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Finding Value in Mid-Atlantic Regional Banks

By Robert Eberhard - Updated Apr 6, 2017 at 4:31PM

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One of six bank regions is re-evaluated after all quarterly earnings have been released.

Last month, I took a look at some regional banks, breaking them down by region. When I looked at the Mid-Atlantic region, I found seven banks that I thought would be good investments. Now that earnings season is mostly over, I thought it would be a good time to see whether the quarter helped any banks move or enter the rankings. Regional banks might also see an increase as customers of larger banks vote with their feet and move to local banks.

What is the Mid-Atlantic?
When looking at the regional banks, it's important to note that some of the regions have a certain amount of overlap. The Mid-Atlantic region spans primarily from South Carolina to Pennsylvania, but some Pennsylvania banks are also included in the Northeast region. Region-leading WesBanco (Nasdaq: WSBC) expands outside its West Virginia home and has branches in Ohio, which is usually included in the Midwest region.

Screening factors
As I did previously, I will rank the banks based on four factors: P/E ratio, P/B ratio, dividend yield, and net income margin. Only banks with a market cap over $300 million will be included.

Profitability is important, so I first eliminated all banks without earnings over the past 12 months, looking for the cheapest bank according to this metric. My second factor is the P/B ratio. In the banking industry, a value of 1.5 is reasonable, and the adage I like is "buy at half, sell at two." Only banks that pay a dividend will be included -- the higher the payout, the better. Finally, net income margin will be used as another method of comparing the banks' profitability.

My most recent screening resulted in 11 banks, but I have included only the top seven:

Company

P/E Ratio (TTM)

P/B Ratio

Dividend Yield

Net Income Margin

WesBanco 11.3 0.78 3.5% 19%
City Holding (Nasdaq: CHCO) 11.7 1.49 4.4% 27.9%
United Bankshares (Nasdaq: UBSI) 14.9 1.27 4.9% 24.9%
Sandy Spring Bancorp (Nasdaq: SASR) 11.5 0.87 2.5% 22.3%
Towne Bank (Nasdaq: TOWN) 16.7 0.73 2.6% 15.4%
First Citizens Bancshares (Nasdaq: FCNCA) 8.6 0.89 0.7% 15.4%
BB&T (NYSE: BBT) 14.0 0.87 2.9% 13.5%
         
Regional Averages 11.7 0.70 1.5% (6.3%)

Source: FinViz.com; TTM = trailing 12 months.

Quarterly results cause changes
Region-leading WesBanco's strong quarterly earnings, in which net income increased 31% over last year, helped keep it at the top of the region's rankings. Only a recent uptick in share price has caused its ratios to go up and its yield to go down. Leaving the rankings was SCBT Financial, which was replaced by the more profitable Towne Bank. Although all banks on the list are more expensive than the average Mid-Atlantic bank, they are also much more profitable, and six of the seven have a higher yield.

Regional opportunities abound!
While the real lesson from Bank Transfer Day will be learned in the coming months, regional banks offer a better investment in the months ahead. Keep an eye on Mid-Atlantic leader WesBanco by adding it to your free, personalized version of the Fool's My Watchlist today.

Fool contributor Robert Eberhard owns no shares in the companies mentioned here. Follow him on Twitter, where he goes by @GuruEbby. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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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Stocks Mentioned

Truist Financial Corporation Stock Quote
Truist Financial Corporation
TFC
$51.42 (-0.64%) $0.33
First Citizens BancShares, Inc. Stock Quote
First Citizens BancShares, Inc.
FCNCA
$851.26 (0.88%) $7.44
United Bankshares, Inc. Stock Quote
United Bankshares, Inc.
UBSI
$39.99 (-0.03%) $0.01
WesBanco, Inc. Stock Quote
WesBanco, Inc.
WSBC
$35.74 (0.34%) $0.12
Sandy Spring Bancorp Stock Quote
Sandy Spring Bancorp
SASR
$41.95 (0.94%) $0.39
TowneBank Stock Quote
TowneBank
TOWN
$30.81 (0.85%) $0.26
City Holding Company Stock Quote
City Holding Company
CHCO
$90.01 (1.07%) $0.95

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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