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.
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.