Analyst Jacqueline Reeves says the kinds of banks she knows best could soon find themselves thrust into the spotlight.
Ms. Reeves, who recently left a post at Janney Montgomery Scott Inc. to join Smith Barney Inc., predicts small banks with special niches will be heavy participants when the mergers and acquisitions lull ends.
"There is a pause because most banks are making sure their own systems are in place, so that they can acquire more easily," said Ms. Reeves. "But when the consolidation picks up, certain niche players will find their place."
Analyst Henry "Chip" Dickson, also of Smith Barney, said the added coverage of small and midsize banks Ms. Reeves brings will go hand-in-hand with his coverage of larger banks.
"Consolidation is a reality," he said. "We're only in the third or fourth inning. Some banks have come up to bat, but were' still in the realization period."
Ms. Reeves, age 30, cut her teeth as an analyst at Merrill Lynch as a financial consultant trainee, where she covered a "broad spectrum of industries."
She did similar research in a year-and-a-half stint at Rothschild Inc.
But it was under banking guru Thomas Hanley at CS First Boston that she embarked on a specialty of covering small and midsize banks.
"I thought it was fantastic," said Ms. Reeves, who stayed at CS First Boston for three years. "The company gives more in-depth understanding of the industry."
Mr. Hanley, who has trained many banking analysts, said Ms. Reeves was one of his proteges. "She had the ambition and the drive for (bank analysis) ... she was very diligent - more so than most analysts that I have trained," said Mr. Hanley, who has since moved to UBS Securities Inc.
Ms. Reeves has brought coverage of 11 midsize banks to Smith Barney, including nine southeastern banks and two banks in New Jersey: Summit Bancorp., Princeton and Commerce Bancorp, Cherry Hill.
She said coming to Smith Barney will enable her to expand her coverage list.
"The Southeast is a very attractive area for banking," said Ms. Reeves. "The economy (there) is definitely expanding at a rate faster than the rest of the nation."
But she noted that the Midwest "also has provided a good banking climate."
Of the 11 banks, First Tennessee National Corp. in Memphis is the only company Mr. Reeves rated a "buy." Its stock has the greatest potential for a price gain because of its lucrative lines of business, she said.
First Tennessee recently sealed a multiyear contract with Doubletree Hotel Corp. to provide transactional processing and check-clearing.
"Their presence in the hotel sector, as well as their regional penetration in trust and credit cards has given them a fee income revenue which tops 50% of total revenue," said Ms. Reeves.
On average, banks get 35% of revenue from fees, she said. Her 12-month price target is $41.
First Tennessee's stock was at $31.50 at the close of trading Wednesday.
Ms. Reeves rated four banks "outperform," because of strong market positions and fee-income lines of business.
In this category are:
*First American Corp., Nashville, which has recently acquired three companies complementing its banking business;
*Hibernia Corp., New Orleans, which controls 17% of the Louisiana market;
*Commerce Bancorp, which is pursuing a profitable branch-building strategy; and
*National Commerce Bancorp, Memphis, a practitioner of supermarket banking that expects to expand to 7,500 branches by 2000.
On Wednesday, First American shares were trading at $45.75, Hibernia shares were at $10.75, Commerce Bancorp's were at $25, and National Commerce was trading at $32.375.
The remaining banks, Amsouth Bancorp, Birmingham, Ala.; SouthTrust Corp., Birmingham, Ala.; Summit Bancorp., Princeton, N.J.; Union Planters Corp., Memphis, Tenn; First Commerce, New Orleans, La., and Signet Banking Corp., Richmond, Va.; were rated "neutral."
Ms. Reeves said her estimates for Signet were the "lowest on the street," the result of the company's lower lending volume and increased costs associated with collections.
The 1996 and 1997 consensus estimates for Signet are $2.14 and $2.47, she said. Her 1996 and 1997 estimates are $2.05 and $2.20.
Her 12-month price target is $26. Signet shares were trading at $24.75 on Tuesday.
