Analyst notes
An outright sale may be the most attractive option for Republic First Bancorp Inc. following the announced resignation of embattled CEO Vernon Hill II, Piper Sandler analyst Frank Schiraldi wrote in a July 8 note.
The past eight months have been chock-full of drama at Republic First as the company dealt with two investor activism campaigns, a stalled board and then a legal battle following the death of one of Hill's board allies. But now the board can "move forward" with deciding the future of Republic First following an appeals court's decision that led Hill to announce his resignation, the Piper Sandler analyst wrote.
Schiraldi believes that the company has two main options for its future strategy: an outright sale, likely after a balance sheet restructuring, or continuing to build out commercial banking operations in New York and Philadelphia while growing its digital investments and shrinking its physical branch expenses.
"We expect investors will favor an outright sale, believing the franchise is worth more to another institution than as a standalone entity. It strikes us that building out commercial banking at this point in the cycle, ahead of a potential recession and at a point in which deposits become more valuable, is a big ask," Schiraldi wrote.
While an outright sale "may ultimately be the most attractive option," Schiraldi acknowledged that deal-making is tough right now, and the company would not likely fetch a high premium given its underperformance.
Aside from deciding the company's broader strategy, the board must also name a CEO, get financial filings up to date and schedule the company's annual shareholders meeting in order to vote on a 2022 slate of directors, Schiraldi wrote. Schiraldi believes that the board is unlikely to make any major decisions until the company has a full slate of board members following its annual meeting.
Upgrades
Raymond James analysts Michael Rose, David Feaster, David Long, William Wallace and Daniel Tamayo upgraded 10 U.S. banks based on their updated outlook for the industry.
The Federal Reserve's "more aggressive" pace of interest rate hikes is raising concerns about a potential recession and making the prospect of a "soft landing" less likely, the analysts wrote in a series of notes July 7. Given that backdrop, the analysts are taking a "more conservative viewpoint" in which they believe that the environment will soon normalize in terms of growth and losses.
The analysts favor banks with reasonable and achievable loan growth outlooks, proven low-cost core deposit franchises with lower loan-to-deposit ratios, higher proportions of excess liquidity, exposure to the shorter-end of the curve, proven historical credit quality with solid loan loss reserve ratios, strong capital bases, footprints with strong economic backdrops and larger more liquid names.
As such, the analysts upgraded Houston-based Allegiance Bancshares Inc.; Martinsville, Va.-based Carter Bankshares Inc.; Indiana, Pa.-based First Commonwealth Financial Corp.; Mattoon, Ill.-based First Mid Bancshares Inc.; Muncie, Ind.-based First Merchants Corp.; San Jose, Calif.-based Heritage Commerce Corp.; Nashville-based Pinnacle Financial Partners Inc.; Irvine, Calif.-based Pacific Premier Bancorp Inc.; Birmingham, Ala.-based Regions Financial Corp.; and Dallas-based Texas Capital Bancshares Inc.
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Wells Fargo analysts upgraded The Bank of N.T. Butterfield & Son Ltd. on the belief that the company's conservative balance sheet and nearly 6% dividend yield provide a "solace" for investors amid the volatile environment for bank stocks.
"NTB shares typically perform best during rising rates, especially when there is broader uncertainty surrounding the mainland banks," they wrote in the July 7 note.
The analysts upgraded the company's rating to "overweight" from "equal weight" and maintained the $38 price target. Given a more hawkish view of interest rates, the analysts increased their EPS estimates for 2022 and 2023 to $4.27 and $4.97, respectively, from $3.85 and $4.65.
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For the first time in almost five years of coverage, Keefe Bruyette & Woods analyst Michael Perito upgraded Axos Financial Inc. to "overweight."
Perito named Axos as a "bulletproof" option for investors as the backdrop for digital banks grows "uncertain and increasingly pessimistic." The analyst also reiterated his outperform ratings on The Bancorp Inc. and Silvergate Capital Corp. in the July 10 note because the trio feels "more recession proof to us based on their relatively cheap valuation (and recent underperformance), high earnings growth potential, and pretty objective low credit-risk," Perito wrote.
The analyst raised the price target for Axos to $56 from $52 but maintained EPS estimates of $4.02 for 2022 and $4.42 for 2023.
Downgrades
The five Raymond James analysts also downgraded a slew of U.S. banks in the series of July 7 notes.
Based on their updated outlook for the industry, the analysts downgraded 19 U.S. banks: Porterville, Calif.-based Sierra Bancorp; Sioux Falls, S.D.-based Meta Financial Group Inc.; Cambridge, Mass.-based Cambridge Bancorp; Nashville, Tenn.-based CapStar Financial Holdings Inc.; Hauppauge, N.Y.-based Dime Community Bancshares Inc.; Mountlake Terrace, Wash.-based FS Bancorp Inc.; Fairfax, Va.-based FVCBankcorp Inc.; Addison, Texas-based Guaranty Bancshares Inc.; Michigan City, Ind.-based Horizon Bancorp Inc.; Dallas-based Hilltop Holdings Inc.; Oak Ridge, N.J.-based Lakeland Bancorp Inc.; Wilmington, N.C.-based Live Oak Bancshares Inc.; Little Rock, Ark.-based Bank OZK; Beverly Hills, Calif.-based PacWest Bancorp; Los Angeles-based Preferred Bank; Pittsburgh-based The PNC Financial Services Group Inc.; Knoxville, Tenn.-based SmartFinancial Inc.; Terre Haute, Ind.-based First Financial Corp.; and Dallas-based Veritex Holdings Inc.
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B. Riley Securities analyst Steve Moss downgraded First Foundation Inc. as part of a note previewing U.S. banks' second-quarter earnings.
The analyst downgraded the company's rating to "neutral" from "buy" to reflect the challenging interest rate environment. "While [First Foundation] has improved its deposit franchise and increased the mix of floating rate commercial loans, downside to consensus estimates in a +375 [basis points] is significant," Moss wrote.
The analyst lowered the price target by $10 to $21. Moss also lowered his 2022 EPS estimate to $2.28 from $2.37 and the 2023 EPS estimate to $2.00 from $2.80.
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Jefferies analysts downgraded Nashville, Tenn.-based Pinnacle Financial as part of their U.S. bank second-quarter earnings preview note July 11.
"In short, we believe [Pinnacle's] premium multiple is at risk and see negative estimate revision risk with our '23 EPS estimate of $7.00 10% below consensus," they wrote.
The analysts downgraded the company to "underperform" from "hold" and lowered the price target to $66 from $85. The analysts raised their 2022 EPS estimate to $7.45 from $7.05 but lowered the 2023 estimate to $7.00 from $7.55.
