3 Growing Small-Cap Banks For Dividend-Growth Investors

Regional Banks Poised For Growth In 2021

The financial sector (NYSEARCA:XLF) is poised for a major rebound in 2021 and not just the big banks. The smaller regional and community banks may not come with the same exposures but are still well-situated to benefit from the coming economic boom. When I say boom I mean the rebound in economic activity that is already building. The rebound that will accelerate along with a global economic reopening enabled by COVID-19 vaccines. The stocks we are highlighting today are not only well-positioned for the 2021 rebound but also pay dividends. Better, they are all dividend growers with above-average yields and a positive outlook for future increases.

Peoples Bancorp Of North Carolina, A Safe Play On Small-Cap Banking

Peoples Bancorp Of North Carolina (NASDAQ:PEBK) is a micro-cap banking institution with 20 offices in western-central North Carolina. The bank experienced a small hiccup in its revenue activity during the Q2 period but one that is small in comparison to many others in the business. The rebound since the Q2 period has been very strong and points to a good year in 2021 as well. The company ended the F2020 on a strong footing with an 8% increase in YOY revenue. The increase was driven by a 10% increase in loan volume and a 12% increase in core deposits that are expected to grow again in 2021.

The company’s earnings are the only negative in the report and not bad relatively speaking. EPS is down both sequentially and from last year due to the low-interest-rate environment and higher credit-loss provisions. Low interest rates are going to persist for some time but there is a silver lining. The silver lining is that credit loss provisions are still well above the Fed’s requirements and will soon be released for use. One use could be to increase the dividend.

Peoples Bancorp of North Carolina pays a safe 2.7% yield and already has a robust outlook for future increases. Although there was no increase this year there were 9 consecutive increases prior to the pandemic, the payout ratio is very low at 24%, and the 5-year distribution CAGR is 20%.

Bank of Commerce Holdings, A High-Growth Dividend

Bank of Commerce Holdings (NASDAQ:BOCH) is an equally small regional operator located in northern California. The company is reporting an equally strong rebound as well and pays an equally attractive dividend. Over the past quarter, the company saw its revenue increase more than 8% YOY as growth begins to accelerate.

The company’s growth was underpinned by strength in loans (up 13%), earnings assets (up 13%), and average deposits (up 14%) with the only negatives showing up on the bottom line. The low-interest-rate environment is eating into earnings despite declining deferred loan payments and the need for credit loss provision. On the bottom line, the $0.30 in reported adjusted earnings is up sequentially and YOY but only in-line with the consensus. Oh well.

Regarding the dividend, Bank of Commerce Holdings declared the Q1 dividend payment along with the earnings release. The company increased the payment by 20% from the previous payment, the 4th consecutive increase, bringing the yield up to 2.4% and the CAGR into the high-teens while doing nothing to impair its safety. The company is still only paying out about 25% of its earnings and has a healthy balance sheet and growing business to back it up.

Sierra Bancorp Is A High-Yield Option

Sierra Bancorp (NASDAQ:BSRR) is another California based operator and one with an attractive growth story and dividend. The bank reported a 13% increase in revenue for the 4th quarter that drove solid results on the bottom line. As before, bottom-line results were impacted by higher credit-loss provisions and low-interest rates but they were better than expected and expected to resume YOY growth in fiscal 2021 That said. The $0.58 in GAAP earnings is only $0.02 shy of last year and easily made up by credit-loss provisions alone.

In terms of the dividend, Sierra Bancorp is the highest-yielding on this list with a forward yield of 3.55%. The company is paying out only 36% of its earnings so future increases should be expected but not until next year. The latest declaration included a 20% increase that investors can buy up to January 27th.