It’s the season once again and lots of little banks are fairly cheap, though many have recovered quite a bit from the December sell off. The season is “Springtime for Banks,” which is traditionally the time when earnings are reported for the year, but more importantly for dividend increases and buy back announcements. I expect an even better year than last year.
For one thing, banks are now being taxed at lower rates. For another, lending seems healthy overall. Rates are favorable, though not fantastic.
So what to look for in building a shopping list. First, a low book value, though I’ve mentioned in the past, the larger the bank, the more likely book in overstated. For tiny banks, less than $100 million in market cap, book is usually honest. To properly do research on any larger bank, you need to go to SEC documents (found under Investor Relations on the bank’s website.) The annual report will somewhere indicate “tangible book” or “tangible equity.” It may be necessary to divide tangible equity (in $) by the number of shares outstanding to determine true tangible book, but use the search function to make it easier to look for those terms.
Next, look at earnings (as in PE ratios, lower PEs are better.) The actual earnings when compared to the $ dividend will give you a good idea how likely they are to increase their dividend. Not all little banks will pay a dividend. Some are too young or too miniscule. Some like to put all their excess cash into growing book value with the idea of ultimately selling out at higher prices. All in all though, most pay dividends.
Some “unaudited” earnings are being announced now. These are usually accurate; the formal release will come later with the annual report. So, you can get a good idea of the dividend and/or buyback potential with the unaudited numbers.
Stocks that still rate new purchases or adds on book valuation are these:
ESSA, ASRV, BCTF, CFDB, EQFN, FSBC, IROQ, MBCQ, OTTW, PBBI, PNBK, RNDB, WBBW, and WVFC
In the Not-Quite-the-Same Valuation category, I did buy some AMRB. It’s a California bank trading well over book, but not TOO high. It’s hard to find California cheap, and this is about as close as it gets.
As always, trade carefully with limit orders (or markets for only small quantities like 100-300 shares.) And plan on holding long term. Do your own research.