Financial Advisory

A Bank Analyst Makes Recommendations. I Make a List.

By: Jeffrey P. Marsico

What should you look for in a bank stock?

How should I know? I’m not a financial advisor. I would have to take a test to prove that I am worthy of such predictions.

But I read. And part of my reading includes Boenning & Scattergood’s quarterly Bank DCF Analysis. In the report, analysts Matt Schultheis and Scott Beury laid down the criteria they recommend investors use when evaluating bank stocks:

1. Superior Growth Prospects

2. Excess Capital

3. Strong Deposit Franchises

Well, ok then Matt and Scott. I’ll search on that.

I sorted all publicly traded US banks on the following criteria: year over year asset growth (2016-17) greater than 10%, tangible equity/tangible assets greater than 9%, and CD’s as a percent of total deposits less than 30%. I also filtered out banks with greater than 2% non-performing assets/assets.

This netted a total of 78 banks ranging in asset size from $113 million (Republic Bank of Arizona) to $44 billion (Signature Bank). No SIFI banks.

I then set out to single out the best bank in a few of the categories. The first was for growth, as measured by year over year asset growth. I skipped banks that grew via acquisition during that time. The second was to highlight the most favorable deposit mix, as determined by the lowest level of CDs. I know this is imperfect. There could be ample municipal deposits in checking or money market accounts. Not an ideal funding source but also not CDs.

The third category was performance judged by their first quarter 2018 ROA. Again, not ideal. But directionally correct. The fourth was value based on the bank’s price/tangible book. Most of the 78 financial institutions were below $1 billion in total assets. Investors tend to favor price/book metrics in looking at smaller institutions. The lower the multiple, the more value that might be on the table for the investor.

The last category was a balanced approach between all of the measurements I used, including EPS growth. There was judgement involved and I must admit I tended to discount the smaller financial institutions because of their low trading volumes and inefficient valuations. Personal bias, I know. My apologies to Metro Phoenix Bank ($181 million in assets, 1.88%/11.83% ROA/ROE).

The results are in the table below.


Best For
Growth Deposit Mix Performance Value Balance*
Total Assets ($000) 1,968,886 698,827 3,034,332 280,804 1,245,575
Asset Growth Rate (2016-17) 44% 12% 37% 12% 11%
Tang. Eq./Tang. Assets (%) 13.0% 9.5% 9.2% 13.9% 9.9%
CDs/Tot. Deposits (%) 5.7% 2.8% 29.6% 16.3% 17.2%
NPAs/Assets (%) 0.35% 0.19% 0.12% 0.98% 1.04%
ROAA (%) 1.35% 0.85% 2.13% 0.59% 1.04%
ROAE (%) 10.53% 8.55% 22.17% 4.23% 10.20%
EPS Growth (CAGR 2015-1Q18) 34% 6% 49% 39% 12%
Price/EPS (x) 17.6 20.3 11.3 17.8 15.6
Price/Tang. Book (%) 190.2% 163.7% 250.2% 75.9% 162.2%
Dividend Yield (%) NA NA 0.3% 2.4% 1.3%
*Jeff For Banks weighting of B&S categories, plus valuation, favoring larger FI’s.
Source: S&P Global Market Intelligence


MCB – Metropolitan Bank Holding Corp., New York, NY
IIBK – Idaho Independent Bank, Coeur d’Alene, ID
SBT – Sterling Bancorp, Inc., Southfield, MI
FSDK – First Citizens National Bank of Upper Sandusky, Upper Sandusky, OH
BOCH – Bank of Commerce Holding, Sacramento, CA

Who else should be on the list?

Drop me a line with your contact info if you want the spreadsheet with all 78 banks.


~ Jeff


Note: I make no investment recommendations in my blog. Please do not claim to invest in any security based on what you read here. You should make your own decisions in that regard. FINRA makes people take a test to ensure they know what they are doing before recommending securities. I’m sure that strategy works well.