4 Small-Cap Regional Banks Worth Buying

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The banking space has been on a tear since the November Presidential elections and the emergence of effective COVID-19 vaccines, after witnessing a free fall at the beginning of the pandemic last year. Although customer bank deposits soared during the pandemic,  banks have not been able to translate the swollen deposits into loan growth due to a fragile consumer loan market based on high unemployment and flagging national GDP.

While the banking sector is not yet out of the woods, there has been rising optimism among investors and the Street is witnessing a value rotation into banking stocks. This is evident from the SPDR S&P Regional Banking ETF’s (KRE) 96% gain over the past six months compared to the S&P 500’s 19.3% returns.

Federal Reserve Chair Jerome Powell has promised to maintain aggressive support of the U.S. economy and to hold interest rates near zero. In addition, long-term Treasury yields are rising sharply, indicating that the economy is improving.

It’s true that small-cap stocks typically carry higher risk profiles than their mid- or large-cap counterparts, but given their relatively smaller size, these companies have more room for growth. As such, we believe Customers Bancorp, Inc. (CUBI - Get Rating), HomeStreet, Inc. (HMST - Get Rating), Republic Bancorp, Inc. (RBCAA - Get Rating), and SmartFinancial, Inc. (SMBK - Get Rating) are the best small-cap regional banking bets to play the economic recovery.

Customers Bancorp, Inc. (CUBI - Get Rating)

CUBI is the bank holding company for Customers Bank, a full-service bank with $18.4 billion in assets as of December 31, 2020. Headquartered in Pennsylvania, the Bank operates 12 full-service branches and limited production and administrative offices around the United States. It provides financial products and services to individual consumers, and small- and middle-market businesses. CUBI operates primarily in two segments – Customers Bank Business Banking and BankMobile.

The COVID-19 pandemic presented severe challenges for small business owners trying to stay in business. Acknowledging the fact that many small businesses are still struggling, CUBI has recently introduced its newest financial product. It is ReStart America Biz Checking account provides a 1% annual percentage yield for 28 weeks. The product is designed specifically to help businesses through the accelerating economic recovery phase and enable small businesses to manage Paycheck Protection Program(PPP) funds and pay for eligible expenses while earning interest.

In the fourth quarter, ended December 31, CUBI’s net interest income totaled $122.9 million, increasing $15.5 million sequentially, due primarily to a $480.9 million rise in average interest-earning assets. Its total loans and leases increased 57.5% compared to the year-ago period to $15.8 billion. Its total deposits improved $2.7 billion, or 30.8% year-over-year, to $11.3 billion. Its non-performing assets were 0.39% of total assets, compared to 0.34% on  September 30, 2020. Its allowance for credit losses equaled 204% of non-performing loans. CUBI’s  EPS came in at $1.65, surging 121% compared to the year-ago value of $0.75.

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