A small subset of community and regional banks that were well positioned going into the economic downturn, with limited real estate exposure, generic bond portfolios, plenty of capital and little leverage at the parent company, are showing signs of improvement, says Jeff K. Davis, Managing Director at Guggenheim Securities, LLC.
“These institutions are increasing the distance between themselves and the pack, and they are doing that primarily through taking share and employees from struggling institutions. It’s a bit harsh for me to describe it this way, but I think the oxygen is slowly being sucked out of the room for many community banks,” he said.
Davis favors Comerica (CMA), a bank with significant operations in California. He says Comerica is an instructive example to the regional and community banking sector because it entered the state in 1990, during the previous banking crisis, and built a franchise, which doubled in 2000, when CMA acquired Imperial Bank.
“I think the executives will tell you they have been pleased with their experience there with the caveat that the initial integration of Imperial had a few rough spots. Also, the credit scrub in 2006-2007, in anticipation of a housing downturn, missed a builder portfolio with about $1 billion of loans in which the builders were selling homes to subprime borrowers. But all in all, they have performed well in the state,” Davis said.