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Avoid the Big Banks and Try These 5 Regional Banks Instead

There's decent value to be found in small banks

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Commerce Bancshares

Commerce Bancshares (NASDAQ:CBSH), headquartered in Kansas City, Missouri, operates in the Midwest, with branches in Kansas, Illinois and Missouri. At a market capitalization of more than $3 billion, this regional bank is of a size that might attract the attention of a larger player. Shares have held up very well during the recent selloff. Commerce is down only 15% since July 22.

National Bankshares

Smaller publicly traded companies are getting crushed in this market. How, then, do we explain National Bankshares’ (NASDAQ:NKSH) relatively small loss of 7% in value, at $168 million market cap? With only 13,000 shares trading hands on average per day, one would think this stock would collapse given the thin trading.

Perhaps investors are attracted to the 4% dividend. Or maybe they are attracted to the profitability of the bank. In the current year, Wall Street has the company generating a profit of $2.41 per share. There isn’t much growth coming given the expectation of a similar profit — $2.46 per share — in the following year. At current prices, National Bankshares trades for just 10 times current-year estimated earnings and a slight premium of 1.2 times book value.

National Bankshares operates in the mid-Atlantic region of the country. Given its small size, it is possible that a larger fish might bite on this small but profitable bank. When the market calms down, that would be my expectation. Investors can buy today and get paid to wait. I would do just that.

Tompkins Financial Corporation

Tompkins Financial Corporation (NYSE:TMP) is a New York-based bank that operates exclusively in the Empire State. Reflecting the wealth and resources of the New York market, the company has a market capitalization of nearly $500 million, but only 20,000 shares trade hands on a daily basis. Despite that thin margin, the stock is down only 5% since July 22.

That performance is significantly better than the larger banks in this country. Tompkins Financial pays a dividend of nearly 4% and profits are growing nicely. In the last three quarters the company has exceeded profit estimates by a wide margin. For the full year, Wall Street sees Tompkins’ profits at $3.30 per share, and growing 6% in the following year to $3.50 per share.

No sign of collapse here. Investors can buy shares of Tompkins today at a price of just 11.5 times current-year estimated earnings. With the Federal Reserve committed to a low interest rate policy until 2013, investors can hold Tompkins without the likelihood of getting hurt. The nearly 4% dividend means you will get paid while holding shares too. I would buy this stock at these prices.

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