On Monday, Stephens, a financial services firm, maintained its Equal Weight rating and a $36.00 price target on shares of TowneBank (NASDAQ: NASDAQ:TOWN). The firm's analyst commented on the bank's recent performance, noting that the operating earnings per share (EPS) of $0.58 exceeded both the consensus estimate of $0.57 and Stephens' own estimate of $0.52.
However, the core pre-provision net revenue (PPNR) of $49.2 million did not meet expectations, falling short of the consensus estimate of $56.6 million by $0.08 and Stephens' estimate by $0.07.
The analyst also pointed out that the net interest income (NII) of $113.4 million was $0.02 below the consensus, as the net interest margin (NIM) expansion of 4 basis points to 2.93% was less than the expected 2.98%. Additionally, the end-of-period (EOP) loan balances saw a 1.4% decrease compared to the last quarter against an anticipated growth of 4.0%, with the related balances being approximately 1% below the Street's expectations.
The report further detailed that core fees and expenses both missed estimates by $0.04 and $0.02, respectively. These factors, combined with the lower NIM expansion and a decrease in the balance sheet in the fourth quarter, as well as negative trends in near-term fee and expense, are expected to impact the fourth quarter PPNR by 13%. This also affects the analyst's expectations for 2025 and 2026 earnings, reducing them by 7% and 5%, respectively.
Despite these challenges, Stephens acknowledged the positive aspects of TowneBank's business model, which includes a differentiated fee business that accounts for approximately 33% of revenue. The firm also highlighted the potential catalyst of the VBFC deal and noted TowneBank's favorable capital position, asset quality, and liquidity compared to its peers. The reiteration of the Equal Weight rating reflects the firm's balanced view on the stock.
In other recent news, TowneBank has been the focus of multiple developments. The financial institution recently received an upgrade from Keefe, Bruyette & Woods, which lifted the bank's stock rating from Market Perform to Outperform. This adjustment aligns with an optimistic outlook on TowneBank's future earnings, with 2025 earnings per share (EPS) estimates rising to $2.65, a 10% increase from the prior $2.40 forecast.
In addition, the bank's recent acquisition of Village Bank is seen as a significant driver for its performance. The merger, valued at approximately $120 million, is expected to augment TowneBank's presence in the Richmond, Virginia area and add roughly $750 million in assets to its portfolio.
Keefe, Bruyette & Woods also introduced a 2026 EPS estimate of $3.22 for TowneBank, suggesting a strong position for above-average growth in net interest income and EPS over the coming years. The firm also maintains a positive view of the bank's valuation, highlighting an estimated EPS growth of 27% in 2025 and 22% in 2026.
InvestingPro Insights
To complement Stephens' analysis of TowneBank (NASDAQ: TOWN), recent data from InvestingPro offers additional context for investors. Despite the challenges noted in the analyst report, TowneBank maintains a solid dividend track record. An InvestingPro Tip highlights that the bank has raised its dividend for 12 consecutive years, demonstrating a commitment to shareholder returns even in the face of operational headwinds.
The current dividend yield stands at 3.07%, which may be attractive to income-focused investors. Moreover, TowneBank's P/E ratio of 16.49 suggests a reasonable valuation relative to earnings, aligning with Stephens' Equal Weight rating.
However, investors should note that 3 analysts have revised their earnings downwards for the upcoming period, as per another InvestingPro Tip. This aligns with Stephens' reduced expectations for 2025 and 2026 earnings.
For a more comprehensive analysis, InvestingPro offers 6 additional tips on TowneBank, providing deeper insights into the company's financial health and market position.
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