The Cheap, Buyable Bank That's Probably Not on Your Radar

As someone that regularly writes about the banking industry, I am always trying to find a new way to compare banks of differing sizes to each other. After all, the operations of banks like Bank of America (NYSE: BAC  ) are vastly different from much smaller banks like Synovus Financial (NYSE: SNV  ) .

Luckily, there are certain metrics that can be examined that help to differentiate between multiple banks. Valuation doesn't tell the entire story, because a cheap stock may be cheap for very good reason. However, valuation is a very important part of the investing process and can often reveal stocks that are ripe for the picking.

With that in mind, I have decided to take a weekly look at some of the financial companies you might be missing with the news dominated by the more widely covered companies out there. This week, I'll be focusing on some of the smaller banks that are often neglected and recommending one of the bunch for further research. Using market cap as my first limiting factor , I have identified 113 banks that were screened using the metrics in the following chart, with the top five making the cut:

Company

Total Assets

Market Cap

P/E Ratio

P/B Ratio

Republic Bancorp (NASDAQ: RBCAA  )

$3.4B

$442.7M

3.7

0.79

Citizens Republic Bancorp (UNKNOWN: CRBC.DL  )

$9.7B

$768.3M

2.2

0.56

Sterling Financial (NASDAQ: STSA  )

$9.5B

$1.3B

3.5

1.04

Taylor Capital Group (NASDAQ: TAYC  )

$5.1B

$518.6M

4.1

1.16

Great Southern Bancorp (NASDAQ: GSBC  )

$4.1B

$345.9M

7.3

0.96

Source: Finviz.com and Motley Fool CAPS; total assets as of quarter ending September 2012.

As you can see, the banks are of various sizes, both in relation to total assets and market cap. Three of the five are currently trading at a discount to book value, and all have P/E ratios that are pretty low. Let's take a quick look at each of the banks to see if we can identify which one offers the best value.

Republic Bancorp
This regional bank based in Kentucky is the smallest on the list based on assets, and this could be a result of its limited geographic reach. While it does have branches in Indiana, Ohio, and Florida, its operations are primarily centered on 12 communities in Kentucky . Nevertheless, the bank is growing, having acquired two smaller banks in Tennessee and Minnesota during the past year. Finally, with a 3.1% dividend yield, the bank boasts the highest dividend among the banks on the list, and it recently paid a special dividend  to shareholders as well.

Citizens Republic Bancorp
Citizens Republic might not be on this list for much longer because of its acquisition by FirstMerit (NASDAQ: FMER  ) earlier this year. As recently as 2010, the bank posted 12 consecutive quarters of losses, but analysts expect the Michigan bank to return to profitability this year. After grabbing the title as best-performing regional bank of 2011, this past year wasn't too shabby either, as it posted returns around 62% for shareholders.

Sterling Financial
Sterling Financial is the largest commercial bank headquartered in Washington , and only trails Citizens Republic in total assets on this list. It joined Republic in recently paying a special dividend to shareholders and currently boasts a dividend yield of nearly 3%. Furthermore, in an effort to expand its reach even more in the Puget Sound area of Washington, it recently announced the acquisition of three branches from Boston Private Bank and Trust.

Taylor Capital Group
Taylor Capital was recently in the news when an American Banker article pointed to capital-raising at the Chicago-area bank as an indicator of potential acquisitions. The bank could simply be bolstered by its recent run of beating quarterly expectations, including a 40% beat at the end of the third quarter of 2012. Nonperforming assets decreased 52 basis points during that quarter, and though the bank doesn't currently pay a dividend, its P/E near 4 might be enough to garner attention, especially considering it paid off its TARP money  in June.

Great Southern Bancorp
Great Southern may be unfamiliar to investors that live outside of its Missouri base. Nevertheless, the bank is a nice option, especially considering its attractive 2.8% dividend yield. Our resident banking expert Anand Chokkavelu purchased the bank for his Rising Star portfolio, and though its performance since then has been less than stellar, the bank should be considered an option, especially in the current environment where acquisitions often fuel the growth of smaller banks. As the smallest bank on this list, it could be viewed as an acquisition target this year or beyond.

My choice is...
While all of the banks on this list could be considered "cheap," the one that I think warrants further investigation is Republic Bancorp. It seems to be embracing the "growth by acquisition" model shared by many of its compatriots, and it currently trades at a 21% discount to its book value.

Though I am not planning on purchasing shares of Republic Bancorp 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 the coveted "green thumb" rating, indicating it will beat the market for the foreseeable future. I encourage you to do the same.

With so many of the big finance firms getting bad press these days you may be inclined to stay away from the sector entirely, but that could be a huge mistake. In fact some of the best opportunities over the next few years can be found there, including one small, under-the-radar bank. It's been called one of The Stocks Only the Smartest Investors Are Buying. You can learn about it, and more, in our exclusive free report. Just click here to keep reading.


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  • Report this Comment On January 02, 2013, at 7:50 PM, ElTrader wrote:

    RBCAA is a decent bank that is always undervalued. They do a lot of tax return lending. The IRS stopped providing the names of people that owe back taxes a year or so ago. As a result of that change in IRS policy the FDIC said those loans were highly risky and wanted to require RBCAA to carry higher reserves for these loans. RBCAA on the other had claims their models are very effective at calculating the loss risks associated with these loans. I am not sure of the outcome of this dispute. So without numbers, to my knowledge this is one of the main reasons RBCAA trades at a discount to its peers. Hope it helps your research.

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