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By Richard Bloch

There are plenty of smaller regional and community banks you’ve probably never heard of – unless you happen to live in the communities they serve.

Regional banks as an asset class haven’t been performing well over the past couple of years, at least as measured by the performance of the SPDR KBW Regional Banking ETF (NYSEARCA:KRE).

But that doesn’t mean all the stocks in that index are laggards, so I decided to dig into the ETF’s holdings for stocks that met two criteria:

1) Outperformed KRE over the past two years AND over the past one year; and

2) Pays a dividend that yields at least 3%.

Only four banks made the cut, but before I list them, let’s get some context. Here’s a look at the SPDR Regional Banking ETF and the Financial Select Sector SPDR Fund (NYSEARCA:XLF) along with the standardized SEC performance metrics.


XLF annualized returns
as of 12/31/10
1 year 5 years
or life of fund
10 years
or life of fund
Return before taxes 11.91% -10.67% -3.86%
Return after taxes on distributions 11.58% -11.14% -4.34%
Return after taxes on distributions and sale of fund shares 7.77% -8.76% -3.24%
Index 11.98% -10.67% -3.85%
Expense ratio 0.21%
KRE annualized returns

as of 12/31/10

1 year 5 years

or life of fund

10 years
or life of fund
Return before taxes 20.31% -8.57% -9.59%
Return after taxes on distributions 19.42% -10.38% -10.38%
Return after taxes on distributions and sale of fund shares 12.99% -7.40% -8.20%
Index 20.04% -9.63% -9.63%
Expense ratio 0.35%

And here are the stocks that met my criteria for both outperformance against their peers and a dividend that may attract income investors:

Bank Based in Yield 1 year performance 2 year performance
F.N.B (FNB) Pennsylvania 4.65% 47.9% 46.8%
Community Bank System (CBU) Upstate New York 3.63% 26.9% 56.6%
United Bankshares (UBSI) West Virginia 4.08% 28.7% 53.3%
City Holding Company (CHCO) West Virginia 3.91% 10.8% 47.2%
KBW Regional Bank ETF (KRE) 8.4% 31.5%

Note that while these stocks seem to have outperformed their peers, most of them are still below highs set 5 or 10 years ago. And in the case of FNB, it still only pays half the dividend it did before the financial crisis. In fact, dividend payments from the KRE ETF as a whole are down 75% over that same time.

But here’s something interesting: Why are there two West Virginia banks on this list? One reason could be housing prices. Here’s the West Virginia House Price Index from the Federal Housing Finance Agency.


Odd isn’t it? Yeah it looks like there’s a been a “double dip,” but not sure not much of a dip in the Mountain State.

As I said, you’ve probably never heard of these banks before, which goes for me too, so be sure to do further research before investing.

Also, there are plenty of regional banks that have performed even better, but they didn’t meet my yield criteria. I’ll discuss those in a future post.

Source: Four Higher Yield Regional Banks