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Wednesday

Banking Essentials Newsletter December Edition Part 2

Banking Essentials Newsletter - November Edition

University Essentials | COVID-19 Economic Outlook in Banking: Rates and Long-Term Expectations: Q&A with the Experts

Estimating Credit Losses Under COVID-19 and the Post-Crisis Recovery


Wednesday

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Analyst BrianKlock of Keefe Bruyette & Woods upgraded his rating of Phoenix-based to "outperform"from "market perform."

The action followsthe announcement of WesternAlliance's pending acquisitionof General Electric Capital Corp.'s$1.4 billion U.S. hotel franchise finance loan book. The analyst estimates the deal— which he sees as low risk — to be 6% accretive to his 2016 EPS estimate and 11%accretive to his 2017 EPS estimate, with a 32% potential upside to his new targetprice for the company's stock. He also expects the transaction to be potentiallyslightly dilutive to the company's net interest margin and enhance return on tangiblecommon equity by 137 basis points.

Klock raisedhis target price to $41 from $38, and increased his EPS estimates to $2.58 from$2.44 for 2016 and to $2.98 from $2.69 for 2017.

Initiations

Piper Jaffrayanalyst Matthew Kelley initiated coverage of Buffalo, N.Y.-based , with a "neutral"rating and $122 price target. He also set EPS estimates at $8.44 for 2016, $9.20for 2017 and $9.84 for 2018.

While M&TBank has had a very strong long-term track record of success, the analyst wrotethat the company is still facing challenges, particularly in growing revenue inthe present low-rate environment. Positive catalysts for the company include management'sfocus on generating positive operating leverage; the possibility of returning morecapital to shareholders after it puts in its 2016 Comprehensive Capital Analysisand Review/stress test requests; and the possibility of a modest upside in the company'smortgage banking and trust income businesses. Kelley also projects the $19 billionsingle-family, jumbo, fixed-rate loan portfolio the company acquired as part of the Hudson City Bancorp Inc. deal to reduce at a double-digit annual rate in the currentinterest rate environment, which would in turn put pressure on net loan growth for2016 and 2017.


FBR & Co.analyst Christopher Nolan initiated coverage of Reston, Va.-based ; New Orleans-basedFirst NBC Bank Holding Co.;Dallas-based Hilltop Holdings Inc.;and Dallas-based Triumph Bancorp Inc.

The analystinitiated coverage of Access National with a "market perform" rating forthe stock and a $19.00-per-share price target. EPS estimates were set at $1.40 and$1.45 for 2016 and 2017, respectively.

Nolan notedthat the company is well-managed, has solid asset quality, and expressed optimismon further operating efficiencies. However, the analyst believes that the positivesthe company is experiencing is already reflected in its current valuation, writingthat he sees relatively few financial levers that the company can employ to furtherenhance equity returns and boost its existing premium share price valuation multiples.


For First NBCBank Holding, Nolan initiated coverage with a "market perform" ratingfor the stock and 12-month price target of $23.00. EPS estimates were set at $3.60and $3.85 for 2016 and 2017, respectively.

Nolan wrotethat he prefers to remain on the sidelines regarding the stock until the publicationof the company's Form 10-K. He also noted that the company's book value will likelybe affected by the likely material impairment charge for the fourth quarter of 2015.The analyst added that while the company has good asset quality, in the near termof 2016, its energy exposure effectively raises the asset quality risk profile forFirst NBC Bank Holding's shares.


For HilltopHoldings, Nolan initiated coverage with a "market perform" rating anda 12-month price target of $20.50 per share, setting EPS estimates at $1.70 for2016 and $1.90 for 2017.

While the companyhas successfully grown via the acquisition of distressed companies, which has fueleddiscount accretion income in recent years, the analyst wrote that he expects thosevolumes to decline in 2016, which will affect net interest margins and the momentumof overall earnings growth. He adds that there is a potential for upside to earningsonly if the company sees higher mortgage origination volumes of it acquires a distressedbank from regulators.


For TriumphBancorp, Nolan initiated coverage with an "outperform" rating and a 12-monthprice target of $19.00 per share, setting EPS estimates at $1.17 for 2016 and $1.71for 2017.

Nolan notedthat the company is different from other small-cap banks as it includes a substantialand growing asset-based finance and factoring business that utilizes its communitybank arm for low-cost deposit funding. He adds that the bank gains deposit fundingthrough 2017 from its pending deal with ColoEast Bankshares Inc., which will isexpected to be immediately accretive to EPS and to generate 13% growth in tangiblebook value in 2017. The analyst also expects Triumph's asset quality to remain strongbut the company is expected to experience headwinds to its earnings growth momentumdue to continued low energy commodity prices which could result in a slowing Texaseconomy.


Notable reiteration

Sandler O'Neill& Partners analyst Mark Fitzgibbon reiterated his "buy" rating onInvestors Bancorp Inc.and maintained a 12-month price target of $13.50.

The analystwrote that one of the biggest challenges for the Short Hills, N.J.-based companyis to grow deposits fast enough to keep pace with loan growth, noting that an acquisitionaside, Investors is opening new branches — albeit smaller ones — and is lookingto start an Internet bank as a means to address the deposit growth matter.

Speaking ofacquisitions, the analyst also stated that based on the management's comments, anacquisition is "very likely" in the coming periods, with the possibletarget being between $1 billion and $6 billion in assets, preferably one rich indeposits, with less than a five-year earnback of tangible book value dilution. Andwhile an in-market transaction is Investors' preference, the company may also beopen to doing a deal in Long Island or near Center City Philadelphia.

EPS estimatesfor the company were unchanged at 56 cents for 2016 and 61 cents for 2017.