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This Regional Bank Shines With Profits, Growth: JPM

NEW YORK ( TheStreet) -- Heading into what is expected to be a rather depressing third-quarter earnings season for the nation's largest banks, long-term investors should take a hard look at FirstMerit (FMER - Get Report) of Akron, Ohio.

JPMorgan Chase analyst Steven Alexopoulos on Tuesday reiterated his "overweight" rating for the fast-growing regional lender, while increasing his price target for the shares by 50 cents to $25, representing potential upside of 15% from Monday's closing price of $21.74 a share.

FirstMerit's shares trade for 13.9 times the consensus 2014 earnings estimate of $1.56 a share, among analysts polled by Thomson Reuters. That's a much lower forward price-to-earnings ratio than some other fast-growing medium-sized banks, including Signature Bank (SBNY - Get Report), which has been growing its sales staff and was covered recently as part of TheStreet's 5 Lean and Mean Bank Stocks.

Two other Midwest names with solid loan growth include Lakeland Financial (LKFN - Get Report) of Warsaw, Ind., and Mercantile Bank (MBWM - Get Report) of Grand Rapids, Mich.

Alexopoulos estimates FirstMerit will earn $1.57 a share in 2014, rising from estimated 2013 EPS of $1.38.

The bank pays a quarterly dividend to common shareholders of 16 cents, for a yield of 2.94%.

FirstMerit had $23.5 billion in total assets as of June 30, with 415 branches in Ohio, Michigan, Wisconsin, Illinois and Pennsylvania. The company in April completed the major acquisition of Citizens Republic Bancorp of Flint, Mich., which brought on $9.6 billion in assets and 219 branches. FirstMerit has also undergone a major expansion in the Chicago market, picking up 46 branches in the area during 2010.

The bank has been a solid performer in the wake of the credit crisis, with returns on average assets (ROA) ranging between 0.76% and 1.13% and returns on average tangible common equity (ROTCE) ranging between 8.88% and 14.99% over the past five years, according to Thomson Reuters Bank Insight.

For the second quarter, FirstMerit reported earnings of $48.5 million, or 29 cents a share, compared to $37.3 million, or 33 cents a share, in the first quarter, and $30.6 million, or 28 cents a share, during the second quarter of 2012. Earnings-per-share were down sequentially because the company's share count rose through $55.5 million offering of roughly $925 million that went toward the full tab of $1.284 billion for the Citizens Republic purchase.

FirstMerit's second-quarter results included "$32.1 million of one-time pre-tax merger-related costs," according to the company.

Despite the significant dilution from the second-quarter offering, FirstMerit's stock has returned 57% this year.
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