FR: These Davids Beat the Banking Goliaths

Article: These Davids Beat the Banking Goliaths

Remember how I’ve spent some of this “Fool Revisited” breaking down some regional banks? (Southwest, Midwest, Northeast, Mid-Atlantic, Southeast and Pacific in case you missed them). My next article was me further laying the foundation of regional banks being better than the “too big to fail” banks that everyone knows and loves – in this context Bank of America, JPMorgan Chase, Citigroup, and Wells Fargo.

In one attempt to find a niche as a financial writer, I decided that there might be hay to be made among these “lower-tier” banks. Everybody and their mother covered the day-to-day happenings at the big banks (I even did it for a while towards the end of my Foolish tenure), but the regionals seemed to be a relatively untapped market aside from a few of the larger ones or merger/failure news. This article was the first brick that I laid my foundation as a “regional bank expert,” and was a theme that I would come back to in the future when looking for opportunities in the financial sector.

For this article, I simply compared a lot of the metrics used to examine banks as investments and compared the big guys – the “Goliaths” – to the little guys –the “Davids”. Lo and behold, the little guys consistently won, and “little” Bank of Hawaii (NYSE: BOH) was anointed as the overall winner in this comparison. But it hasn’t been the best of the “David” bunch since article publication on November 11, 2011, and every regional profiled has exceeded the returns of the S&P 500 (through March 2, 2018):

Stock Start Price End Price CAGR Total Growth Value of $10,000
International Bancshares (Nasdaq: IBOC) $15.96 $39.65 15.51% 148.43% $24,843
Renasant Corporation (Nasdaq: RNST) $12.58 $42.62 21.34% 238.79% $33,879
Bank of Hawaii $35.05 $83.43 14.73% 138.03% $23,803
M&T Bank (NYSE: MTB) $61.68 $190.98 19.62% 209.63% $30,963
Huntington Bancshares (Nasdaq: HBAN) $4.50 $15.80 22.02% 251.11% $35,111
WesBanco, Inc (Nasdaq: WSBC) $16.52 $41.90 15.89% 153.63% $25,363
S&P 500 $1,263.85 $2,691.25 12.73% 112.94% $21,294

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

Would a similar analysis comparing the banks hold up? That might be something to look at in a future post once I get beyond looking back at this first batch of old Fool articles. But I still think that smaller banks are the way to go if you can identify the good ones. The bigger a bank gets, the more complex they become, so until the JPMorgans of the world spin off and ditch their investment banking functions, look to the bank in your backyard that might have more room to grow. (Unless that bank is Zions Bank. Those guys can go to hell!)

Until next time…

Disclaimer: I do not own currently own shares in any of the mentioned companies, and I have no plans to purchase shares of any company 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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