News From the KBW Community Bank Investor Conference

No matter what an investor might look for in choosing a stock, it could be found at the recent Keefe, Bruyette & Woods conference for community banks.

Want dividend increases? Check out The First of Long Island Corp. in Glen Head, N.Y. From 2007 to 2011—"during the roughest years," as President and CEO Michael Vittorio points out—its dividends per share had a compound annual growth rate of 11.6 percent.

Using the shareholder payouts as a measure, the $2 billion-asset First of Long Island ranks right up there with ConocoPhillips and General Mills, Vittorio says. "We're one of the top companies in the country, bar none."

Prefer a battered stock on the rise? Try First M&F Corp. in Kosciusko, Miss.

Chairman and CEO Hugh Potts says he had been absent from KBW's investor conference in recent years, as his $1.6 billion-asset company struggled with credit quality issues, mostly due to construction and development loans.

But now he believes First M&F is at a turning point. Its Texas ratio is down to 47 percent, from a peak of 77 percent in 2010.

Though Potts says the "mop up" continues, he points to a string of 10 profitable quarters and five quarters of declining nonperformers as proof of the company's positive momentum.

Its stock is already up significantly, having more than doubled from the end of last year through late July, to about $6.40 a share. But the price is still only at 61 percent of tangible book value.

"With all due respect to the other participants in this conference, the upside potential of this company probably far exceeds anybody else's," Potts says.

How about a bank with blockbuster growth?

There were plenty of options in that regard, including Texas Capital Bancshares in Dallas.

In the second quarter, total loans at Texas Capital jumped 7 percent from the previous quarter and 37 percent from the same quarter a year earlier, to $8.6 billion.

Introducing Texas Capital at the conference, KBW analyst Brady Gailey, who covers Southeast banks, describes it as perhaps "the fastest-grower in the nation."

Even among Texas banks, this one stands out. With second-quarter loans on an annualized basis up about 30 percent, the growth is at least double that of the average Texas bank, says Gailey, asking the company's executives whether such growth is sustainable.

"I think it is," says Keith Cargill, the president and chief operating officer for the $9 billion-asset Texas Capital.

The company sets out to lure top performers away from big banks, convincing them over time that it offers the better setup for serving middle-market businesses with $10 million to $150 million a year in revenue. The recruiting process generally takes two to four years, and the talent pipeline is a key indicator of future growth prospects, Cargill says. "It is a talent acquisition model, not a bank acquisition model."

For all the swagger, the presenters are plenty cognizant of the economic and regulatory uncertainties that continue to make bankers and investors alike apprehensive.

Richard Smith, president and CEO at the $2.5 billion-asset TriCo Bancshares in Chico, Calif., closes his presentation with two discouraging slides, each containing a long list of challenges familiar across the industry by now. The Dodd-Frank Act, and its myriad rules yet to be written. Basel III. The Consumer Financial Protection Bureau. The economy, and the threat of another dip. Interest rates. And so on.

"What happens when rates go up?" Smith asks, ready to answer his own question. "They probably don't go up a little bit. They probably jump up, and we'll feel the pain of that at some point."