"While investing in regional bank stocks is in many ways a hope trade for better days ahead given current sector valuations and management teams talking more about opportunities rather than delivering on them, we find FMER to be a breath of fresh air," Alexopoulos wrote in a note to clients on Tuesday. "Contrasted to banks that deliver above peer growth but give away the store (and shareholder profits) to take share, over the past year FMER delivered 12% organic total loan growth, compared to peers at 4%," the analyst added.
Rather than being a play on the "normalization" of bank earnings as the U.S. economy improves, credit costs decline and the interest-rate environment becomes more favorable, FirstMerit is a growth play. The attractive dividend yield is just a bonus.
According to Alexopoulos, "the company is now readying to move forward with its plan to take market share in disrupted Midwestern markets. There are over 10,000 middle market companies in Southeast Michigan and Metro Wisconsin, and FMER has already hired 29 new bankers, including 21 in Michigan and 8 in Wisconsin."
Despite its relatively large size, FirstMerit continues to take a community-based approach that helps the bank poach business from larger rivals. The bankers the company is hiring tend to be locally based, with deep knowledge of local businesses, industries and potential borrowers. When a commercial lender moves to another bank, there is a tendency for some business clients to migrate along with him, or her, bringing along multiple loan and deposit relationships.Alexopoulos also emphasized that the bank has actually followed through with previously discussed growth plans, unlike some of its peers whose touted "opportunities remain exactly that." FirstMerit's shares were up slightly in midday trading Tuesday, to $21.78. FMER data by YCharts
Interested in more on FirstMerit? See TheStreet Ratings' report card for this stock. -- Written by Philip van Doorn in Jupiter, Fla. >Contact by Email. Follow @PhilipvanDoorn