Bucolic banks beat bumbling behemoths

Dear Mr. Berko:

The big New York money center bank stocks look like they may be selling at attractive prices. I have about $43,000 in my brokerage money market account that my broker thinks I should invest in Citigroup, Bank of New York, Wells Fargo, JPMorgan, Bank of America and Morgan Stanley. I would like to have your advice on this.

SA, Kankakee, Ill.

Dear SA:

Now, that's a very original, clever and smart broker. And if brains were taxed, I'm certain he would get a rebate.

I've always believed that the best things often come in small packages. The performance of the Dow Jones Small Cap Index (^DJUSS) rose from 297 in January 2001 to 555 today. Meanwhile, the performance of the Dow Jones 30 Industrials (INDU) grew from 10,900 to 12,600 today. In other words, in the last 10 years, the ^DJUSS gained 84 percent while the INDU appreciated a niggardly 16 percent.

There's something about "large," especially in financial institutions (banks, stock brokerages, mortgage companies, mutual funds, business development companies, etc.): After reaching a certain size, these businesses usually run smack into a big, immovable wall. The problem is that financial institutions often focus on getting bigger and bigger and rather than working on getting better, becoming more efficient and being customer friendly -- as if "bigger" is the universal definition of success.

So I have little interest in owning shares of global financial giants whose shares comprise the 29-stock KBW Bank Index, which was down 25.1 percent in 2011, versus the S&P 500, which was essentially flat. So consider the following small, regional banks.

FNB Corporation (FNB-$11.54) is homeported in Hermitage, Pa., a small city of 19,000 founded in 1796. This $436 million revenue bank has 228 locations in Ohio and Pennsylvania. FNB's dividend yields 4.10 percent, and earnings are expected to grow 20 percent this year to 81 cents, while the dividend could be raised to 54 cents a share. Vanguard, State Street, BlackRock and Fidelity are major shareholders.

Bryn Mawr Bank (BMTC-$19.38) is a $96 million revenue, nine-branch bank with 402 employees and headquarters on Lancaster Street in bucolic Bryn Mawr, Pa. Founded in 1889, BMTC should increase its share earnings by 20 percent to $1.68, and its 60-cent dividend could increase to 70 cents, giving shareholders a 3.5 percent yield. Columbia, DFA and Ameriprise are major holders.

Peoples Bancorp (PEBO-$14.62) is an $87 million revenue bank from Marietta, Ohio, a charming city of 15,000 that was founded in 1788. PEBO's 47 branches employ 447 people, who may help the bank grow its 2012 share earnings from $1.04 to $1.26 and its dividend from 40 cents to 46 cents, providing a current yield of 3.2 percent. Franklin, Northern Trust and MFC are serious shareholders.

Now moving to the Left Coast, please take a look at CVB Financial (CVBF-$10.77), a 798-employee, 44-location bank in Ontario, Calif., that was founded in 1974. Net income will be up modestly this year to 84 cents on modestly lower revenues of $232 million; however, the 34-cent dividend is likely to be raised to 38 cents so that the stock would yield 3.5 percent. Lord Abbott, Munder, Meridian and Columbia have large positions in this issue.

And finally, Columbia Banking System (COLB-$20.41), founded in 1988, is an 1,100-employee, 84-branch bank out of Tacoma, Wash., that should post $239 million in revenues -- up 7 percent from 2011. Earnings may improve only slightly from $1.16 to $1.20, but the 30-cent dividend yielding 1.6 percent could grow to 36 cents. Major holders are Goldman Sachs, T. Rowe Price, Marsico and Janus.

So rather than putting $43,000 in Wall Street's bumbling behemoths, consider investing half that $43,000 in the five small banks mentioned above and the remaining half in those six morbidly oversized money-center banks that would steal pennies from a dead man's eyes to make a buck.

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Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. Visit Creators Syndicate website at www.creators.com.

© 2011 Creators Syndicate Inc

Published: Wed, Feb 8, 2012

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