Porter Bancorp, Inc. (NASDAQ:PBIB)

Porter Bancorp was recently listed and raised about $27 million that would be used to expand into new areas, acquisitions and providing additional capital to support the asset growth. The bank holding company is headquartered in Louisville, Kentucky and serves through its subsidiary PBI Bank with its 13 branches.

The growth strategy of the bank has been to increase its presence in the fastest growing markets in central Kentucky by opening new offices. Though concentrating in a single region looks like a disadvantage the Kentucky region has not been prone to any boom or bust cycles in the recent decade. Its economy has grown steadily with low unemployment levels. Endorsing the same, Kentucky’s labor market grew by 1.6% annually last year supported by the growth in construction, health, hospitality and leisure industry. Huge potential is seen in the Hardin County, which has more than 100,000 residents and includes the Fort Knox military base along with the cities of Elizabethtown and Radcliff in the Kentucky region.

Geographical limitations of traditional banking would be solved with Ascencia online banking that helps to garner low cost deposit customer base. The efficiency metrics of the banks have been good and improving constantly and is well capitalized. Asset quality of the bank looks excellent and the modest compression of net interest margin does not matter much as it is a generic problem faced by all banks due to flat yield curve.

The fee income has shown growth due to brokering long-term home loans to secondary market and title insurance commissions accounting for less than 10% of the total revenue. Moreover future performance of the bank greatly depends on the interest spread. Annual growth of the loan portfolio was 7.9% with a deposit growth of 6.9% during 2006. However, about 70% of its loan portfolio is in the commercial real estate and construction resulting in higher yields is a real area of concern as it requires rigorous underwriting procedures and credit quality monitoring. Though the bank lacks the size, but it has all the charm needed to out perform as a regional player and is a good pick for 2007.