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These Davids Beat the Banking Goliaths

Financial stocks have been taking a beating recently, so I spent some time looking for values in some regional banks across the country. Let's use those results to compare my winners with the largest banks in the country.

"Too big to fail"
The five largest banks based on total assets are very familiar names: Bank of America, JPMorgan Chase, Citigroup, Wells Fargo, and Goldman Sachs. For comparison purposes, I will be eliminating Goldman Sachs because it is not a traditional bank like the others. Like my examination of the regional banks, I will be looking at P/E (price to earnings), P/B (price to book), dividend yield, and profit margin.


P/E Ratio (TTM)

P/B Ratio

Dividend Yield

Net Income Margin

Bank of America N/A 0.29 0.6% (2.0%)
JPMorgan Chase 7.3 0.71 2.9% 19.7%
Citigroup 8.3 0.50 0.1% 14.4%
Wells Fargo 9.1 0.97 1.9% 19.0%
Average 6.2 0.62 1.4% 12.8%


Smaller but better?
Compare these with my six best regional banks and some interesting trends emerge:


P/E Ratio (TTM)

P/B Ratio

Dividend Yield

Net Income Margin

International Bancshares (Nasdaq: IBOC  ) 10.4 0.77 2.1% 24.5%
Renasant (Nasdaq: RNST  ) 15.3 0.77 4.5% 12.6%
Bank of Hawaii (NYSE: BOH  ) 12.7 1.97 4.2% 27.1%
M&T Bank (NYSE: MTB  ) 10.4 0.96 3.9% 24.0%
Huntington Bancshares (Nasdaq: HBAN  ) 10.7 0.85 3.0% 12.4%
WesBanco (Nasdaq: WSBC  ) 12.2 0.84 3.2% 19.0%
Average 12.0 1.20 3.5% 19.9%


While the big banks appear cheaper based on P/E and P/B, the regional banks are yielding more and have higher net income margins. Let's look beyond these four metrics to decide if the regional banks are better.

Some further valuations
Two other metrics we can compare are the companies' return on assets and return on equity. ROA and ROE indicate how profitable a company is in regard to its assets and equity, respectively. Generally, we'd like to see a bank's ROA higher than 1% and ROE approaching 15%. Of my six regional banks, five have an ROA at 1%, but only two have an ROE over 10%, with only Bank of Hawaii over 15%. The larger banks, as a whole, show a ROA of 0.5% and ROE of just over 5%.

Combine the numbers with continuing issues with European sovereign debt and a newly regulated Wall Street, and the large banks may struggle to return to pre-2008 levels of profitability. The larger banks will also feel continued pressure from "foreclosuregate" and the toxic mortgage assets that go along with that. Meanwhile, a bank like Bank of Hawaii is not going to be using depositors' money to speculate on sagging European bonds like the big banks and now bankrupt MF Global. The safest option for bank investments can be found in many of the smaller regional banks on this list, if not more.

Some names to follow
The regional banks mentioned here have outperformed many larger banks over the past few years, but only time will tell if this trend continues. If you haven't already added the regionals to My Watchlist, now would be a great time to do so.

Foolish contributor Robert Eberhard likes regional banks slightly more than larger ones but owns no shares in any company mentioned here. Follow him on Twitter, where he goes by @GuruEbby. The Motley Fool owns shares of International Bancshares, Huntington Bancshares, JPMorgan Chase, Bank of Hawaii, Citigroup, Bank of America, and Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Related Tickers

10/21/2016 4:02 PM
BOH $74.02 Down -0.16 -0.22%
Bank of Hawaii CAPS Rating: *****
HBAN $10.06 Down -0.08 -0.79%
Huntington Bancsha… CAPS Rating: *****
IBOC $30.49 Up +0.10 +0.33%
International Banc… CAPS Rating: ***
MTB $118.91 Up +0.06 +0.05%
M and T Bank CAPS Rating: *****
RNST $33.79 Up +0.14 +0.42%
Renasant CAPS Rating: No stars
WSBC $33.23 Down -0.08 -0.24%
WesBanco CAPS Rating: No stars