how much profit a company generates for each dollar of shareholder equity, a key funding source for banks. Over a long period, banks with high ROE tend to compound shareholder wealth faster through retained earnings, buybacks, and dividends.

Over the last five years, TowneBank has averaged an ROE of 9.6%, healthy for a company operating in a sector where the average shakes out around 7.5% and those putting up 15%+ are greatly admired. This is a bright spot for TowneBank.

It was good to see TowneBank beat analysts’ EPS expectations this quarter. We were also glad its net interest income outperformed Wall Street’s estimates. Zooming out, we think this was a solid print. The stock remained flat at $35.74 immediately following the results.

Updated: December 4, 2025 at 11:30 PM EST

Before deciding whether to buy TowneBank or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

TowneBank falls short of our quality standards. 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 net interest income growth was weak over the last five years.

TowneBank’s P/B ratio based on the next 12 months is 1.1x. This multiple tells us a lot of good news is priced in - we think there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $40.50 on the company (compared to the current share price of $34.31).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.