Sixteen banks have failed so far this year. 1st American State Bank of Minnesota of Hancock, Minnesota was the latest bank to be shut down on Friday. In the past few years investing in bank stocks have gotten tricky as many of them have been battered by the credit crisis. However there are some high quality banks which continue to remain strong and pay dividends.
The Forbes magazine published a list of America’s best and worst 100 banks last month.
These banks were ranked on the following factors:
- Return on average equity
- Net interest margin
- NPLs as a percentage of loans
- NPAs as percentage of assets
- Reserves as a percentage of NPLs
- Two capital ratios (Tier 1 and risk-based)
- Leverage ratio
The size of the banks selected ranged with assets of $5.2B to $2.3T. Investors can use the Forbes list as a starting point to identify potential candidates for investment opportunities.
The Five Best Banks are:
Bank of Hawaii (BOH)
Current Dividend Yield: 4.13%
UMB Financial (UMBF)
Current Dividend Yield: 1.97%
Commerce Bancshares (CBSH)
Current Dividend Yield: 2.45%
Prosperity Bancshares (PRSP)
Current Dividend Yield: 1.59%
SVB Financial (SIVB)
Current Dividend Yield: N/A
The Five Worst Banks are:
The highest ranked bank in this list was Bank of Hawaii (BOH). This conservative bank had a non-performing loan ratio of just 1.2% of total loans in the last quarter. Bank of Hawaii also declined TARP funds from the Federal government.
Many of the banks that declined TARP funding actually increased lending. Another bank that is noted in the article is Capital Bancorp (CBC) of Michigan.
The bank has a presence in 17 states, but has been badly hurt by the severe economic problems of its home state. Its capital ratios of 8.4% (Tier 1) and 11.2% (risk-based) are both sixth worst among the 100 largest banks. The bank is divesting businesses in six states, including problem areas like California and Ohio to boost its capital ratios and improve its balance sheet.