The Best Midsize Bank for Your Portfolio

With earnings season winding to a close, I have started to search for the next investment to add to my portfolio. Since I spent most of April looking at bank earnings, I figured banks would be as good as any place to start looking. Not all financial companies are created equally, however, so I have decided to break my search into four distinct groups: "too big to fail" banks, banks with more than $1 billion in market cap, banks with less than $1 billion in market cap, and other financial service companies. From each group, I plan on selecting one company to potentially add to my portfolio. In the meantime, I will make CAPScalls with hopes that they can help my CAPS score.

Still big, just not as big
In this article, I will be examining institutions chosen from a group of 62 banks that currently have a market cap over $1 billion. The five banks below are household names and were chosen because they are some of the best performers over the past few quarters. Though not nearly the same size as the "too big to fail" banks, they are still an important piece of the financial industry.


Total Assets

Market Cap

P/E Ratio

P/B Ratio

Dividend Yield

US Bancorp (NYSE: USB  ) $340.8B $61.4B 12.3 1.71 2.4%
Huntington Bancshares (Nasdaq: HBAN  ) $55.9B $5.7B 10.6 1.02 2.5%
New York Community Bancorp (NYSE: NYB  ) $43.0B $5.7B 12.0 1.02 7.7%
First Niagara Financial Group (Nasdaq: FNFG  ) $35.5B $3.0B 14.6 0.62 3.7%
Bank of Hawaii (NYSE: BOH  ) $13.8B $2.2B 14.1 2.24 3.7%

Source: and Motley Fool CAPS.

On with the eliminations!
The first bank to get cut is Bank of Hawaii, the smallest bank on the list. While its presence on the islands-state of Hawaii provides the bank a great moat from competitors, its remote location could also hinder further growth. Customer growth is fairly limited to people living in Hawaii and other Pacific islands. Furthermore, the economy of Hawaii has had some impact on the performance of the bank during the last quarter, with a longer residential foreclosure process leading to an increase in nonperforming assets during the previous quarter.

The second bank to not make the grade is US Bancorp, the largest on the list. There are plenty of things to like about the bank. It is the eighth-largest holding in the portfolio of Berkshire Hathaway. It recently passed the Federal Reserve stress tests, leading to a 50% increase in its dividend. But while I think the bank will continue to perform well, others on the list are not hindered by size as much as US Bancorp. It sells at a premium to book value and its yield, though it will soon grow, is the smallest on the list. One of the three remaining banks looks to be a better choice at this juncture.

And then there were three...
The remaining three banks all have their merits. Huntington Bancshares is the cheapest based on P/E ratio and sports a dividend with plenty of room to grow. New York Community has a yield that approaches 8%, more than twice the size of the second-highest yields on the list. First Niagara, while the most expensive based on P/E, is the only bank trading at a discount to book value and still sports a healthy yield.

Unfortunately for First Niagara, its P/E is a little too high for my taste, especially compared to the others on the list. Otherwise, it would make a great addition to my portfolio. Even though it recently cut its dividend in half, it is reinvesting the money saved in growing its geographic footprint, purchasing 196 branches from HSBC, some which it plans to later sell to other banks. Things look promising for this well-capitalized bank, and may make it an attractive candidate in the near future.

There can be only one
If you compare the remaining two banks on the three primary criteria, it's a wash: Huntington has the lower P/E, New York Community the higher yield, and both trade for the same P/B ratio. Huntington is still a nice choice, and the bank is cheap based on other factors, but my choice is New York Community. Its dividend yield, which is more than three times that of Huntington, swings the vote. With a recent quarter that saw the bank improve assets quality for the sixth consecutive quarter, the New York bank beats out its similarly sized cousin from Ohio.

Accountability time
Though I am not planning on purchasing shares of New York Community at this time, I will be keeping an eye on the company and tracking its performance at Motley Fool CAPS. I will be giving the bank a "green thumb" rating, indicating I think it will beat the market for the foreseeable future. I encourage you to do the same.

A sizable dividend was one of the factors that led to my selection of New York Community, but there are some other great choices when it comes to dividends in the market today. Our analysts have identified how you can "Secure Your Future With 9 Rock-Solid Dividend Stocks" and put their picks in a great free report. Click here to get your copy today, before it's too late!

Fool contributor Robert Eberhard owns shares of Berkshire Hathaway, but holds no position in any other company mentioned. Follow him on Twitter, or click here to see his holdings and a short bio. The Motley Fool owns shares of Huntington Bancshares, Bank of Hawaii, and Berkshire Hathaway. Motley Fool newsletter services have recommended buying shares of Berkshire Hathaway. The Motley Fool has a disclosure policy.

We Fools may not 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.

Read/Post Comments (4) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 15, 2012, at 1:37 PM, constructive wrote:

    Although they are medium-large, I'd take PNC, STT and COF over any of these banks.

  • Report this Comment On May 15, 2012, at 3:40 PM, XMFTheGuruEbby wrote:

    All three were considered and were in the top ten. I just decided to focus on a couple that were less well known.

    Thanks for reading!


  • Report this Comment On May 16, 2012, at 6:18 AM, assisgnmeaname wrote:

    Thanks. f you want a better apples to apples comparison try comparing price to tangible book value, rather than price to (stated) book value. It will eliminate the vagaries of past acquisition accounting and makes, for example, BOH more compelling. All in all a good analytical starting point.

  • Report this Comment On May 16, 2012, at 2:26 PM, XMFTheGuruEbby wrote:


    Good point. In future analysis, I will look at tangible book value if I can find a reliable enough source for the data.

    Thanks for reading!


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5/25/2016 4:02 PM
BOH $71.66 Up +1.42 +2.02%
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