We have seen earnings from several of the small regional banks that I own, and so far, I really like what I am seeing. These banks are starting to see some loan growth, continued improvement in credit quality and strong bottom line results.
Net interest margins are still problems for many regional banks, but the successful ones are finding ways to make money in spite of the zero interest rate policy. Many of them are buying smaller rivals to drive revenue and profit growth right now. These stocks don’t get as much attention from Wall Street as the larger regional like BB&T (BBT) and Keycorp (KEY) but they probably should be on more investors radar screen.
Here are three regional banks that investors would be wise to buy now:
First Merchants Corporation (FRME)
First Merchants Corporation (FRME) reported record results in the third quarter of the year. First Merchants has 95 branches in 95 banking locations in Indiana, Illinois and Ohio with about %5.5 billion in total assets. First Merchants has taken advantage of low valuations in the industry to make several smart acquisitions that are driving profit growth. The most recent announcement was in July as it announced a merger with Community Bancshares that lifts First Merchants to assets of $5.7 billion and 107 branches.
First Merchnats’ earnings were up 29% year over year reaching $.45 compared to $.35 last year. Loan growth was solid with the same 29% increase over 2013. Much of the growth was the result of the Community Bancshares purchase earlier in the year, but there was solid organic loan growth of $250 million as well. Nonperforming assets dropped to just 1.16% of total assets in the quarter. All in all, it was a very strong quarter for First Merchants, and FRME stock is attractive at just 1.18 times book value.
Republic Bancorp (RBCAA)
Republic Bancorp (RBCAA) also had a good quarter. The Louisville-based bank reported that earning improved by 14% year over year to $.25 a share. For the three months, loan growth was 7%, and year to date, the loan portfolio has grown by 12%. Nonperforming assets fell to just 1.14% of total loans as credit conditions continued to improve.
Republic is also committed to growing by acquisition going forward. In the press release, CEO Steve Trager told investors,
“Although we have experienced a great deal of success growing our balance sheet during the first nine months of 2014 through internal products and business lines, growing through acquisition remains a key growth initiative in our long-term plans. We have deployed, and will continue to deploy, a large amount of resources to finding the right bank with which to partner.”
At 90% of book value, Republic Bancorp shares are a bargain.
Capital Bank Financial (CBF)
Capital Bank Financial (CBF) also had a solid quarter with the loan portfolio growing sequentially at a 9% annualized rate. New loan growth is very strong with new loans growing by 53% year over year and 35% so far in 2014. Net income rose 16% year over year and net income per diluted share rose 23% for the bank.
Capital Bank Financial management also revealed that during the quarter, CBF repurchased about 820,000 shares of common stock at an average price of $23.78 per share during the quarter Capital Bank Financial was formed with $800 million to take advantage of the credit crisis and has grown to a southeastern regional bank with more than $6.6 billion in assets. At 1.18 times book value, CBF shares are worth considering.
These regional banks that fly below the radar are turning in solid performance right now and investors should give them a closer look.
Disclosure: Long FRME, RBCAA and CBF.
