How to buy bank stocks without the baggage

You can avoid the bad karma of the big boys but still snag growth and dividends with these smaller players.

By Traders Reserve Nov 1, 2013 5:20PM

Person withdrawing cash © Image Source/Image Source/Getty ImagesBy Karen Riccio


Americans have come to hate big banks, especially the ones too big to fail. If you can't bring yourself to invest in that group, there are plenty of small regional banks that offer similar growth and pay hefty dividends.


It’s hard to question Americans' distaste for those big institutions after the mortgage-backed securities debacle in 2008, when so many homeowners suffered and many offending banks walked or were bailed out by the government.


That fallout still goes on. In recent weeks, the Federal Housing Finance Agency (FHFA) announced a $5.1 billion settlement between JPMorgan Chase (JPM), Fannie Mae and Freddie Mac. Also involved in the private lawsuit were Bear Stearns and Washington Mutual, two of JPMorgan Chase’s acquisitions. Citigroup (C) and Deutsche Bank (DB) were also accused and settled right away, costing them $158 million $202 million, respectively.


Despite the bad karma of recent years, many large commercial banks are doing quite well in 2013: JPMorgan Chase, Citigroup and Wells Fargo shares are up 17.9%, 21.5% and 22.2% respectively year to date.


But savvy investors who just can't stomach the big institutions will find plenty of investing opportunities in regional and small banks -- let's call them "the small and the scrupulous."  With all the right attributes and none of the baggage of the big boys,  are three top candidates to consider:

KeyCorp (KEY)

One of the best regional banks to consider is KeyCorp, which is up 45% year-to-date and delivers a 1.7% dividend yield. Trading at $12.56, new investors can buys shares of the bank at book value and for only 12 times trailing earnings. Over the past six months, there have been four separate instances of insiders buying, and those trades are now paying off handsomely.

KeyCorp has greatly improved in loan growth and loan quality, and are likely to funnel their increasing profits through to shareholders in the form of dividend increases and share buybacks for many years to come.

Firstbank Corp. (FBMI)

Another small bank with big potential is Firstbank Corp., up 88% year-to-date and a decent 1.20% yield. Net income for the third quarter 2013 rose 5.7% from $2.89 million from $2.7 million a year ago. Diluted earnings per share were $0.35 in the third quarter of 2013 compared to $0.31 in the third quarter of 2012.

This $155 million market-cap stock operates 53 branch offices in central Michigan. Firstbank provides commercial banking products and services, including traditional deposit accounts and loans tailored to meet the needs of its business customers. FBMI also offers trust, security brokerage and title insurance services. This stock remains a strong buy at its current $19.51 price.


Park National Corp. (PRK)

Shares of Park National Corp. of Newark, Ohio, have returned close to 25% year-to-date and the stock delivers a whopping 4.70% dividend yield. The company had $6.6 billion in total assets as of Sept. 30 and reported third-quarter net income of $20 million, or $1.30 a share, compared to $20.7 million, or $1.34 a share, the previous quarter, and $18.9 million, or $1.10 a share, a year earlier.


KBW analyst John Barber gave the stock a $73 price target, estimating the company will earn $5.14 a share this year. The stock is currently trading at $80.37 and has already beaten those figures.


More from Traders Reserve


Nov 2, 2013 6:38AM

"not me I've made over 30% interest investing in banks in the last year alone.  So you guys stay out there bitchin about the banks and I'll stay right where I am."


Never ONCE thinking to yourself... hmm, we have NO economy and we have utter failure throughout the financial sector- the SOLE reason the Federal Reserve maintains Quantitative Easing- a program that dilutes our currency so banks can't HELP but to keep failing... and I made 30% off it. Maybe just maybe something REALLY WRONG is going on... and I shouldn't feed the problem, I should abstain and help cultivate a solution. Aiding and Abetting is as bad as being the perpetrator... traitor.

Nov 1, 2013 7:45PM

Another worthless article. Over $100 BILLION in bank fines so far, more coming. $700 TRILLION in derivatives outstanding. Without Ben's $85 BILLION in monthly blow money, banks would be gone. If you are thinking of investing any way, because your brain doesn't actually do any real thinking... take into consideration that EVERY mortgage written over the past 5 years is too low-rated to service. The truth is- in 5 to 8 years, mortgages will COST the bank to service. Banks literally are on Death Row.

Nov 4, 2013 7:28AM

"... when is the last bank failing that he remembers..."

Nov 4, 2013 7:21AM

"V-L you can't be buying a home or paying on a credit card, banks are still making money, you sound like just another Shorter out to drive down bank stocks."


Or... my career was built around private money and making credit that actually performed. You don't grasp what's wrong here... we don't need banks, we don't need the Federal Reserve funding banks that cry for help and get bailed every 10 years. We don't need or want the Gramm Leach Bliley Act, we DO need the Glass Steagall Act restored. No bank should exceed it's headquartered state's boundaries. A separate entity (a REAL Clearing House with humans not automated practices) and regulation that is geared to keeping regular people moving along without fear of what banks are doing behind our backs and in Boardrooms- is critical. They have to go, they are anti-American and cancer.

Nov 4, 2013 6:19AM
V-L you can't be buying a home or paying on a credit card, banks are still making money, you sound like just another Shorter out to drive down bank stocks. And no I don't really like the big guys these 3 are too big for me try SVN or TRST 
Nov 1, 2013 11:50PM
I HOPE the Stock of Discover Card and BB@T CRASHES!!!!!!! and these Two CROOKED Banks GO BELLY UP BROKE.............
Nov 2, 2013 12:19AM
not me I've made over 30% interest investing in banks in the last year alone.  So you guys stay out there bitchin about the banks and I'll stay right where I am.
Nov 2, 2013 5:27PM
All overpriced, though Park National is worth a look.
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
100 character limit
Are you sure you want to delete this comment?


Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.


StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

123 rated 1
266 rated 2
485 rated 3
660 rated 4
586 rated 5
652 rated 6
640 rated 7
504 rated 8
289 rated 9
159 rated 10

Top Picks

TAT&T Inc9



Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.