Banks: 3 Small Cap Growth Stocks Worth Buying – Rockville Financial Inc (RCKB) and More

The financial sector in the U.S. is going through rapid structural changes with uninterrupted expense control, sound balance sheets, an up-tick in mortgage activity, and fewer credit loss provisions. Moreover, a favorable equity and asset market backdrop, progressive housing sector, and an accommodative monetary policy are expected to make the road to growth smoother.

The implementation of Basel III requirements this year will boost minimum capital standards. Adjusting liquidity management processes will cause a short-term negative impact on the financials of U.S. banks. But a greater capital cushion will help fundamentally strong banks withstand internal and external shocks over the long run.

First Connecticut Bancorp Inc (NASDAQ:FBNK)Small Cap Bank Stocks Worth Buying

Despite the volatility in the financial sector, many investors still remain curious about opportunities within this category. And with good reason, as there are companies that have continued to thrive by running fiscally sound operations.

The banks I am going to recommend have their footprints in a few states or just one state, and usually have assets of $25 billion or less. They don’t extend loans to Greece and don’t load up on fancy derivatives. I think you will find the financial stocks listed below quite interesting.

Rockville Financial Inc (NASDAQ:RCKB)

This is a state-chartered, mid-tier stock holding company that wholly owns Rockville Bank. The bank offers deposit instruments, including checking, savings, money market savings accounts, negotiable order of withdrawal accounts, and fixed-rate time deposits. Its loan portfolio comprises commercial and industrial loans, commercial real estate loans, consumer loans, residential mortgage loans, and installment and collateral loans.

Rockville Financial Inc (NASDAQ:RCKB) is a debt-free company. The company raised its quarterly dividend significantly in 2012. The company also paid a special cash dividend and bought back 61% of its share repurchase plan last year. When including both dividends and the stock buyback program, the company returned to its shareholders 231% of its net income for 2012.

In the quarterly earnings results posted a few weeks ago the company reported net income of $4.3 million, or $0.16 earnings per share for the quarter ended Dec. 31, 2012, compared to net income of $4.0 million, or $0.14 earnings per share, for the quarter ended Dec. 31, 2011. For the year 2012, net income was $15.8 million, or $0.56 per diluted share, compared to $7.1 million, or $0.25 per diluted share for 2011.

Financial Strengths of the Company

  • Record annual net income of $15.8 million in 2012, 2.2 times 2011 net income.
  • Record annual diluted earnings per share of $0.56 in 2012 compared to $0.25 in 2011.
  • 20% annual core operating revenue growth of $13.3 million.
  • 13% growth in deposits in 2012.
  • 16% growth in non-interest-bearing deposits in the year.

First Connecticut Bancorp Inc (NASDAQ:FBNK)

This is a Maryland-chartered stock holding company that wholly owns Farmington Bank. Farmington Bank is a full-service community bank with 18 branch locations throughout central Connecticut. The company offers a range of deposit instruments. It also provides various loans, such as one-to-four family residential real estate loans; commercial real estate loans; construction loans; commercial loans; home equity loans and home equity lines of credit secured by owner-occupied one-to-four family residences; and consumer loans.

The stock appears to be well positioned for growth with minimal long-term debt. The company has a relatively low Debt/Equity Ratio of 0.5.  The Debt/Equity Ratio illustrates how aggressively a company is financing its growth via debt.

The company reported 3rd quarter 2012 earnings of $0.09 per share, excluding stock compensation expenses and a loss on the sale of non-strategic properties. The company had 3rd quarter 2012 revenues of $15.5 million. This bettered the $15.1 million consensus analysts’ estimates, and was 13.2% above the prior year’s 3rd quarter results.

Financial Strengths of the Company

  • Strong loan growth continued as total loans increased $69.5 million, or 5%, during the quarter ended Sept. 30, 2012 and have increased $189.8 million or 15% since Dec. 31, 2011.
  • Net interest income increased $588,000, or 5%, for the quarter ended Sept. 30, 2012 as a result of strong organic loan growth compared to the quarter ended June 30, 2012.
  • Checking accounts grew by 4%, or 1,282 net new accounts, for the quarter ended Sept. 30, 2012 compared to the quarter ended June 30, 2012.
  • The company remained well-capitalized, with an estimated total capital to risk weighted asset ratio of 19.15% on Sept. 30, 2012.

Texas Capital Bancshares Inc (NASDAQ:TCBI)

This is the parent company of Texas Capital Bank, a commercial bank that delivers highly personalized financial services to businesses and private clients. Headquartered in Dallas, the Bank has full-service locations in Austin, Dallas, Fort Worth, Houston and San Antonio.

The stock has witnessed sturdy price momentum since December 2011. Moreover, the company has been continuously outperforming its 200-day moving average over the past year, showing a steady growth trend. The company has a trailing 12-month ROE of 16.8%, compared with the peer group average of 10.1%. Considering the recent share price fluctuations and consistent growth trends, there is a strong possibility of considerable upside from the current levels.

The company recently announced earnings and operating results for the fourth quarter and full year of 2012. EPS increased 51% for the year, a 5% decrease on a linked quarter basis (3% increase excluding litigation settlement), and a 13% increase for the fourth quarter of 2012 as compared to the same quarter of 2011.

Financial Strengths of the Company

  • Net income increased 59% for the year and 22% increase for the fourth quarter of 2012 as compared to the same quarter of 2011.
  • Demand deposits increased 45% and total deposits increased 34% for the year from 2011, reflecting linked quarter increases of 20% and 11%, respectively.
  • Loans held for investment increased 22% and total loans increased 30% for the year from 2011, reflecting linked quarter increases of 4% and 6%, respectively.

The article Banks: 3 Small Cap Growth Stocks Worth Buying originally appeared on Fool.com and is written by Anindya Batabyal.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

The 10 Most Peaceful Countries in the World

5 Big Reasons Communism Failed

The 15 Most Famous Carl Icahn Quotes

10 Scary Animals that are Actually Harmless

The 8 Most Famous Singer-Actors in Entertainment

The 10 Longest Wars of All Time

The 13 Worst Looking Foods that Taste Great

The 6 Most Gruesome Injuries Suffered During a Sports Match

The 20 Biggest Contracts in MLB History

The 7 Worst Blown Calls in Sports History

7 Free Ways to Advertise Your Business Online

The 18 Best R&B Songs of the 90’s

The 10 Most Dangerous States to be a Cop

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!