FR: 7 Smaller Banks Worth Considering

Note: I was trying to do all these “Fool Revisited” posts sequentially based on when they were initially published but I somehow managed to miss this one. So while it was the ninth article I ever had published at The Motley Fool, it has become the 23rd article published in this series. This will probably happen again, but I didn’t want anyone to be confused by the weird start date after having so many other recent articles with an October 2011 publication.

Article: 7 Smaller Banks Worth Considering

My next “Fool Revisited” piece was the first of many articles that I would write about small or regional banks. Little did I know at the time that I would eventually make my “living” writing about small regional banks, but I thought I had found a niche and tried to exploit it. Whether or not it worked remains to be seen, but I was able to use my “expertise” about these banks to do pretty well for myself as a writer, generating a ton of articles when these little banks came up on earnings or were acquired in along the way.

This article was very similar to a lot of my previous articles regarding identifying a screening criteria in a sector or among a group of stocks. It was also something that I went back to numerous times in subsequent articles, especially when I first took a look at regional banks by region. (The first of which articles should be the next in this series). In this initial article, I screened the banks using P/E ratio (under 15), P/B ratio (under 1), and dividend yield (greater than 3%). This returned 7 “smaller” banks, and New York Community Bancorp (NYSE: NYCB) was anointed the “winner.”

I know that you want to see it, so here is the old tweet of the article from back in the day:

Though New York Community Bancorp may have won the article, it was not the biggest winner since article publication. Using the compound annual growth rate (CAGR) and total growth, an investor would have been better off with an investment in WesBanco (Nasdaq: WSBC), Astoria Financial (has since merged with Sterling Bancorp), Huntington Bancshares (Nasdaq: HBAN), FirstMerit (acquired by Huntington in August 2016), or even the S&P 500. Since article publication on September 16, 2011 through January 26, 2018 (or acquisition):

Stock Start Price End Price CAGR Total Growth Value of $10,000
Astoria Financial $9.14 $21.50 15.21% 135.23% $23,523
FirstMerit Corporation $12.15 $21.61 12.41% 77.86% $17,786
First Niagara (acq July 2016) $10.46 $10.18 -0.56% -2.68% $9,732
FNB Corp (NYSE: FNB) $9.07 $14.40 7.53% 58.77% $15,877
Huntington Bancshares $7.13 $16.21 13.77% 127.35% $22,735
New York Community Bancorp $8.77 $14.00 7.62% 59.64% $15,964
WesBanco, Inc. $15.34 $41.44 16.89% 170.14% $27,014
S&P 500 $1,216.01 $2,872.87 14.46% 136.25% $23,625

Source: Yahoo! Finance & author calculation; Stock prices include dividends & stock splits

I still feel that there is a lot of money to be made investing in banks… if a person can stomach the risk AND find banks that are worthy investments. The P/B ratio is a great metric to use when examining banks, and I was taught to identify banks with a P/B below one – which all these banks met at the time – and try to sell if the P/B approaches 2. A bank that is priced at less than its book value has some room to grow into that valuation. None of these banks currently fit this criteria, so I can’t say that I would recommend any of them based on that alone, but I’ll probably talk more about banks over the course of this series where we might see a few more potential investments in the banking sector.

Until next time…

Disclaimer: I do not personally own shares of the companies mentioned here, and I have no plans to purchase shares of any company mentioned within the next 60 days in any account in which I manage investment funds. You can read a little about my personal investment philosophy here.



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