Big Banks May Not Be Your Best Bet

Banks have long been a favorite of serious investors, because of their dividend power and, perhaps, their day-to-day proximity to the ever-popular green stuff. The big guys, however, have become less welcoming to both customers and investors since the financial crisis. For example, both Bank of America (NYSE: BAC  ) and Citigroup (NYSE: C  ) have been slapped silly by the lawsuits for their participation in foreclosure scandals, and despite their recent run-ups they've still fallen 33% and 25%, respectively, over the past year.

It's no wonder that people looking for a place to put their money have drifted toward smaller, less troubled regional banks. Small businesses are also making the switch, finding the credit atmosphere to be much friendlier than at the giant institutions.

If you're getting a little nervous about investing with the megabanks, I've compiled a few smaller, regional banks in the beautiful Northeast. Let's look at some of the features these little guys have to offer.

Boston Private Financial
As far as I know, no one ever went broke giving rich people what they want. That's one of the reasons Boston Private Financial (Nasdaq: BPFH  ) looks like a good bet to me -- and investors as well, it seems. This bank, which specializes in providing the well-heeled set with financial services, has seen its stock rise by more than 38% over the past year. Last year marked a real comeback for the bank, which reported net income of $39 million against the previous year's loss of nearly $11 million.

The company recently completed a restructuring, which seems to be going well. It also realized a 12% increase in fees and other income for 2011, which helped increase income during these days of low interest rates.

Signature Bank
Signature Bank
(Nasdaq: SBNY  ) of New York recently reported fourth-quarter earnings that beat street estimates, and it has the distinction of being one of the first banks of any size to repay the bailout money it received from the federal Troubled Asset Relief Fund. The bank's year-end report noted that it had achieved a personal best of sorts: nearly $150 million in yearly and $40 million in quarterly earnings, representing 47% and 32% increases from the same time periods in 2010.

The bank doesn't pay dividends, but in the touchy-feely department, Signature made Crain's "Best Places to Work in New York City" list last year, the only banking institution to make the cut.

Webster Financial
As the holding company for Webster Bank, NA, Webster Financial (NYSE: WBS  ) provides a number of financial services to Southeastern New England and parts of New York state. This bank has slowly but surely been strengthening its position, as evidenced by its improving credit quality and decreasing troubled-loan reserve, which stood at $2.5 million at the end of 2011, down from $15 million at the close of 2010. It has also increased real estate lending 13% year over year, and the past three months have shown a stock-value increase of 21%, or more than 13% from this time one year ago.

The bank declared a $0.05 dividend in late January, payable on Feb. 21.

This Fool's take
Seldom do I think smaller is better, but in this case, it's a no-brainer -- and not just because I happen to live in the Northeast. While the big banks have been hogging the media spotlight, these small guys have been quietly tightening operations and making money. If you're considering alternatives to the big banks, these three might be worth checking out.

If you're interested in bank stocks, I also suggest checking out The Motley Fool's "The Stocks Only the Smartest Investors Are Buying." You can download this special report that details a small, promising bank stock exhibiting some of the best metrics our analysts have ever seen.

Fool contributor Amanda Alix owns no shares in the companies mentioned above. The Motley Fool owns shares of Bank of America and Citigroup and has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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  • Report this Comment On April 15, 2012, at 11:21 PM, neamakri wrote:

    Thank you for this fine article.

    My personal favorite; 1/4 of my IRA is in (NYB) New York Community Bancorp.

    Current stock price is actually lower than what I paid, Guess what? I'm not selling. Every 3 months they throw a wad of money at me. Love that dividend!

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