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3 Bank Stocks to Buy Without the Baggage

Regional and local banks offer great opportunity

Americans have come to hate banks, especially the ones too big to fail. If you can’t bring yourself to invest in that group, there are plenty of small regional banks that offer similar growth and pay hefty dividends.

It’s hard to question Americans’ distaste for those big institutions after the mortgage-backed securities debacle in 2008 when so many homeowners suffered and many offending banks walked or were bailed out by the government.

That fallout still goes on. In recent weeks, the Federal Housing Finance Agency (FHFA) announced a $5.1 billion settlement between JPMorgan Chase (JPM), Fannie Mae and Freddie Mac. Also involved in the private lawsuit were Bear Stearns and Washington Mutual, two of JPMorgan Chase’s acquisitions. Citigroup (C) and Deutsche Bank (DB) were also accused and settled right away, costing them $158 million $202 million, respectively.

Despite the bad karma of recent years, many large commercial banks are doing quite well in 2013: JP Morgan Chase, Citigroup and Wells Fargo shares are up 17.9%, 21.5% and 22.2% respectively year to date.

But savvy investors who just can’t stomach the big institutions will find plenty of investing opportunities in regional and small banks — let’s call them ”the small and the scrupulous.”  With all the right attributes and none of the baggage of the big boys,  are three top candidates to consider:

Key Bank

One of the best regional banks to consider is KeyCorp (KEY) which is up 45% year-to-date and delivers a 1.7% dividend yield. Trading at $12.44, new investors can buys shares of the bank at book value and for only 14 times trailing earnings. Over the past six months, there have been four separate instances of insiders buying, and those trades are now paying off handsomely.

KeyCorp has greatly improved in loan growth and loan quality, and are likely to funnel their increasing profits through to shareholders in the form of dividend increases and share buybacks for many years to come.

FirstBank

Another small bank with big potential is Firstbank (FBMI) up 88% year-to-date and a decent 1.20% yield. Net income for the third quarter 2013 rose 5.7% from $2.89 million from $2.7 million a year ago. Diluted earnings per share were $0.35 in the third quarter of 2013 compared to $0.31 in the third quarter of 2012.

This $155 million market-cap stock operates 53 branch offices in central Michigan. Firstbank provides commercial banking products and services, including traditional deposit accounts and loans tailored to meet the needs of its business customers. FBMI also offers trust, security brokerage and title insurance services.

Another small bank with big potential is Firstbank Corp., up 88% year-to-date and a decent 1.20% yield. Net income for the third quarter 2013 rose 5.7% from $2.89 million from $2.7 million a year ago. Diluted earnings per share were $0.35 in the third quarter of 2013 compared to $0.31 in the third quarter of 2012.

Park National

Shares of Park National (PRK) of Newark, Ohio, have returned close to 25% year-to-date and the stock delivers a whopping 4.70% dividend yield. The company had $6.6 billion in total assets as of Sept. 30 and reported third-quarter net income of $20 million, or $1.30 a share, compared to $20.7 million, or $1.34 a share, the previous quarter, and $18.9 million, or $1.10 a share, a year earlier.

KBW analyst John Barber gave the stock a $73 price target, estimating the company will earn $5.14 a share this year.


Article printed from InvestorPlace Media, http://investorplace.com/2013/11/3-bank-stocks-buy-c-jpm/.

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