In the world of financial stocks, the "too big to fail" banks tend to garner the most attention. But for every Bank of America (NYSE: BAC) and other bank of its size, there are dozens of smaller banks that should warrant attention as well.
With this in mind, I have narrowed my focus to banks that have a market cap between $2 billion and $10 billion. To trim the list further, I eliminated the handful of banks that experienced a loss over the past 12 months. Because finding the best value is important, I limited my final list to banks with a current price-to-book ratio at or below 1.1, which narrowed the search down to 14 banks. These are the five that I think warrant a deeper look, and I'll provide my favorite at the end.
Regional banking leaders
Huntington Bancshares (NASDAQ:HBAN) is a well-known regional bank based in Ohio and is a favorite of many investors for multiple reasons. When compared with the other stocks in the S&P 500, it currently has a below-average P/E of around 10 and an above-average dividend yield of 2.3%. Furthermore, its P/B ratio continues to approach 1.0 as it continues to trade near its 52-week high. Its affordable price today could ultimately reward investors down the road, especially considering that it's led by industry expert CEO Stephen Steinour, who knows a thing or two about growing regional banks.
Another regional bank among my finalists, Synovus Financial (NYSE:SNV) looks even cheaper when we look at the traditional P/E and P/B ratios, checking in at 3.1 and 0.59, respectively, but that's only part of the story. One of the reasons the bank is so cheap is because it is burdened by nearly $1 billion in TARP loans that it has been unable to pay back. Combined with a miserable 2011, which saw the stock lose nearly 50%, we can easily see why it's so cheap.
However, 2012 was a much better year for the bank, including the first annual profit for the bank since 2007. Granted, a lot of the bank's great performance was due to a large income tax benefit during the fourth quarter, but this recapture should help Synovus finally pay back its TARP obligation during the year, pointing to a strong 2013 and beyond for the Georgia bank.
High dividends boost these banks
People's United Financial (NASDAQ:PBCT) is often overlooked among other banks of its size, and it is not without reason. Some investors are concerned by a tier 1 capital ratio that is a little too high. It is also behind the efficiency curve a bit, requiring a bit more effort to produce every dollar of revenue. Nevertheless, the bank is still attractive, primarily because of a dividend yield near 5% and because it trades at a 15% discount to book value.
New York Community Bank (NYSE:NYCB) also boasts a sizable dividend, currently paying out over 7%. There is a lot more to like at the bank beyond its dividend, however. They are led by a visionary CEO that has been with the company since 1965, and accumulated over $70 million worth of stock in the company, which helps align his vision with his shareholders'. Following the emerging trend of growth through acquisition, New York Community Bank has smartly grown through acquisitions over the past few years, expanding operations outside its New York base to five different states since 2007.
The last bank on the list
KeyCorp (NYSE:KEY) is the final bank that makes the cut, and it's easy to see why. It currently trades at a 14% discount to book value and boasts a P/E just under 11. But it's also important to look beyond valuation to determine if a bank is a good buy. The bank has undertaken a "Fit for Growth" initiative, which should hopefully make the bank more efficient down the road. This is needed because KeyCorp joins People's United on the list of least efficient banks out there, so any improvement in this area should be welcomed by investors.
My pick of the five
Huntington Bancshares and New York Community Bank are both currently on my short list to buy, and I would be happy to own either one. Both banks look to have a great intermediate- to long-term outlooks, and in the meantime will churn out income in the form of dividends. However, my preference here would be for New York Community Bank.