Big bank stocks are still having a tough go of it, even after eight years of help from taxpayers and the Federal Reserve. Their businesses have become so large and complex that unwinding it and refocusing is a massive undertaking.
Again, the Federal Reserve’s gracious “near-zero” lending policy certainly helped, but there are still plenty of clouds in its forecast.
But there is one sector that has gotten to its feet and is doing well — local and regional banks. They stuck to their knitting and weren’t as leveraged as the big banks with their derivatives trading and bad loans.
They knew the place they worked and knew about how business was doing, how homes were selling. Their balance sheets weren’t the work of mad scientists, they were the work of old-school bankers who never had a problem making pennies on the dollar to build a better community and region.
These seven A-rated financials are prime examples of how staying true to your principles is profitable in the long term.
A-Rated Bank Stocks: First Republic Bank (FRC)
Year-to-Date Gain: 7%
First Republic (FRC) is a niche player, but even in this unique space it has carved its own place. Operating out of the tech and business hubs on the West Coast (Portland, Palo Alto, LA, Newport Beach, San Diego), it specializes in wealth management services and commercial relationships.
Basically, the bank has built a wealth management model that helps all those tech workers that have cashed in to manage their money as well as help them launch new ventures.
And business is doing very well. In the first quarter, the numbers looked more like a tech firm than a financial institution. Revenues were up 22% compared to the same quarter a year ago. Net income was up 28% and earnings were up 23%.
However, the stock is only up 7% year to date. A new issuance on 2.5 million shares of stock June 1 have kept this great stock a bargain.
A-Rated Bank Stocks: Great Western Bancorp Inc (GWB)
YTD Gain: 15%
Great Western Bancorp (GWB) is a solid Midwestern bank with 176 branches, operating in South Dakota, Iowa, Nebraska, Colorado, Arizona, Kansas, Missouri, North Dakota and Minnesota.
This is the heartland and there’s nothing fancy about GWB operations. It has seen booms, like shale energy, and legalized marijuana and it has seen struggles as low commodity prices have hurt the region’s farmers.
But through it all, GWB has remained strong and growing. It recently finish acquiring a smaller bank that serves North Dakota and Minnesota. During the turmoil in the U.S. energy sector right now, it’s eat or be eaten, and GWB is firmly in the latter category.
And its balance sheet bears this out. In the first quarter, the bank continued to grow earnings, revenue and deposits, even with the headwinds of the energy sector blowing strong. The stock is up 15% year to date, but has plenty of legs left.
A-Rated Bank Stocks: TowneBank (TOWN)
YTD Gain: 5%
TowneBank (TOWN) is classic regional bank in the Tidewater Virginia and Northeastern North Carolina market.
That may not sound very compelling, but you have to remember that this area of Virginia has one of the highest population densities in the state and is home to Norfolk Naval Shipyard, one of the largest shipyards in the world. A large military population also means consistent, reliable paychecks.
And the region it serves in North Carolina is one of the top vacation spots in the Mid-Atlantic. The Hatteras, Outer Banks area continues to be developed and redeveloped.
The stock started a run in February which continues today. But it’s still a great buy and kicks off a solid 2%-plus to boot.
A-Rated Bank Stocks: Stock Yards Bancorp Inc (SYBT)
YTD Gain: 13%
Stock Yards Bancorp (SYBT) is a regional bank that serves the major markets in Louisville, Kentucky, Indianapolis, Indiana and Cincinnati.
This area may seem docile to outsiders, but Indianapolis is one of the great car towns (even electric cars) left in the U.S. That means a lot of engineers and solid employers. Cincinnati is home to the U.S. Global Operations Center of General Electric Company (GE), as well as GE Aviation. I don’t think I have to explain what that means for a town or region.
The point is, SYBT has some very solid markets in a strong economic region. As the overall economy improves, this region will be a key beneficiary. SYBC also just boosted its cash dividend by 8% and it now stands at a respectable 2.5%.
The stock is up 13% year-to-date and has strong momentum moving forward.
A-Rated Bank Stocks: Mercantile Bank Corp. (MBWM)
YTD Gain: 1.5%
Mercantile Bank (MBWM) is a state bank in Michigan. Its chief line of business is working with small- and medium-sized businesses to secure loans and finance construction projects. It also has a loan division that supports secured and unsecured consumer loans as well.
The fact is, Michigan has had a tough time since the Financial Crisis. But banks like MBWM didn’t take the bait dangled by Wall Street. It didn’t sell and it didn’t leverage its books to make some more money. It stuck to its guns and got through the whole thing intact.
And now, as the economy begins to revive, MBWM will be there to reap the rewards as a trusted financial institution that local businesses can trust.
The stock has been bouncing around in 2016, but it’s back to its original highs and the pattern is bullish. Its nearly 2.6% dividend also makes this stock attractive.
A-Rated Bank Stocks: QCR Holdings, Inc. (QCRH)
YTD Gain: 12%
QCR Holdings (QCRH) operates in the Quad Cities, Cedar Rapids, Waterloo/Cedar Falls and Rockford markets in Iowa and Illinois. These are the Upper Mississippi River towns that were gateways to the West, maintaining vibrant economies for manufacturing and commerce for decades.
QCRH specializes in working with the communities to secure USDA and Small Business Administration loans. This area has a lot of agricultural products that need to get to market and some of the best land in the world to grow it.
Arable land in large quantities is not getting any cheaper. Plus, by having the federal government underwrite the loans, it means less risk to the bank.
The stock is up 13% year-to-date, and it has just started its ascent. This is a good time to get in and enjoy the ride.
A-Rated Bank Stocks: WashingtonFirst Bankshares Inc (WFBI)
YTD Gain: -4%
WashingtonFirst Bancshares (WFBI) is a small bank that has 20 offices in the Washington, DC, suburban Maryland and Northern Virginia areas.
This region has one of the most stable employment rates in the country. It also has some of the wealthiest counties in the U.S. That means housing is also expensive, which makes real estate in the densely populated region a compelling market. It also makes for a very strong banking market.
WFBI works with individuals and commercial clients and has a wealth management division as well. Again, this area has a lot of entrepreneurs in the tech and defense sectors as well as a massive corporate presence, so there are scores of high net worth individuals to work with.
The stock is off slightly year-to-date, but as the recovery gains traction, WFBI will be leveraged to the revival. It’s also a very attractive takeover target for larger banks once the economic environment settles.
Editor’s Note: We have corrected this story to reflect that Cincinnati is not the home of General Electric’s headquarters. We apologize for the error.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.