NEW YORK (TheStreet) -- Investors focus a lot of attention on the biggest U.S. banks, but they shouldn't overlook smaller so-called super-regional banks such as Fifth Third Bank (FITB) and KeyBank (KEY).
It's true that the top four money center banks (JPMorgan Chase (JPM), Bank of America (BAC), Citigroup (C) and Wells Fargo (WFC) control 54% of the total U.S. banking assets.
Yet the U.S.-based retail super-regional banks listed below account for more than $2 trillion in assets.
The super-regional banks also saw total assets increase by 2.7% during 2013, triple the 0.9% rate of the money center banks.
Which of these banks would be a good investment? Let's review. The list was narrowed to include only U.S. retail-based banks with assets of at least $50 billion. Banks with foreign headquarters or significant operations outside the U.S. were excluded, as were banks that were primarily investment banks with converted bank charters. So, banks such as HSBC (HSBC), Toronto-Dominion (TD), RBS Citizens (RBS) and State Street (STT) were omitted.
The top picks listed below are based on the banks with a minimum satisfactory financial strength rating and either a "fair value" or "undervalued" rating. Those banks with high price-to-book ratios or negative forecast target price returns were excluded from the top picks (i.e., U.S. Bank (USB), Comerica (CMA), M&T (MTB) and Zions Bancorp (ZION)), as were several banks with high projected stock returns but below-average financial strength ratings.
For example, Bank of N.Y. Mellon (BK) had major strength deficiencies in earnings with return on assets of less than half the group average at just 0.56%. The bank also had low Tier 1 leverage of just 5.6%.
PNC Bank (PNC) had the highest adjusted nonperforming loans to total loans of 2.20% -- the U.S. bank average is 1.66% (group average is 1.14%). Similarly, weaknesses for BB&T (BBT) (low ROE and liquidity, debt-to-equity that is twice the group average), SunTrust (STI) (low ROA and ROE) and Regions Bank (RF) (Low ROA, ROE and five-year ROE) kept these banks out of the top selections.
- Fifth Third Bank: The bank has a satisfactory financial strength rating and scored the best, with an annual 2013 increase in assets of 7%, a nearly 11% increase in total deposits, a net loan growth rate of 3.7% and a 1.3% increase in revenue during the same period. Additionally, the bank has good capital ratios, well above the Federal Reserve minimum, stellar return on assets (ROA) of 1.43% and low adjusted nonperforming loans-to-total loans of just 0.95% (43% less than the industry average of 1.66%). With a price-to-book of 1.45, forecast price target returns of 16% and 25%, respectively, for FYE 2014 and 2015, this bank is an excellent value with no material deficiencies.
- KeyBank: This institution also has a satisfactory financial strength rating and high marks in both asset and deposit growth rates in 2013 (4.1% and 5%, respectively). Furthermore, the bank has an excellent Tier 1 leverage ratio of 11.3%, more than double the Federal Reserve mandate of 4%, and average adjusted nonperforming loans-to-total loans of 1.06%. A price-to-book of just 1.26% and forecast price target returns of 8% and 19%, respectively, for FYE 2014 and 2015 make this bank a good value. Key deficiencies include a total revenue decline of 3.8% for FY 2013, below average net interest margin (NIM) of 2.97% and weak cash & equivalents-to-total liabilities of just 0.66%.
- Huntington Bank (HBAN): Although this bank is rated fair value with a price-to-book of 1.46, it still beats the average projected returns of the group for 2014 and 2015, at 7% and 18%, respectively. Additionally, HBAN had an almost 6% increase in year-over-year assets and a net loan growth rate of 5.1%, which was second best in the group. The bank's satisfactory strength rating was highlighted by excellent Tier 1 capital leverage ratio of 10.9% and a solid net interest margin of 3.39%. The bank also had very low nonperforming loans compared to the group at 0.90%. Major concerns were the negative revenue growth rate of 5.6% for 2013, modest liquidity and a negative five-year return on equity (ROE) of 7%.
Look for a complete list of the analyst's financial strength and stock ratings for all publicly traded U.S. and global bank stocks on genekirsch.net
See recent articles on money center banks: "Make Some Bank on Bank of America" and "Citigroup Was Punished for Not Playing Nice With the Feds"
At the time of publication, Kirsch owned shares BAC, C and WFC.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.