- Shares of JPMorgan Chase (JPM) closed at $54.52 Friday and traded for 8.9 times the consensus 2014 earnings estimate of $6.10 a share, among analysts polled by Thomson Reuters.
- Citigroup (C) closed at $51.32 Friday and traded for 9.2 times the consensus 2014 EPS estimate of $5.57.
- Bank of America (JPM) closed at $14.45 Friday. The shares traded for 10.6 times the consensus 2014 EPS estimate of $1.37.
- Wells Fargo (WFC) closed at $43.23 Friday and traded for 10.8 times the consensus 20143 EPS estimate of $4.02.
NEW YORK ( TheStreet) -- There are plenty of community banks in the Midwest that are posting solid loan-growth numbers. Stocks of strong community banks tend to trade at a significant premium to the largest U.S. banks, reflecting the prospect for continued earnings growth, in line with the loan growth as the Midwest economy continues to recover, while also reflecting investors' continued discomfort with the big banks, amid a regulatory and political onslaught. FIG Partners analyst John Rodis covers 19 smaller regional banks, nearly all of which are located in the Midwest. At Friday's market close, the 19 stocks were trading at an average of 15.5 times his 2014 earnings estimates. That's a pretty high valuation compared to the "big four" U.S. banks:
C&I loans are commercial and industrial loans not secured by real estate. This is a coveted loan type for all banks during this recovery cycle. CRE loans are commercial real estate loans, which many banks have shied away from during the recovery. Only four of the 19 banks covered by Rodis saw sequential declines in net interest income during the second quarter. About half of the group saw net interest margins declining, but "the pace of decline appears to be slowing," Rodis wrote. The release of loan loss reserves continues to pad earnings for many banks, and Rodis pointed out that among the banks he covers, six had ratios of loan loss reserves to total loans above 2% as of June 30, implying significant further releases of reserves.
In addition to the growth prospects, Lakeland pays a quarterly dividend of 19 cents a share, for a yield of 2.41%. Rodis also rates Mercantile Bank Corp. "outperform," with a price target of $22, implying 18% upside from Friday's closing price of $18.70. The shares trade for 15.9 times Rodis's 2014 EPS estimate of $1.38. His 2013 EPS estimate is higher at $1.70, because the bank has been transferring money from loan loss reserves this year, rather than simply allowing reserves to draw down. Mercantile Bank "is a bit of a turnaround story," according to Rodis. "Being in Michigan, they did see a rise in
nonperforming assets, or NPAs as the economic environment slowed dramatically. NPAs are down 70-80% from peak levels." A major feather in Mercantile Bank's cap is that it was able in 2012 to fully repay $31.6 million in federal bailout funds received through the Troubled Assets Relief Program, or TARP, without raising capital. "This management team has not diluted shareholders through this whole process," according to Rodis. "They have a lot of capital and the balance sheet appears to be growing again," Rodis added. "They showed some decent loan growth during the quarter. I would expect them to continue growing organically, without acquisitions." Mercantile Bank had $1.3 billion in total assets as of June 30. During the second quarter, "loan growth was better than expected with the portfolio increasing 3.5% Q/Q vs. our +0.5% estimate," Rodis wrote in a note on July 16. "This was MBWM's best quarterly growth rate since 2008. Origination activity improved to $76 Mil. from $50 Mil. last quarter," he wrote. Mercantile Bank's first-quarter ROA was 1.18% and its ROTCE was 10.64%. Mercantile pays a quarterly dividend of 12 cents a share, for a yield of 2.57%, based on Friday's market close. -- Written by Philip van Doorn in Jupiter, Fla. >Contact by Email. Follow @PhilipvanDoorn