The Fed is waiting to see economic growth one quarter above 2.5%, unemployment below 7% and inflation at target before it begins tapering its quarterly easing program. Expectations are to start tapering at year end. With the rise in interest rates, the tailwind for banks from the refinancing boom may soon fade. In this article I will cover three small and mid-cap bank-holding companies that could benefit from new regulations seeking healthier competition in the banking system.
Focusing on New Loan Markets
PrivateBancorp Inc (NASDAQ:PVTB) has had little trouble expanding its core business, and boosted its performance into positive territory last year. Net income has increased 36% from 4Q 2012 and 77% in 2012. Net interest income has held stable for the last five quarters despite the persistently low rate environment due to new loan markets. While total loans grew 9% YoY, non-interest income increased 11% YoY thanks to more mortgage banking and syndication fees. Moreover, there are some encouraging stats from the company, such as an improvement in asset quality, that pushed credit cost lower last quarter.
In the meantime, its valuation at 20.60 times earnings looks pretty attractive, ranking lower than 54% of the companies in the industry. I would recommend a buy; you will probably not regret it. When it comes to earnings surprises, its last ten surprises have been consistently positive.
Possible M&A
Sandy Spring Bancorp Inc. (NASDAQ:SASR) deserves some long term optimism once you look at its net income. For 1Q 2013 the company showed a healthy 25% improvement over last year’s 1Q. Besides this, total assets have been close to crossing the $4 billion mark at the end of the last two quarters.
Over the past two quarters, management has executed a strategy to modify approximately $160 million of FHLB (Federal Home Loan Banks) advances to drive down borrowing costs. The full effect of that is being realized in this year’s first quarter.
Because even better days could be ahead for Sandy Spring Bancorp Inc. (NASDAQ:SASR) I recommend you hold. This is especially true when considering banking regulators intention of keeping “too big to fail” institutions get much larger and seeking healthier competition in the banking system. Therefore, some analysts are already considering Sandy Spring Bancorp Inc. (NASDAQ:SASR) to be a target itself for a company looking to grow via M&A.
Expands Ameris to the Southeast
Ameris Bancorp (NASDAQ:ABCB) provides a range of banking services to retail and commercial customers. Ameris Bancorp (NASDAQ:ABCB) recently announced in May the signing of a definitive merger agreement to acquire The Prosperity Banking Company, the parent company of Prosperity Bank. The acquisition further expands Ameris Bancorp (NASDAQ:ABCB)‘ existing southeastern footprint in several attractive Florida markets. Upon the transaction’s completion, expected in the third quarter of 2013, the combined company will have $3.6 billion in assets, $2.5 billion in loans, $3.0 billion in deposits and a branch network of 69 banking locations across four states.
My recommendation for Ameris Bancorp (NASDAQ:ABCB) is to buy, based on the recent earnings report from the first quarter of 2013. Highlights of the report include net income available to common shareholders increased 36.3% compared to the fourth quarter of 2012, suggesting that Ameris Bancorp (NASDAQ:ABCB) has been able to avoid some of the top-line earning woes that have impacted its larger counterparts. Furthermore, net interest margin was 4.79% compared to 4.48% in 1Q 2012 and 4.75% QoQ. This is the result of several factors. First, an increase of 2.2% of net interest income for the first quarter of 2013. Second, steady yields on loans through most of the current interest rate cycle. And finally, solid improvements in the earning asset mix and funding costs over the past year.
Bottom line
The broad financial sector has been a strong performer so far this year. We can expect an even better performance for all three stocks if their managements take good advantage of current and future market trends. Although Sandy Spring Bancorp Inc. (NASDAQ:SASR) does not offer convincing reasons for a buying recommendations, PrivateBancorp Inc (NASDAQ:PVTB) and Ameris Bancorp (NASDAQ:ABCB) are expected to deliver strong growth figures in the future; both look pretty attractive.
Victor Selva has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Victor is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article 3 Financials Showing Profits YTD originally appeared on Fool.com is written by Victor Selva.
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