Look for stocks of "super community" banking companies, ambitious versions of traditional community banks, to perform well in coming months, a veteran analyst says.
The institutions, with one billion to several billion dollars of assets, are distinguished by solid balance sheets, efficient operating styles, and savvy management-often cribbed from larger institutions, said analyst Donald J. Kauth of BT Alex. Brown, New York.
"Revenue expansion, expense control, and asset quality are driving earnings growth" at super community banks nationwide, Mr. Kauth said.
Mr. Kauth's picks include two high-performing northeastern thrift companies that resemble banks, Albank Financial Corp. and Peoples Heritage Financial Group. All told, he sees growth in earnings per share of 17.6% this year and 12.4% in 1998 at the 26 such companies that Alex. Brown covers.
In general, said Mr. Kauth, solid and growing community financial institutions are becoming more scarce and therefore more appealing.
Community and super community banking companies are also lower-profile stocks that are less subject to the vagaries of the stock market. Their positioning is especially welcome right now as a possible haven from larger banks' shares that mimic the broader market's volatility.
The stock market will be "very volatile" over the next several months, said William Sharp, senior economist at Chase Securities, the brokerage arm of Chase Manhattan Corp. But days of steep gains will be countered by large declines, producing relatively flat movement overall.
Financial stocks are among those that will outpace the rest of the market, gaining during the next 12 months because interest rates will remain flat or even decline a bit, Mr. Sharp said.
Mr. Kauth said super community banking companies are especially well positioned right now. The institutions combine the personal attention of small banks with the systems and products of larger institutions.
"Many of the managements of these companies have already spent many years at larger banks," Mr. Kauth said, and therefore know how to position their institutions to best leverage their strength.
Albank, Albany, N.Y., has culled many top executives and much of its management style from Norstar Bancorp and KeyCorp, once bedrock operations in the Northeast. Monday, the $4 billion-asset banking company boosted its New York operations by acquiring branches and $540 million of deposits from KeyCorp. Shares of Albank rose 62.5 cents, to $43.125.
Peoples Heritage, Portland, Maine, is putting together a solid operation through internal growth and acquisitions, Mr. Kauth said. The company, which currently has $6.5 billion of assets, will become one of the largest New England community banks when it completes its planned purchase of CFX Corp. Shares of Peoples Heritage were up 25 cents, to $39.875.
Keefe, Bruyette & Woods Inc. is also looking closely at smaller banks and last week initiated coverage of West Coast Bancorp, Lake Oswego, Ore., with an "attractive" rating. Its shares fell 12.5 cents Monday, to $30.25.
The $1 billion-asset institution operates in Oregon and Washington areas that are home base to giant companies like Microsoft and Nike.
West Coast Bancorp doesn't go directly after those large companies' business but courts the smaller businesses that are their contractors, Keefe analyst David Winton said, adding: "They are a very well positioned small to midsize business lender."
The company's loan portfolio will grow by about 15% this year and next, Mr. Winton said.
