10 Tiny Banks With Double-Digit Revenue Growth

NEW YORK ( TheStreet) -- As we saw last week when Morgan Stanley ( MS) popped 12%, investors are eager to invest in banks that are growing revenue, which isn't easy in the midst of a weak economic recovery.

TheStreet has identified 10 small-cap community banks that posted second-quarter revenue numbers rising in the double digits from a year earlier.

At this point in the credit cycle, bottom-line earnings performance for many of the best-known banking names have been boosted by the release of loan loss reserves. To get to the real the revenue picture, SNL Financial looks at pre-provision net revenue, defined as a bank's tax-adjusted net interest income plus its non-interest income, net of non-credit-related expenses.

To come up with our list, we isolated bank holding companies with market capitalization of less than a billion, showing double-digit year-over-year increases in pre-provision net revenue for the second quarter, while also showing revenue improvements from the previous quarter.

Of course, our list is limited to companies that reported through last Friday. We have featured the 10 names meeting the criteria that are the most actively traded.

All of these names were profitable during the second quarter. Some have grown revenue through mergers. Some have seen a vast revenue improvement, but are still working through problem loans. Some are priced cheaply to forward earnings. Some have already seen shares shoot up and look expensive. Two of them feature attractive dividend yields.

Four of them still owe federal bailout funds received through the Troubled Assets Relief Program, or TARP, or have converted the TARP preferred shares held by the government to new preferred shares that will potentially cost less, by participating in the Small Business Lending Fund.

This is why an investor has to carefully consider each pick.

Here are our 10 small-cap banks with rising revenue, in ascending order by year-over-year increases in pre-provision net revenue. Data was provided by SNL Financial and supplemented with company filings:

10. Home BancShares

Home BancShares ( HOMB) of Conway, Ark., saw its stock close at $24.80 Friday, returning 11% for the 52-week period.

The company had $3.7 billion in total assets as of June 30, growing the balance sheet 22% over the previous year, while purchasing four failed Florida banks from the Federal Deposit Insurance Corp., including Bayside Savings Bank of Port St. Joe and Coastal Community Bank of Panama City last July, Wakulla Bank of Crawfordville in October, and Gulf State Community Bank of Carrabelle in November.

On July 6, Home BancShares announced it had fully redeemed $50 million in preferred shares held by the U.S. Treasury for bailout assistance received through the Troubled Assets Relief Program, or TARP. The company intends to repurchase a warrant held by the government under which the Treasury can purchase up to 158,471 shares of common stock for a price of $23.66 a share, as soon as the repurchase is approved by the Treasury.

The company reported second-quarter net income available to common shareholders of $12.9 million, or 45 cents a share, increasing from $12.0 million, or 42 cents a share in the first quarter, and $8.3 million, or 29 cents a share, in the second quarter of 2010. The bottom-line improvement reflected not only the increased revenue from the balance sheet growth, but a reduction in credit expenses. During the second quarter, Home BancShares didn't record a provision for loan losses, while the provision totaled $1.25 million the previous quarter and $3.75 million a year earlier.

Second-quarter pre-provision net revenue was $22.1 million according to SNL Financial, increasing 19% year-over-year.

Nonperforming assets -- excluding balances acquired from failed banks that were covered by FDIC loss-sharing agreements -- made up 1.75% of total assets as of June 30. The company reported net recoveries of $3.2 million during the second quarter, as its recoveries on previously charged-off loans exceeded new loan losses.

Home BancShares reported a second-quarter net interest margin -- the difference between the bank's average yield on loans and investments and its average cost of funds -- of 4.69%, increasing from 4.30% a year earlier.

According to SNL, the company's operating return on average assets (ROA) was 1.46% for the second quarter.

After the second-quarter results were announced, FIG Partners analyst Brian Martin reiterated his "Outperform" or buy rating on the shares, with a $28 price target, saying "further recoveries are expected over the next 12 months--to the tune of ~$5mm; which could result in several more quarters of little or no provisioning," and would provide a further boost to earnings and capital.

The shares trade for 13 times the consensus 2012 earnings estimate of $1.87 a share, among analysts polled by FactSet.

Out of nine analysts covering Home BancShares, six rate the stock a buy, while the remaining analysts all have neutral ratings.

9. Pinnacle Financial Partners

Shares of Pinnacle Financial Partners of Nashville, Tenn., closed at $16.21 Friday, returning a whopping 68% from a year earlier.

Pinnacle owes $95 million in TARP money. The company has applied to participate in the Treasury's Small Business Lending Fund, or SBLF, through which some community banks have repaid TARP while issuing new preferred shares to the government for the SBLF money. The advantage of swapping TARP preferred for SBLF preferred is that the latter will have a lower dividend rate, for lenders who achieve certain small business lending thresholds.

CEO Terry Turner said in the company's second-quarter earnings release that although the "likelihood of participation is significantly diminished by recent guidance from the U.S. Treasury regarding SBLF eligibility for bank holding companies who, like us, are restricted in their ability to pay dividends without the prior approval of the Federal Reserve," the company still hopes to "repay TARP with minimal dilution to our common shareholders."

Second-quarter net income to common shareholders was $4.8 million, or 14 cents a share, improving from $2 million, or 6 cents a share, in the first quarter and a loss of $27.9 million, or 85 cents a share, in the second quarter of 2010, when the company took a non-cash charge of $17.4 million, or 53 cents a share, to write-down deferred tax assets. The provision for loan losses was $6.6 million during the second quarter, compared to $6.1 million the previous quarter and $30.5 million a year earlier.

Second-quarter earnings were boosted by strong wealth management revenue and $600 thousand in gains on securities.

According to SNL, pre-provision net revenue totaled $13.2 million in the second quarter, increasing 22% from a year earlier. Wealth management revenue totaled $3.4 million, rising 14% year-over-year. Net interest income increased 6% year-over-year, to $37.8 million, reflecting a 13% year-over-year increase in noninterest-bearing checking account deposits, and the continued downward pricing for CD deposits.

Pinnacle's second-quarter net interest margin was 3.55%, expanding from 3.23% a year earlier.

The company's nonperforming assets made up 2.32% of total assets as of June 30, improving from 3.25% a year earlier. The second-quarter net charge-off ratio was 1.14% and reserves appeared adequate, covering 2.40% of total loans as of June 30.

According to SNL, the second-quarter operating ROA was 0.53%.

Guggenheim Securities analyst Jeff Davis on July 21 reiterated his neutral rating for Pinnacle, saying second-quarter "results were good, with sequential quarterly improvement in asset quality, NIM, operating leverage, and capital since the (second) cathartic credit loss occurred in 2Q10."

The shares trade for 21 times the 2012 consensus earnings estimate of 76 cents a share, among analysts polled by FactSet.

Among the 13 analysts covering Pinnacle, two rate the shares a buy, 10 have neutral ratings, and one analyst recommends selling the shares.

Pinnacle's strong deposit growth and improving credit quality makes for a good story, but it would appear the shares are fully priced now.

8. PacWest Bancorp

Shares of PacWest Bancorp ( PACW) of Los Angeles closed at $21 Friday, returning 5% over the previous year.

The company purchased the failed Los Padres Bank of Solvang, Calif., from the FDIC last August.

Second-quarter net income was $12.8 million, or 35 cents a share, improving from $10.7 million, or 29 cents a share, in the first quarter, and $2.7 million, or 7 cents a share, in the second quarter of 2010. The second-quarter provision for loan losses was $11.4 million, increasing from $10.7 million the previous quarter, but down sharply from $21.9 million a year earlier.

The second-quarter bottom line was boosted by a $2.1 million reduction in loan loss reserves.

According to SNL, second-quarter pre-provision net revenue was $33.4 million, increasing 28% year-over-year. The operating ROA for the second quarter was 0.94%.

PacWest's second-quarter net interest margin was a fantastic 5.57%, rising from 4.87% a year earlier.

Nonperforming assets -- excluding those covered by FDIC loss-sharing -- made up 2.18% of total assets as of June 30. The second-quarter net charge-off ratio was 0.97% and reserves covered 3.52% of total loans as of June 30.

Following the second-quarter earnings announcement, Sterne Agee analyst Todd Hagerman reiterated his neutral rating for PacWest, saying the company's "earnings-margin defies gravity," as it "continues to benefit from its core funded deposit base, accretable yield, and ongoing pricing power." While Hagerman is "increasingly more constructive on the shares," he said that "revenue growth will likely remain a challenge heading into 2012 as loan growth remains elusive and excess balance sheet liquidity continues to build.

The analyst's price target for PacWest is $23.00.

The shares trade for 15 times the 2012 consensus earnings estimate of $1.42 a share, among analysts polled by FactSet.

Out of 13 analysts covering PacWest, four rate the shares a buy, eight have neutral ratings and one analyst recommends selling the shares.

7. Bank of the Ozarks

Shares of Bank of the Ozarks ( OZRK) of Little Rock, Ark., closed at $53.57, rising 47% from a year earlier. Based on a quarterly payout of 19 cents, the shares have a dividend yield of 1.42%.

The company on July 19 announced a two-for-one stock split, payable in the form of a 100% stock dividend, which will be paid "on or about August 17," to shareholders of record as of August 5.

The bank had $4 billion in total assets as of June 30, increasing 40% from a year earlier, with the purchase of six failed institutions from the FDIC, including Woodlands Bank of Bluffton, S.C., last July; Horizon Bank of Bradenton, Fla., in September; Chestatee State Bank of Dawsonville, Ga., in December; Oglethorpe Bank of Brunswick, Ga., in January; and Georgia lenders First Choice Community Bank of Dallas and The Park Avenue Bank of Valdosta, both on April 29.

Bank of the Ozarks reported second-quarter net income available to common shareholders of $50.2 million, or $2.91 cents a share, increasing from $14.6 million, or 85 cents a share, in the first quarter, and $10.9 million, or 64 cents a share, in the second quarter of 2010. $36.4 million (after tax) of the second-quarter net income came from gains on the two failed-bank acquisitions from the FDIC on April 29.

According to SNL, the bank's pre-provision net revenue for the second quarter was $24.5 million, increasing 31% year-over-year. The operating ROA for the second quarter was 5.22%, reflecting the bargain purchase gains. During the first quarter, the ROA was 1.74%.

Nonperforming assets -- excluding those covered by FDIC loss-sharing guarantees -- made up a relatively low 1.29% of total assets as of June 30. The second-quarter net charge-off ratio was 0.85%, and loan loss reserves covered 2.17% of total loans as of June 30.

Following the second-quarter earnings announcement, Kevin Reynolds of Wunderlich Securities reiterated his "Buy" rating for Bank of the Ozarks, with a $57 price target, saying that with a "healthy" tangible common equity ratio of 9.3%, the bank "has the capacity to complete additional acquisitions over the next 12-18 months, which should continue to add meaningfully to bottom-line results."

The shares trade for 15 times the 2012 consensus earnings estimate of $3.53 a share, among analysts polled by FactSet.

Out of nine analysts covering Bank of the Ozarks, two rate the shares a buy and the remaining analysts have neutral ratings.

6. Hanmi Financial

Shares of Hanmi Financial ( HAFC) closed at $1.14 Friday, down 10% from a year earlier.

The company reported second-quarter net income of $8 million, or 5 cents a share, compared to $10 million, or 7 cents a share, in the first quarter, and a net loss of $29.3 million, or 57 cents a share, in the second quarter of 2010, when Hanmi recorded a $37.5 million provision for credit losses. The company has made no provisions for credit losses over the past two quarters, and results for the second quarter were boosted by a $16.8 release of reserves.

Second-quarter results also included $2.2 million in non-recurring expenses related to the cancellation of a previous agreement for an equity investment by Woori Finance Holdings.

According to SNL, Hanmi Financial's pre-provision net revenue increased 32% to $10.9 million during the second quarter, however, the improvement is all on the expense side. The prior-year quarter included $4.1 million in deposit insurance premiums and regulatory assessments, which declined to $1.4 million in the second quarter. Net interest income declined 28% year-over-year, and noninterest income was down slightly, because of the $2.2 million fee for the cancelled Woori transaction.

The second-quarter net interest margin was 3.65%, increasing from 3.56% a year earlier. The second-quarter operating ROA was 1.13%, according to SNL.

The nonperforming assets ratio was a high 5.90% as of June 30, but that was an improvement from 9.13% a year earlier. The third-quarter net charge-off ratio was 3.09%, and reserves covered 5.16% of total loans as of June 30.

Hanmi Financial's tangible common equity ratio was 10.33%, increasing from 9.10% in March and 5.20% in June 2010, reflecting three straight profitable quarters and a $120 million rights offering completed last July.

The shares trade for eight times the 2012 consensus earnings estimate of 14 cents a share, among analysts polled by FactSet.

Julianna Balicka of KBW has a neutral rating on the shares.

Hanmi Financial is clearly a work in progress, as it still has quite a bit of problem assets to work through, and its core revenues are actually down across the board. The company is turning a corner though, and its strong level of capital provides some comfort for the long haul

5. Renasant Corp.

Shares of Renasant Corp. ( RNST) of Tupelo, Miss., closed at $15.85 Friday, returning 19% over the previous year. Based on a quarterly payout of 17 cents, the shares have a dividend yield of 4.29%.

Renasant had $4.3 billion in total assets as of June 30, growing its balance sheet 19% from a year earlier, as it purchased two failed Georgia institutions from the FDIC, including Crescent Bank & Trust of Jasper last July, and American Trust Bank of Rowell, in February.

Second-quarter net income was $5.8 million, or 23 cents a share, compared to $7.6 million, or 30 cents a share in the first quarter and $3.8 million, or 18 cents a share, in the second quarter of 2010. First-quarter earnings were higher, mainly because of an $8.8 million gain on the American Trust acquisition, partially offset by associated expenses.

According to SNL, Renasant's pre-provision net revenue for the second quarter was $15.2 million, increasing 38% from a year earlier. Net interest income increased 39% year-over-year, to $32.6 million, as the net interest margin increased to 3.76% in the second quarter, from 3.15% a year earlier.

The second-quarter operating ROA was 0.54%, according to SNL.

Excluding assets covered by FDIC loss-sharing agreements, Renasant's nonperforming assets made up 2.83% of total assets as of June 30. The second-quarter net charge-off ratio was 0.82%, and reserves covered 2.18% of total loans as of June 30.

Following the second-quarter earnings release, Bill Young of Macquarie (USA) Equities Research reiterated his neutral rating for Renasant, with a neutral rating and $17 price target, saying the company was likely to look for more FDIC deals, and that "the outlook for loan growth remains positive, driven partly by recent lending team hires."

The shares trade for 13 times the 2012 consensus earnings estimate of $1.23 a share, among analysts polled by FactSet.

Among the 10 analysts covering Renasant, four rate the shares a buy, and the remaining analysts all have neutral ratings.

4. Banner Corp.

Shares of Banner Corp. ( BANR) of Walla Walla, Wash., closed at $18.68 Friday, returning 25% over the previous year.

The shares underwent a one-for-seven reverse split in May.

The company owes $124 million in TARP money, and according to SNL Financial, has applied to participate in the Small Business Lending Fund.

Second-quarter net income available to common shareholders was $224 thousand, or a penny a share, improving from a net loss to common shareholders of $9.8 million, or 61 cents a share, in the first quarter and a loss of $6.9 million, or $1.97 a share, in the second quarter of 2010. Second-quarter net income available to common shareholders reflects a $1.6 million dividend paid on preferred shares held by the Treasury for the TARP assistance, plus an additional $425 thousand in discount accretion.

The second-quarter provision for loan losses declined to $8 million, from $17 million the previous quarter and $16 million a year earlier. A $5.6 million decline in loan loss reserves provided a direct boost to second-quarter net income.

According to SNL, Banner's second-quarter pre-provision net revenue totaled $10.2 million, increasing 44% year-over-year, as interest expenses declined.

The second-quarter net interest margin was 4.09% during the first quarter, improving from 3.94% the previous quarter and 3.65% in the second quarter of 2010. Noninterest-bearing deposits increased 18% year-over-year, to $645.8 million, as of June 30.

The second-quarter operating ROA was 0.21%.

Banner's nonperforming assets ratio was 4.48% as of June 30, improving from 6.02% a year earlier. CEO Mark Grescovich said that while "credit costs remained stubbornly high and well above our long-term expectations, reflecting the persistent weak economic environment and additional declines in property values, they were significantly reduced from recent quarters and compared to a year ago as we continued to make meaningful progress at reducing problem assets." The company's second-quarter net charge-off ratio was a low 0.41% and loan loss reserves covered 2.78% of total loans as of June 30.

The company's tangible common equity ratio was 9.14% as of June 30, increasing from 9.08% a year earlier. Banner raised a net $161.6 million in common equity during 2010.

Following Banner's second-quarter earnings release, FIG Partners analyst Timothy Coffey reiterated his "Outperform" rating on the shares, with a $21 target, saying "this was a very good quarter that far exceeded expectations." Coffee added that "there is a reasonable expectation to estimate forward provision expenses are no higher than the 2Q level," and that Grescovich had "achieved two key goals" since taking over as the new CEO in April 2010. These included "improving the asset mix" and "lowering funding costs."

The consensus among analysts polled by FactSet is for the company to lose two cents a share during 2012.

Five of the six analysts covering Banner Corp. rate the shares a buy, while the remaining analyst has a neutral rating.

3. Southside Bancshares

Southside Bancshares ( SBSI) of Tyler, Texas, has seen its stock rise 17% over the past year, closing Friday at $20.63. Based on a quarterly payout of 17 cents, the shares have a dividend yield of 3.30%.

Second-quarter net income was $11 million, or 67 cents a share, increasing from $7.3 million, or 45 cents a share, in the first quarter, and $9.3 million, or 56 cents a share, in the second quarter of 2010.

According to SNL Financial, Southside's second-quarter pre-provision net revenue totaled $15.2 million, increasing 49% from a year earlier. Net interest income increased 27% year-over-year, to $24.6 million in the second quarter, as the company's average noninterest-bearing demand deposits increased 13% year over year to $465.6 million, and its total loans increased 2% year-over year to $1 billion.

The second-quarter net interest margin was 3.81%, improving from 3.09% a year earlier.

The second-quarter operating ROA was a strong 1.51% according to SNL.

Credit quality was good and continued to improve, with a nonperforming assets ratio of 0.50% as of June 30. The second-quarter net charge-off ratio was 1.01% and reserves covered 1.87% of total loans as of June 30.

The shares trade for 10 times the 2012 consensus earnings estimate of $2.10 a share, among analysts polled by FactSet.

David Bishop of Stifel Nicolaus has a neutral rating on the shares.

Despite the lack of analyst attention, Southside is a solid banking franchise that has posted ROA near or above 1% over the past year. The shares appear reasonably priced, credit quality is good, and the attractive dividend payout is very well supported by earnings.

2. CoBiz Financial

Shares of CoBiz Financial ( COBZ) of Denver closed at $6.17 Friday, returning 13% over the previous year.

The company owes $64.5 million in TARP money.

Second-quarter net income available to common shareholders was $2.9 million, or 8 cents a share, increasing from $2.3 million, or 6 cents a share, in the first quarter, and a net loss to common shareholders of $4.7 million, or 13 cents a share, in the second quarter of 2010. The second-quarter provision for loan losses was $2 million, increasing from $1.6 million the previous quarter, but down from $10.4 million a year earlier.

According to SNL Financial, CoBiz's second-quarter pre-provision net revenue was $8.2 million, increasing 69% year-over-year. Net interest income was up slightly year-over-year to $24.3 million, while the prior-year period included $4 million in losses on securities, repossessed assets and other assets. The company also reduced "other operating expenses" to $4.5 million in the second quarter, from $6.8 million a year earlier.

The second-quarter operating ROA was 0.64%, according to SNL.

CoBiz Financial's nonperforming assets ratio was 2.69% as of June 30, improving from 3.78% a year earlier. The second-quarter net charge-off ratio was a low 0.50% and reserves covered 3.74% of portfolio loans as of June 30.

The shares trade for 12 times the 2012 consensus earnings estimate of 52 cents a share, among analysts polled by FactSet.

Three of the eight analysts covering CoBiz Financial rate the shares a buy. The remaining analysts all have neutral ratings.

1. Ameris Bancorp

Shares of Ameris Bancorp ( ABCB) of Moultrie, Ga., closed at $10.08 Friday, down 2% from a year earlier.

The company had $2.9 billion in total assets as of June 30, growing the balance sheet 18% year-over-year, mainly through acquisitions.

Ameris Bancorp's failed-bank acquisitions over the past year have included First Bank of Jacksonville, of Jacksonville Florida, in October; Tifton Banking Company of Tifton, Ga., and Darby Bank & Trust of Vidalia, Ga., both on November 12; and with One Georgia Bank of Atlanta and High Trust Bank of Stockbridge, Ga., both on July 15.

The company owes $21 million in TARP money.

Second-quarter net income available to common shareholders was $1.3 million, or 6 cents a share, increasing from $580 thousand, or 2 cents a share, in the second quarter, and a loss of $4.2 million, or 20 cents a share, in the second quarter of 2010. The second-quarter provision for loan losses was $9.1 million, increasing from $7 million the previous quarter, but increasing down more than 50% from $18.6 million a year earlier.

According to SNL Financial, Ameris Bancorp's second-quarter pre-provision net revenue totaled $12.3 million, increasing 109% from a year earlier, as the company grew its net interest income by 20% to $28.7 million.

The company's net interest margin for the second quarter was a strong 4.84%, increasing from 4.04% in the first quarter and 4.43% in the second quarter of 2010. The sharp increase in the margin during the second quarter reflected "$3.8 million in second quarter accretion from improvements in the expected cash flows from recent FDIC-assisted transactions." In its earnings release, Ameris added that "these positive adjustments reflected in net interest income were offset by $1.6 million of loan loss provision related to decreases in expected cash flows on the same portfolios.

Even with the second-quarter margin being a temporary spike, a consistent margin above 4% bodes well going forward, when Ameris gets its credit costs under control.

The second-quarter operating ROA was 0.29% according to SNL.

The company's nonperforming assets ratio -- net of assets covered by FDIC loss-sharing agreements -- was 4.27% as of June 30. The second-quarter net charge-off ratio was 2.50% and loan loss reserves covered 2.54% of total loans as of June 30, making it appear that Ameris Bancorp's provisions for loan losses will remain elevated for some time.

After Ameris made its two most recent FDIC deals on July 15, Peyton Green of Sterne Agee reiterated his "Buy" rating for the shares, estimating that the High Trust and One Georgia acquisitions would result in "a bargain purchase gain of ~$0.56 per share in 3Q11 and benefit EPS by $0.15-0.20." Green's price target for Ameris is $13.00.

The shares trade for 13 times the 2012 consensus earnings estimate of 80 cents a share, among analysts polled by FactSet.

Two of the five analysts covering Ameris Bancorp rate the shares a buy, while the remaining analysts all have neutral ratings.

>>To see these stocks in action, visit the 10 Tiny Banks With Double-Digit Revenue Growth portfolio on Stockpickr.

-- Written by Philip van Doorn in Jupiter, Fla.

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.