Small banks picks in a slow-growth market

Regional bank stocks face plenty of challenges after big moves higher this year while loan growth and margins haven't really kept up, but Stephens' Matt Olney says the tailwinds of higher interest rates, continued expense cuts, and more M&A activity are on the way.

For the expense management theme, BancorpSouth (BXS +0.3%) is a favorite as a new management team moves in - specifically CEO James Rollins who comes over from the "very efficient" Prosperity Bancshares (PB -0.1%).

In M&A, those best positioned as acquirers are Home Bancshares (HOMB -0.3%), Bank of the Ozarks (OZRK +0.3%), Renasant Corp. (RNST +0.8%), Hilltop Holdings (HTH -1.1%), and First Financial Bancshares (FFIN +0.7%). The management team at HOMB is particularly noteworthy as the management team's "been acquiring banks their whole career and they know how to do it," and the valuation at 4x tangible book gives them valuable currency.

How about acquirees? The midtier banks aren't yet ready to sell he says, and most of the names being acquired are small, private ones.

Texas is a favorite area for growth and the pick there (in addition to Hilltop) is Texas Capital Bancshares (TCBI -0.2%) for its exposure to the energy sector.

Newly added to Olney's Buy list is Pittsburgh's Tristate Capital (TSC -0.5%) at 1.2x tangible equity with the unique kicker of a wealth management division being leveraged to generate loan growth.

Regional bank ETF: KRE

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