While all eyes are on the big banks and second-quarter earnings, the real action is in the smaller banks.
The big banks are doing a little better than Wall Street expected — Bank of America (BAC), Citigroup (C), JPMorgan Chase (JPM) and Wells Fargo (WFC) all beat earnings — but the numbers were hardly wonderful and most of the gains were from cost controls, lower legal expenses, stock buybacks and better-than-expected trading revenue.
In fact, revenues were weak pretty much across the board for the larger banks, and while not terrible, they aren’t great either.
The picture changes when we look at smaller regional and community banks, which are absolutely killing it. I am seeing some blow-out quarters from these banks, as credit costs continue to diminish and the local banks are able to grow the loan book, often at the cost of their larger brethren.
Regional Banks: BancFirst Corporation (BANF)
Oklahoma City-based BancFirst Corporation (BANF) is yet another regional bank that handily exceeded the Q2 expectations of Wall Street.
Analysts were expecting just 96 cents a share and BancFirst delivered earnings of $1.17 for a 21% earnings surprise — nothing new for BANF, which has been beating to the upside for double-digit quarters. The $1.17 was also a nice improvement over the 92 cents a share reported in the comparable quarter of 2014.
Earlier this month, BancFirst announced that it was buying CSB Bancshares Inc. and its subsidiary, Bank of Commerce, with locations in Yukon, Mustang and El Reno, Oklahoma.
The continual positive surprises and solid plans to grow BANF have analysts raising their estimates for both 2015 and 2016.
Regional Banks: BancorpSouth (BXS)
BancorpSouth (BXS) of Biloxi, Mississippi, is another local bank that crushed analyst expectations. Wall Street expected BancorpSouth to earn just 35 cents a share, and BXS exceeded that by posting its best earnings since 2008, with 41 cents a share for the second quarter of FY2015.
BancorpSouth did, however, miss revenue estimates — its figure of $181.62 million was off by $1.73 million, though results still were up 5% year-over-year.
CEO Dan Rollins was pleased with the results, telling investors:
“Our second quarter results reflect our Company’s most profitable quarter since 2008. Progress in core fundamentals across all areas of our Company continues to drive earnings improvement.”
BancorpSouth currently has 284 commercial banking, mortgage and insurance locations in Alabama, Arkansas, Florida, Louisiana, Mississippi, Missouri, Tennessee and Texas. BancorpSouth also has a pending merger that should soon close and add 31 branches in Texas.
Regional Banks: Republic Bancorp (RBCAA)
Republic Bancorp (RBCAA) of Louisville, Kentucky, is a solid example of a local bank knocking earnings out of the park right now.
RBCAA reported second-quarter earnings that were 32% higher than the year-ago period, blowing away the analyst estimates by more than 25%. The consensus Wall Street estimate was for earnings per share of just 31 cents, and Republic actually earned 39 cents a share.
CEO Steve Trasker told investors that he thinks Republic’s momentum can carry forward, saying:
“We are very proud that we have been able to produce another solid quarter of year-over-year earnings growth. In addition, we are also excited that we have been able to continue our loan growth momentum at our Core Bank, while at the same time our interest rate risk model indicates that we remain in a sound position in the event of rising market interest rates.”
Republic currently has 40 branches spread across Kentucky and locations in Indiana, Florida, Tennessee and Ohio. Republic’s management has repeatedly said that they are looking for an attractive acquisition candidate to accelerate the assets and earnings growth of the bank.
If that happens, Republic could look even better a quarter from now.
As of this writing, Tim Melvin did not hold a position in any of the aforementioned securities. He is the author of the Banking on Profits newsletter covering the community bank stock opportunity and the Deep Value Report that seeks out undervalued stocks that are likely to survive until they thrive and capture the value effect that has been proven to beat the market over time.