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An Update on Three Regional Banks

On January 20 of this year, I wrote a piece highlighting three regional bank stocks that I thought had promise for 2011 and beyond. Buying bank stocks during periods of economic weakness has historically been a good investment strategy since banks are highly leveraged to the economic cycle and often demonstrate strong returns as the economy recovers.
I selected three banks that I found had fundamental financial strength but which had not yet fully recovered to pre-crash business or stock price levels. These were FNB Corporation (FNB), Heartland Financial (NASDAQ:HTLF) and Sterling Bancorp (NYSE:STL). This article provides an update on prospects for these three.
FNB Corp. (Hermitage Pennsylvania) has continued to grow through mergers and acquisitions. FNB completed a merger with Comm Bancorp on 1/11/11 and subsequently acquired Parkvale Financial (with operations in the Pittsburg area) on 6/15/11 for $130 MM. FNB has posted two reasonably solid quarters in the first half of 2011 with earnings generally in line with expectations. The most recent quarter saw the 7th consecutive quarter of income growth and the 8th consecutive quarter of revenue growth for the company.Net interest margin fell slight from the prior quarter. FNB completed a stock offering during the quarter that raised $62.8 MM in additional capital. FNB reported improvement in credit quality. The company is currently paying a dividend of 4.6%.
Heartland Financial (Dubuque Iowa) had a somewhat disappointing first quarter having to take a $10 MM increased provision for loan and lease losses causing earnings to miss expectations. But yesterday HTLF bounced back with n report of record net income of $10.2 MM. Earnings of 0.54 surged past expectations of 0.22/share. Provisions for loan losses decreased by $6.1 MM(61%) vs. the prior year quarter. Net interest margin rose to 4.23%. The results were quite good considering that HTLF still sees “soft” loan growth demand with some pipeline improvement in select areas. Deposits grew by $46 MM from end of 2011 with favorable improvements in deposit mix. HTLF is currently paying a dividend of 2.5%.
Sterling Bancorp.(New York City) repaid $42 MM in TARP funds on 4/27/11 following completion of a common stock offering that raised $38.6 MM.  Earnings for Q1 were up 20% vs. prior year and then basically flat in Q2 (given the increase in share count). STL reported strong (+10.3%) loan growth with particular strength in the mid-market area that it targets. Deposits grew by 21.9%. The company is bullish on prospects for the rest of the year seeing strong demand for its products and services. STL currently pays a dividend of 3.6%.
Given the tepid nature of the recovery in the US economy to date, the above results have met my expectations   I have continued to acquire shares in all of these companies for my individual accounts and for accounts managed for Freedom Mountain Investment clients. I believe that as the US economic recovery gains strength all of these well run companies should see substantial improvement in their businesses resulting in significantly higher share prices. 

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: I hold long positions in FNB, HTLF and STL.