Bank of America Corp (BAC), Citigroup Inc. (C), JPMorgan Chase & Co. (JPM): Forget the Mega Banks … Go Smaller to Win in Financials

Page 1 of 2

Some four years after the incredible financial collapse in the U.S., much talk has been made about how to prevent such catastrophic events from happening again. While many factors played roles in this calamity over the decade leading to the dramatic climax, the underlying theme was quite pronounced: an over concentration of assets in too few institutions pose unimaginable systemic risks.

Citigroup Inc. (NYSE:C)

This concept became known by the coined term “Too Big To Fail”, and stands as code for those banking firms that are almost assured of government stepping in to rescue them should they stumble. This rather exclusive and infamous club includes the likes of JPMorgan Chase & Co. (NYSE:JPM), Bank of America Corp (NYSE:BAC), Wells Fargo & Co (NYSE:WFC), and Citigroup Inc. (NYSE:C).

All of these imposing dons of the money world have dealt with numerous issues since the Great Bailout of ’08, from not being well capitalized and selling off parts of their operations, to being caught in corrupt business practices.

Heat being turned up on Too Big To Fail

Many influential voices have spoken out against the mafia-like untouchable status of the mega-banks. Federal Reserve Governor Daniel Tarullo, Dallas Fed President Richard Fisher, St. Louis Fed President James Bullard, and even Chairman Ben Bernanke himself are on record against any perception that the U.S. taxpayers subsidize their existence and would bail them out once more should they face financial perils.

Clearly there remains a need to address the lingering disease plaguing the country’s banking industry, as both Citigroup Inc. (NYSE:C) and Bank of America Corp (NYSE:BAC) have cannibalized themselves by selling off assets in order to maintain adequate capital ratios, and the well-publicized multi-billion dollar trading loss by J.P. Morgan last spring.

Washington has explored various means to tighten regulations on the “Big Four”, including capping their total size and creating more onerous criteria aimed at discouraging mergers.

Real strength in financials found at the regional level

There is some belief that if the federal oversight could be enforced rigorously enough in combination with strict adherence to new capital requirements, the largest institutions would make the decision to restructure themselves. Until such wisdom prevails on Capitol Hill, investors can look at regional firms in the financial sector to uncover attractive alternatives to the “Money Center Mafia.”

To uncover regional banks that would outshine the largest dons of the finance world, I focused on the following criteria:

Return on Equity (ROE) of 10% +

Operating Margin of 30% +

Beta of 0.80 or less

Dividend Yield of 1.5% +

Minimum three month average volume of 5000 shares traded

From these statistical factors, you find three institutions that standout. Penns Woods Bancorp, Inc. (NASDAQ:PWOD) of Williamsport, PA is the holding company of Jersey Shore State Bank. Penns Woods is the best of the bunch in this analysis with an ROE of 15.90%. The operating margin of 44.74% shows incredible efficiency in their business model. The firm has been noted by Forbes as a “Top Dividend Stock” based on the 4.6% dividend and insider purchases by the bank’s leadership. Penns Woods has almost 25% less volatility than the general market with a beta of 0.76.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

Picture Perfect: The 6 Smartphones with the Best Cameras

The 10 Best Countries To Work In the World

A Profitable Day At The Track: 5 Tips For Betting On Horses

Tearing You Apart: 6 Bad Habits That Ruin Relationships

Learning on the Job: The 6 Biggest Mistakes Parents Make

Shopaholics Rejoice: The 12 Biggest Malls in the World

Fright Night: 10 Horror Movies Based on True Stories

Mach Mania: The 10 Fastest Jets in the World

Military Heavyweights: The 10 Countries with the Most Tanks

All In: The 7 Richest Poker Players in the World

Abracadabra: The 10 Best Magicians in the World

The 10 Richest Asian Countries in the World in 2014

Eyes in the Sky: 10 Things You Need to Know About Drones

Rising Stars: The 6 Best Silicon Valley Startups

Military Muscle: The 5 Most Advanced Armies in South America

All that Glitters: The 7 Most Luxurious Jewelry Brands in the World

5 Things You Didn’t Know About ISIS but Should

Empowering Your Money: The 5 Best Energy Stocks to Invest In

The 11 Best Android Apps You Can’t Get on iOS

The 10 Most Important International Conflicts in 2014

Mood Enhancers: The 20 Most Uplifting Songs of all Time

Lover Beware: The 8 Countries that Cheat the Most

Breath of Fresh Air: The 25 Countries with the Best Air Quality on the Planet

Singles Beware: The 8 Worst Mistakes Made on First Dates

Healthy and Happy: The 10 Countries with Lowest Healthcare Costs

The 6 Best Company Team Building Activities to Build Workplace Camaraderie

Ships Ahoy: The 10 Busiest Shipping Ports in the World

10 Productivity Tips to Save You Time and Help You Do More With Less

Grab a Bite: The Most Popular Fast Food Restaurants in America

Friday Night Thirst: The 10 Most Popular Cocktails in the World

The 6 Greatest Unsolved Mysteries We May Never Figure Out

7 Useless Products You Never Should’ve Bought

The 5 Reasons Why You’re Single and Miserable

The 7 Most Addictive Foods in the World We Can’t Stop Eating (Even Though We Should)

5 Amazing Places You Can Swim with Dolphins

The Top 7 Most Livable Countries In The World

The 10 Most Expensive Baseball Cards Ever Pulled From A Pack

The 5 Easiest Second Languages to Learn for English Speakers

Silver Spoon: The 6 Richest Families in the World

The 20 Countries with the Largest Prison Populations in the World

The Top 10 Richest Actors in the World

The 10 Best Airline Stocks to Invest In Before They Fly Too High

Burger Kings: The 10 Most Expensive Burgers in the World

The 10 Most Ethnically Diverse Countries in the World

The 10 Most Exclusive Credit Cards in the World

The 10 Most Expensive Cruise Ships in the World

The 10 Fastest Supercomputers in the World

The 10 Best Countries for Doing Business 2015

6 Most Expensive Fruits In The World

10 Worst Airlines in the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!