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5 Small-Cap Bank Stock Plays for 2013 From Credit Suisse


4. Susquehanna Bancshares

Susquehanna Bancshares (SUSQ) of Lititz, Pa., closed at $10.51 Wednesday, returning 28% year-to-date, following a 13% decline during 2011.

The shares trade for 1.5 times tangible book value, and for 11.3 times the consensus 2013 EPS estimate of 93 cents. The consensus 2014 EPS estimate is 97 cents.

Based on a seven-cent quarterly payout, the shares have a dividend yield of 2.66%. Susquehanna Bancshares on Dec. 11 announced it would accelerate the payment of its first-quarter 2013 dividend to Dec. 31 for shareholders of record as of Dec. 21. CEO William Reuter said the company moved up the payment "due to the potential for change in tax rates that would apply to dividends in 2013."

Unless President Obama and the Republican leadership of the House of Representatives hammer out a new budget deal, the Fiscal Cliff will include the expiration of the maximum 15% federal tax rate on qualified dividend income, which enacted when George W. Bush was president and extended by President Obama. Dividends will then be taxed as ordinary income.

Susquehanna Bancshares had $16.5 billion in total assets as of Sept. 30. The company in February acquired Tower Bancorp, adding roughly $2.5 billion in total assets, including $2.1 billion in loans.

The company reported third-quarter earnings of $36.7 million, or 20 cents a share, down slightly from $37.8 million, or 20 cents a share, the previous quarter, but increasing from $15.0 million, or 12 cents a share, a year earlier, reflecting an increase in net interest income from the acquisition of Tower Bancorp and Abington Bancorp in October 2011, and also a decline credit costs. Susquehanna's third-quarter provision for loan and lease losses during the third quarter was $16 million, which was the same amount added to reserves in the second quarter, but was down from $25 million in the third quarter of 2011.

Susquehanna also reported strong organic commercial loan growth of 3.2% during the third quarter. The company's third-quarter net interest margin was 3.92%, declining from 4.10% in the second quarter, "principally from the impact of purchase accounting" from the Tower acquisition, however, the margin was up from 3.58% in the third quarter of 2011.

Clark's price target for Susquehanna is $12 and the analyst estimates the company will earn 95 cents a share in 2013, with EPS increasing to $1.05 in 2014. The analyst said that Credit Suisse was "more positive on SUSQ based on our (1) increased comfort in consensus estimates, (2) view that bank deals are less likely and, (3) expectation for longer-term goals to be raised."

SUSQ Chart SUSQ data by YCharts

Interested in more on Susquehanna Bancshares? See TheStreet Ratings' report card for this stock.

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