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Hovde Group initiates coverage of Franklin Financial

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Hovde Group initiates coverage of Franklin Financial

Initiation

* Hovde Group's Joseph Fenech initiated coverage of Franklin Financial Network Inc. at "market perform," with a price target of $38.00.

The analyst noted: "Within 10 years of starting the bank in 2007, management has been able to achieve critical mass and enviable scale, with a top market share position and top tier profitability profile." That said, an attractive entry point has yet to be reached; its commercial real estate concentration could be impacted by broader regulatory pressures, and funding costs are "the wildcard."

On an earnings call, CFO Sarah Meyerrose acknowledged deposits were the company's "biggest challenge" and that, "until we are able to really close some acquisitions with deposit-rich banks, we are going to be more reliant on purchase funds and higher-rate deposits than we hope to be in the medium term."

Franklin, Tenn.-based Franklin Financial has a pending deal for Civic Bank & Trust.

Industry report

* Piper Jaffray analysts, in an industry note on bank net interest margins, project above-expectation third-quarter NIMs at Columbia Banking System Inc., East West Bancorp Inc., Western Alliance Bancorp. and ConnectOne Bancorp Inc.

They said New York Community Bancorp Inc. and Umpqua Holdings Corp., on the other hand, might miss.

The analysts expect funding costs to become an even bigger concern in the second half and cash-flow reinvestment in securities portfolios to result in a net negative. But while loan growth "may be more tepid than some hope for," loan yields could improve.

Notable Reiteration

* And Piper Jaffray's Nathan Race and Matthew Clark on Aug. 3 commented that they remain "neutral" on TCF Financial Corp.'s stock after reviewing the company's 10-Q.

Race and Clark wrote that "uncertainty remains around [the company's] ability to replace lower [auto-related fees] with stronger spread revenue growth net of auto-related credit provisions," and further noted that TCF's 105% loan-to-deposit ratio could be an issue as funding costs rise.

Their price target for the Wayzata, Minn.-based company's stock is $17.00.