Over the past few years, Penns Woods has prioritized margin expansion over revenue growth. To continue to improve profitability, Penns Woods will have to cut costs. That is why it is important for investors to watch the company’s margins very closely. Currently, Penns Woods has a net profit margin of 33.78% vs. the industry average of 21.57%. If Penns Woods can maintain this profit margin, it will continue to grow earnings per share in the mid-to-high single digits. With Penns Woods trading at less than 10 times cash flow, Penns Woods is attractively valued, particularly if you consider the strength of its underlying fundamentals.
Salisbury Bancorp, Inc. (NASDAQ:SAL)
Salisbury Bank and Trust is a commercial bank offering a broad range of services including an extensive array of deposit services, multiple mortgage products, and various other types of loans designed to meet the financial needs of its customers. The Bank also has a full-service Trust and Investment Services division which offers financial planning, trust and estate administration, and investment management services. Salisbury has a dividend yield of 4.48% and trades at a price to earnings multiple of less than 11. Moreover, this bank trades at a price to book value ratio of around 0.60 vs. the industry average 1.27 (more than double) and has consistently delivered results over the past 10 years. Like Penns Woods, Salisbury is focused on expanding its margins, which have expanded by more than 100% over the past few quarters. Except that with a net profit margin of 15.87 there is still a lot of room for improvement. Moving forward, investors should watch two things very closely: changes in critical leadership positions and efforts to improve net profit margins.
Southern Missouri Bancorp, Inc. (NASDAQ:SMBC)
Southern Missouri Bank is the oldest financial institution headquartered in southeast Missouri. This bank attracts retail deposits from the general public and then uses those deposits, along with funding from the Federal Home Loan Bank of Des Moines, to invest in mortgage loans, mortgage loans secured by commercial real estate, commercial non-mortgage business loans and consumer loans. Funds are also used to purchase mortgage-backed and related securities and other investments. In 2010, Southern Bank acquired First Southern Bank. In the near future, this company may look to acquire another small bank in order to leverage scale. Southern Missouri pays a dividend of 2.4% and trades at a price to earnings multiple of less than 10. Over the past 5-years, this company has grown net income at an average annual rate of 26.74%, sales at 10.6%, and its dividend at 5.92%. So there is plenty of room for Southern Bank to raise its dividend. Furthermore, at a book value of $30.40 this company trades at a price to book value ratio of 0.83.
My Foolish Take
These are just a few of the many small banks that have attractive valuations, pay a nice dividend, have the potential to grow, and continue to deliver results. Even in an environment where loan demand is weak and interest rates are low, many of these banks continue to deliver record results. So you may want to consider betting on a few small banks instead of the large banks.
The article 5 Small Banks to Consider originally appeared on Fool.com and is written by Ryan Peckyno.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.