The global banking market was valued at $35.4 billion in 2024, according to Market Research Future. It’s expected to grow from $37.17 billion in 2025 to $55.25 billion by 2034 at a CAGR of 4.55%. McKinsey and Company’s Global Banking Annual Review for 2024 stated that the global banking industry has consistently displayed low price-to-book multiples, ranking at the bottom of all sectors. This raises a lot of questions regarding the industry’s long-term value creation.
However, in the past 2 years, the sector has seen healthy profitability, capital, and liquidity since the global financial crisis of 2007-2009. Because these gains are attributed to the surging interest rates, there are several questions about their sustainability. However, without these gains, the Return on Tangible Equity (ROTE) for many regions would fall below the cost of capital. The banking market should focus on structural changes and operational efficiency to counteract these concerns. Analyzing high-performing banks shows that they often result from specific segment selection and strategic scaling within the value chain and geographically.
Barclays senior equity analyst Jason Goldberg joined CNBC’s ‘Squawk Box’ on March 20 to discuss the state of the banking sector. Goldberg talked about the recent volatility in bank stocks, which initially increased after the presidential election but was followed by a drop. He thinks that bank valuations are currently lower than their historical averages, considering that the price-to-book ratios are about half a point lower than usual. Goldberg explained that the reason for the initial surge in this sector remains intact when asked about whether the fundamental environment for banks shifted since their peak during the recent rally. This is because of market enthusiasm for a pro-growth agenda and expectations of reduced regulation. He acknowledged the presence of near-term uncertainties about taxes, immigration, and tariffs. But he’s positive that these issues will be resolved shortly and followed by increased corporate borrowing, investment, M&A, and IPO activity.
Overall, Goldberg is of the idea that the potential for loan growth, increased merger activity, and reduced regulations will all contribute to an optimistic banking sector. That being said, we’re here with a list of the 10 best small small-cap bank stocks to invest in now.
A view of a busy banking hall, customers engaging with banking staff to conduct their financial transactions.
Our Methodology
We sifted through the Finviz stock screener to compile a list of all the bank stocks that were trading between $300 million and $2 billion. We then selected the 10 stocks that were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q4 2024. The hedge fund data was sourced from Insider Monkey’s database which tracks the moves of over 900 elite money managers.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
10 Best Small Cap Bank Stocks To Invest In Now
10. HarborOne Bancorp Inc. (NASDAQ:HONE)
Market Capitalization as of March 28: $459.55 million
Number of Hedge Fund Holders: 23
HarborOne Bancorp Inc. (NASDAQ:HONE) is a financial services company that caters to individuals, families, small and mid-size businesses, and municipalities. It operates in two segments: HarborOne Bank and HarborOne Mortgage. It offers deposit and lending products, along with educational services like free digital content, webinars, and recordings for small business and personal financial education.
The company’s subsidiary for mortgage lending is the HarborOne Mortgage segment which contributes significantly to the company’s overall revenue. The segment generated $1.1 million in Q4 2024 net income, which was a big difference from the $1.1 million loss in Q3 previously. This major improvement came from the $4 million gains on loan sales due to mortgage closings that totaled $179.1 million.
This growth came despite rising mortgage rates and seasonal slowdowns, because of which the rate-locked pipeline experienced a $30.7 million decrease. This segment is particularly sensitive to interest rate changes. Notably, the value of mortgage servicing rights (MSR) also increased by $1.9 million in Q4. MSR is the process of determining the present value of future cash flows that could come from servicing mortgage loans.
9. Flushing Financial Corp. (NASDAQ:FFIC)
Market Capitalization as of March 28: $428.46 million
Number of Hedge Fund Holders: 23
Flushing Financial Corp. (NASDAQ:FFIC) is a bank holding company for Flushing Bank. It provides banking products and services to consumers, businesses, and governmental units. It offers deposit products and provides mortgage loans, construction loans, small business administration loans & other small business loans, and consumer loans among other marketable securities.
The company’s Asian market segment is thriving. The focus on these communities is showcased through substantial financial activity, with around $1.3 billion in deposits and $749 million in loans currently held. This makes up 18% of the company’s total deposits, but it’s only 3% of the total addressable market.
To benefit from this untapped market potential, one-third of the company’s branches are focused on Asian communities and their planned expansion in 2025. To enhance these efforts, Flushing Financial Corp. (NASDAQ:FFIC) has employed multilingual staff, formed an Asian Advisory Board, and even participates in cultural activities every now and then. The end goal is to foster strong community ties.