Towne Bank (TOWN) has seen it shares decline by nearly 10% over the past several days and by 18% year to date. This is a great regional bank and an absolute gem for investors.
The Bank was put together in 1999 -- it is a young bank by industry standards. Its accomplishments, however, suggest that Towne is a bank that will have staying power for many years to come, unless a bigger bank rushes in to acquire it once they realize what the company is capable of.
Over the past decade, Towne's assets have grown from $1.8 billion to $6.3 billion at year-end 2015. More impressive is what has been accomplished with those assets over that time. At the end of 2005, return on assets was 1.1% and return on tangible equity was 12%. By the end of 2015, the corresponding numbers were 1.03% and 10.34%, respectively. Contemplate these numbers in the context of what has happened to the banking industry since 2008.
Tangible book value has increased from $6.78 to $12.21 per share over the past decade -- which, again, is a good measure considering that seven of those 10 years saw historically low interest rates. While Towne trades at 1.5x tangible book and 1.1x book, a bank of this caliber, and with a highly scalable asset base, is worth a significant premium to book.
In addition to banking, Towne has quality insurance and real estate businesses that have helped buffer the weak banking environment. A 2.6% dividend yield is not immaterial, as well.
Banks are persona non grata at the moment on Wall Street, but I can't figure out why. The market liked the banks when the discount rate was zero, but now that rates are up by 25 basis points, banks are worse off, apparently. I suspect the growing view that the Federal Reserve is not going to raise rates again this year has blown the rosy economic forecast that people had put together.
Banking stocks are most useful to investors when they are held for years. The value of a well-run bank manifests itself over time as deposits and loans grow. Very few analysts follow Towne Bank, but rest assured they will. We are very excited to see the share price go down because we know we will be well rewarded in the long run. Take a closer look and you will appreciate what you see.