CatfishMcCoy (49.51)

Ten Good Small Regional Banks

January 18, 2009 – Comments (3) | RELATED TICKERS: PCBK , SBSI , BMRC

Copied, with permission, from a friend's new blog (http://stockmanjones.blogspot.com).  This is the same guy who tipped me off to ESBF and TowneBank.  I don't agree with him on some (particularly 1 and 8), but I think the article is well-researched and interesting:

Ten Good Small Regional Banks

 Yes, it's a bad time to be a bank, with the FDIC watchlist as large as it's ever been and the credit crunch has financial institutions across the globe tightening their belts.

There are two reasons NOT to write off small regional banks. First, not all banks had exposure to the mortgage implosion. Many, especially smaller banks, have managed themselves conservatively and therefore stand to gain market share from the crisis. Second, the largest banks in the country (notably Bank of America) have tangible limitations on their expansion as the FDIC has set boundaries as to how large deposit bases can be. With the collapse of Lehman Brothers and the October stock decline, it's easy to imagine big banks will have more regulations placed upon them.

The following banks have all managed themselves well and look to be a good position to capitalize long-term by gaining market share. They remembered that banking, when done properly, is one of the safest, easiest ways to make money.

All of the following share many of the following attributes: 1) underfollowed, virtually unheard-of; 2) P/E < 15.0; 3) solid margins and cash flow; 4) respectable ratios and debt levels relative to the industry; 5) leadership committed to conservative management and minimal exposure to the mortgage crisis.

Inclusion in or rejection of TARP will not generally figure into ratings.

1. First West Virginia Bancorp (AMEX: FWV)

Actual Bank Name: Progressive Bank (9 branches)
Region: Wheeling, WV
Current Price: 12.74
52-week Change: -9%
P/E Ratio: 9
Profit Margin: 21-22%
Dividend: 4x/yr, 0.18 (currently 6% yearly yield)

FWV is not really growing. It will not be an outstanding high-growth stock. It is, however, a solid, stable bank going for bargain rates. FWV consistently turns a profit and has done an admirable job managing the balance sheet this year. Wheeling has made numerous "best places to live" lists in recent years, and with its job growth over the next decade expected to increase dramatically, there's no reason to write the area off. This is a safe company in a good spot.

2. First Bancorp (NASDAQ: FBNC)

Actual Bank Name: First Bank (70 branches)
Region: Troy, NC (south of Greensboro, east of Charlotte)
Current Price: 16.77
52-week Change: -3.6%
P/E Ratio: 11
Profit Margin: 21-22%
Dividend: 4x/yr, 0.19 (currently 4.5% yearly yield)

FBNC has had a positive change in cash for the last five years. They have seen their assets grow in the 15-20% range over the same span while expenditures remained fairly constant. They have maintained efficiency while expanding. Their acquisition of Sentry Bank and Trust shows a willingness and desire to expand even further.

3. Greene County Bancorp (NASDAQ: GCBC)

Actual Bank Name: Bank of Greene County
Region: Catskil, NY
Current Price: 10.53
52-week Change: -12%
P/E Ratio: 14.7
Profit Margin: 16%
Dividend: 4x/yr, 0.17 (currently 6.5% yearly yield)

Greene County, NY, has seen a rapid amount of growth the last two years. As metropolitan New York living becomes more and more expensive, more people flock to the rural areas of New York. The traditional resort area one of the fastest-growing places in the northeast, being in an ideal location from NYC and Albany. The Bank of Greene County has seen an asset increase of 23% over the last year and it has plenty of more room to grow. With a nice dividend, GCBC looks like a winner.

4. Pacific Continental Corporation (NASDAQ: PCBK)

Actual Bank Name: Pacific Continental Bank
Region: Eugene, OR
Current Price: 14.12
52-week Change: +16%
P/E Ratio: 13.5
Profit Margin: 23-24%
Dividend: 4x/yr, 0.10 (currently 3% yearly yield)

PCBK's assets have doubled since January 1, 2005. When you have that fully digested, consider that they have stayed relatively clear of tained property and troubled assets. Their cash flow isn't as good as many of their peers, but in terms of growth and having a singular focus, PCBK is hard to beat.

5. ESB Financial Corporation (NASDAQ: ESBF)

Actual Bank Name: ESB Bank (23 branches)
Region: Ellwood City, PA (just north of Pittsburgh)
Current Price: 10.55
52-week Change: +7.5%
P/E Ratio: 13
Profit Margin: 27-28%
Dividend: 4x/yr, 0.10 (currently 4% yearly yield)

In their most recent earnings report, ESBF reported a 50% increase in income and an almost 50% reduction in expenses. It doesn't take a business genius to see good management at work here. The company has far less exposure than many institutions throughout the mrotgage and financial crisis, and they should improve in market share as a result.

6. Suffolk Bancorp (NASDAQ: SUBK)

Actual Bank Name: Suffolk County National Bank
Region: Riverhead, NY
Current Price: 34.24
52-week Change: 19.5%
P/E Ratio: 13
Profit Margin: 29-30%
Dividend: 4x/yr, 0.22 (currently 2.5% yearly yield)

For the uninformed, Suffolk County is basically Long Island, NY. Suffolk has been one of the few parts of the state that have outperformed the national average. SUBK is a mainstay and a stable, growing bank. Assets have increased by 200 million over the last four years while debt levels have remained constant. With outstanding margins and solid increased in their cash levels, SUBK looks good for the long-term investor.

7. Southern Missouri Bancorp (NASDAQ: SMBC)

Actual Bank Name: Southern Missouri Bank and Trust Co.
Region: Poplar Bluff, MO
Current Price: 11.65
52-week Change: -18%
P/E Ratio: 7
Profit Margin: 24-25%
Dividend: 4x/yr, 0.12 (currently 4% yearly yield)

Southern Missouri Bancorp just raised their dividend even though their share price had remained stable in the 14-16 range for three years. That tells me they value their shareholders. While incredibly small (market cap is only 20M or so), SMBC handles money well and is located in an underrated part of the country in terms of potential growth (low cost of living, near multiple metro areas with higher-than-average unemployment). Normally I would not recommend this stock, but with the collapse of other banks and the solid numbers this one is posting - not to mention the 20% discount - it's earned my recommendation.

8. Bank of Marin Bancorp (NASDAQ: BMRC)

Actual Bank Name: Bank of Marin (11 branches)
Region: Marin, CA
Current Price: 23.75
52-week Change: -15%
P/E Ratio: 9.5
Profit Margin: 19-21%
Dividend: 4x/yr, 0.14 (currently 2.3% yearly yield)

Yet another company that is currently selling at a discount. Since 2007, BMRC's stock has dropped from the low 30s to the low 20s. Meanwhile, its asset base has shown a 33% increase over the last four years. While many California banks dove into the murky waters of real estate, Marin played it relatively conservately (their CEO has claimed to completely avoid exposure to subprime loans), and even in tough times has shown a strong balance sheet and long-term growth potential.

9. Southside Bancshares (NASDAQ: SBSI)

Actual Bank Name: Southside Bank
Region: Tyler, TX
Current Price: 22.21
52-week Change: 22.5%
P/E Ratio: 12.5
Profit Margin: 21-22%
Dividend: 4x/yr, inconsistent (currently 2% yearly yield)

In today's volatile environment, it's hard to find a better company than SBSI in giving consistent, stable growth in value. Their 5-year stock increase is around 50%; the 3-year is around 27%. Assets have increased by 600 million over the last year. Great company, and while they're slashing the dividend to avoid losing more cash, they recently elected not to participate in the TARP program and this company remains a solid buy among smaller banks.

10. The First Bancorp (NASDAQ: FNLC)

Actual Bank Name: First National Bank of Damariscotta
Region: Damariscotta, ME
Current Price: 19.09
52-week Change: 33%
P/E Ratio: 13
Profit Margin: 30-31%
Dividend: 4x/yr, 0.19 (currently 4% yearly yield)

Yes, this was partially selected because of the town name, but the numbers make the case for themselves. Very solid bank from the northeastern Atlantic coast.