In the world of financial stocks, the “too big to fail” banks tend to garner the most attention. But for every Bank of America Corp (NYSE:BAC) and other bank of its size, there are dozens of smaller banks that should warrant attention as well.
With this in mind, I have narrowed my focus to banks that have a market cap between $2 billion and $10 billion. To trim the list further, I eliminated the handful of banks that experienced a loss over the past 12 months. Because finding the best value is important, I limited my final list to banks with a current price-to-book ratio at or below 1.1, which narrowed the search down to 14 banks. These are the five that I think warrant a deeper look, and I’ll provide my favorite at the end.
Regional banking leaders
Huntington Bancshares Incorporated (NASDAQ:HBAN) is a well-known regional bank based in Ohio and is a favorite of many investors for multiple reasons. When compared with the other stocks in the S&P 500, it currently has a below-average P/E of around 10 and an above-average dividend yield of 2.3%. Furthermore, its P/B ratio continues to approach 1.0 as it continues to trade near its 52-week high. Its affordable price today could ultimately reward investors down the road, especially considering that it’s led by industry expert CEO Stephen Steinour, who knows a thing or two about growing regional banks.
Another regional bank among my finalists, Synovus Financial Corp. (NYSE:SNV) looks even cheaper when we look at the traditional P/E and P/B ratios, checking in at 3.1 and 0.59, respectively, but that’s only part of the story. One of the reasons the bank is so cheap is because it is burdened by nearly $1 billion in TARP loans that it has been unable to pay back. Combined with a miserable 2011, which saw the stock lose nearly 50%, we can easily see why it’s so cheap.
However, 2012 was a much better year for the bank, including the first annual profit for the bank since 2007. Granted, a lot of the bank’s great performance was due to a large income tax benefit during the fourth quarter, but this recapture should help Synovus finally pay back its TARP obligation during the year, pointing to a strong 2013 and beyond for the Georgia bank.
High dividends boost these banks
People’s United Financial, Inc. (NASDAQ:PBCT) is often overlooked among other banks of its size, and it is not without reason. Some investors are concerned by a tier 1 capital ratio that is a little too high. It is also behind the efficiency curve a bit, requiring a bit more effort to produce every dollar of revenue. Nevertheless, the bank is still attractive, primarily because of a dividend yield near 5% and because it trades at a 15% discount to book value.