Upgrades
* Keefe Bruyette & Woods' Damon DelMonte, after talks with Mercantile Bank Corp. executives, raised the company's stock rating to "outperform" from "market perform."
The upgrade reflects his "better understanding of the opportunities" for sustainable earnings improvement, the analyst wrote. The Grand Rapids, Mich.-based company's existing footprint and its recent expansions "provide a solid foundation for steady organic loan growth." It is also "poised to benefit from a strong capital position."
Community bank investors should count the stock among their "core" holdings, DelMonte added, and the stock's recent underperformance makes for an attractive entry point.
DelMonte increased the target price by a dollar to $40.
* Piper Jaffray's William Curtiss upgraded Home BancShares Inc. to "overweight" from "neutral," as loan growth turned out higher than anticipated and the net interest margin trend improves.
The better loan growth is due to "some easing in payoffs," which may normalize this quarter. The analyst wrote the company's core NIM of around 4% is expected to be stable or possibly improve. The company's deposit betas have been above-peer at approximately 30%, but that is partly because of the Stonegate Bank acquisition. Conway, Ark.-based Home expects to reap the benefits from the merger's efficiencies "in the next few months," and the analyst thinks incremental cost saves could exceed expectations.
Home is also projected to "generate a significant amount of capital over the next two years," which it may then deploy.
Curtiss raised his 2018 EPS estimate by 3 cents to $1.77 and his 2019 EPS estimate by 5 cents to $1.95. He also raised the stock's price target by $2 to $28.
Industry report
* GDP growth is supposed to directly correlate to increased commercial and industrial lending, but small banks are recording those improvements more than their large counterparts. The difference "makes sense," according to Raymond James analysts, as small businesses are said to comprise about 45% of the economy/GDP.
For large banks especially, "cheap debt, high cash levels that should increase with tax reform, and skilled labor shortage" will be headwinds to near-term C&I loan growth. But regardless of size, those best-positioned for it are the ones for which it is already a core competency, they wrote.
