1 Bank Buy and 1 Bank Sale

As an analyst for The Motley Fool, I manage a bank-centric real-money account.

Today, I'm announcing the sale of one small bank (Texas-based International Bancshares (NASDAQ: IBOC  ) , and the purchase of more shares of one even smaller bank (Missouri-based Great Southern Bancorp (NASDAQ: GSBC  ) ).

With smaller banks, I try to stick to the numbers. Evaluating management beyond the numbers is tough at a big bank, with tons of press and analyst coverage, and much more so at a small bank. Instead, I let track record, the balance sheet, and current prices be my guide. I like banks that have strong operations, conservative lending, good dividends, and low price tags.

At this point, Great Southern is looking better all around. In terms of operations, its 12.7% return on equity beats International Bancorp's subpar 7.1%, as it's been converting more of its deposits into interest-generating loans (and at higher net interest margins to boot).

In terms of conservative lending, just 0.9% of Great Southern's loans are non-performing vs. 1.5% for International. Just as importantly, it's reserving more conservatively for those bad loans. (International's allowance is less than 100%, while Great Southern's is well above.)

On dividends, it's 2.9% to 1.9%, in Great Southern's favor.

And, finally, on price, they both trade a little above their tangible book values. Great Southern's 7.7 P/E ratio is almost half of International's, though. Extenuating circumstances include a gain on the sale of Great Southern's insurance business and International Bancshares' TARP charges (it paid back its bailout funds in November 2012).

All this isn't a condemnation of International Bancshares, but, like I said, I like to stick to the numbers. Since I bought International Bancshares in August 2011, shares are up 41% vs. a 32% rise for the market, while operational and lending metrics have gone the wrong way.

In the next couple trading days, it will be goodbye to International Bancshares, and a second helping hello to Great Southern Bancorp.

You can follow along with all my moves here.

Another small bank worth checking out
With so many banks getting bad press these days, it may be a "greedy when others are fearful" moment. Not surprisingly, some of Warren Buffett's biggest investments are in the space. In the Motley Fool's free report, The Stocks Only the Smartest Investors Are Buying, you can learn about a small, under-the-radar bank that's too tiny for Buffett's billions. Too bad, because it has better operating metrics than his favorites. Just click here to keep reading.


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