These 5 banks are relatively small cap, trade at discount relative to many of their peers, and are great candidates for acquisitions. They have performed very well over the last 10, 5, and 3 years. They are lower risk (relative to KRE and the market overall), and many of them have a more diversified business model - unlike the bigger banks that are more susceptible to volatile capital markets (trading and investment banking revenues).
Except for FBIZ, they all have low Debt to Equity, and have been growing EPS at a rate that is significantly above average. On an excess return and risk-adjusted basis (Sharpe), these 5 stocks have also performed handsomely well. As the market has suffered significant losses YTD, and over the last 12 months, these 5 stocks have relatively held their own, and done well.
While the next few quarters and month will be challenging for banks (as they navigate higher interest rates, recession fears, inflation pressure, etc.), we believe these 5 banks are heading into any potential downturn in a far better shape
Below are brief background on each of them:
- BCB Bancorp (BCBP):?The company was founded in 2000 and headquartered in Bayonne, New Jersey. BCBP operates as a bank holding company for BCB Community Bank and provides banking products and services to businesses and individuals in the US.?As at the end of 2021, it operated 29 branch offices across New Jersey, as well as three branches in Staten Island and Hicksville, New York. The bank recently expanded its stock buyback program, and at 7.9X P/E (and 1.3 P/BV), the stock seems to be a good deal relative to other regional banks of similar market capitalization.
- Mainstreet Bancshares (MNSB): MainStreet Bancshares, Inc. was incorporated in 2003 and is headquartered in Fairfax, Virginia. MNSB operates as the bank holding company for MainStreet Bank and provides various banking products and services for individuals, small to medium-sized businesses, and professional service organizations. At the end of 1Q22, it operated six branches in Herndon, Fairfax, McLean, Leesburg, Clarendon, and Washington D.C., as well as 55,000 automated teller machines.
- First Business Financial Services (FBIZ): This bank was founded in 1909 and is headquartered in Madison, Wisconsin. FBIZ operates as the bank holding company for First Business Bank that provides commercial banking products and services for small and medium-sized businesses, business owners, executives, professionals, and high net worth individuals.?Over the last 5 year, this bank has an 9% dividend growth rate.
- Northeast Bank (NBN): Founded in 1872 and headquartered in Portland, Maine. The company operated a network of seven branches in Maine as at the end of 3Q22. Despite a 7% decline in EPS YoY, the stock seems to still be trading at a ~22% discount to its peers (based on market cap, P/E, and P/B).
- Northrim Bancorp Inc. (NRIM): Founded in 1990 and headquartered in Anchorage, Alaska, the company operated 17 branches in Anchorage as at the end of 1Q22. NRIM operates as the bank holding company for Northrim Bank that provides commercial banking products and services to businesses and professional individuals. It operates in two segments, Community Banking and Home Mortgage Lending.?Over the last 5 year, this bank has an 18% dividend growth rate.
A lot more could be said on each one of these 5 banks, but we will let you embark on that journey on your own.
The opinion above are not investment advice, and should not be interpreted as such. The above piece also do not represent the view of any of prior or former employers of Femi Elegbe, CFA.
Femi Elegbe, CFA and/or Rhema Capital Management, LLC do not currently own any stocks or derivatives of the companies mentioned above. Past performance is not indicative of future returns. And investing in stocks or ETFs may lose money. Consult your financial advisor before making any investment decisions.
