TowneBank has been treading water for the past six months, recording a small return of 4.7% while holding steady at $35.34.
Is there a buying opportunity in TowneBank, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Is TowneBank Not Exciting?
We're swiping left on TowneBank for now. Here are three reasons why TOWN doesn't excite us and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
Net interest income and and fee-based revenue are the two pillars supporting bank earnings. The former captures profit from the gap between lending rates and deposit costs, while the latter encompasses charges for banking services, credit products, wealth management, and trading activities.
Unfortunately, TowneBank’s 5.1% annualized revenue growth over the last five years was sluggish. This was below our standard for the banking sector.
2. Net Interest Income Points to Soft Demand
Markets consistently prioritize net interest income over non-recurring fees, recognizing its superior quality compared to the more unpredictable revenue streams.
TowneBank’s net interest income has grown at a 9.9% annualized rate over the last five years, slightly worse than the broader banking industry. Its growth was driven by an increase in its net interest margin, which represents how much a bank earns in relation to its outstanding loans, as its loan book shrank throughout that period.
3. Projected TBVPS Growth Is Slim
Tangible book value per share (TBVPS) growth comes from a bank’s ability to profitably lend while maintaining prudent risk management and efficient operations.
Over the next 12 months, Consensus estimates call for TowneBank’s TBVPS to grow by 1.1% to $22.14, inadequate growth rate.
Final Judgment
TowneBank isn’t a terrible business, but it doesn’t pass our quality test. That said, the stock currently trades at 1.2× forward P/B (or $35.34 per share). This valuation multiple is fair, but we don’t have much faith in the company. We're pretty confident there are superior stocks to buy right now. We’d recommend looking at our favorite semiconductor picks and shovels play.
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