2 Ohio-Based Regional Banks Yielding At Least 4% With Some Interesting Developments

Includes: FMER, PRK
by: Matt Schilling

As an income-driven investor, there are two things I like to look for when it comes to certain dividend stocks: current value and annual yield.

When it comes to the regional banking sector, I can honestly say I've never slept better at night. The good thing is the fact that this sector presents the income investor with solid yields and great value, not to mention the fact that these stocks are much less volatile then their national counterparts. In the case of these two banks I'm featuring, I wanted to not only highlight their attractive yields and great value but note some of the recent developments at both.

Park National Corporation (NYSEMKT:PRK) - Founded in 1908 and based in Newark, Ohio, Park National Corporation currently trades at a P/E ratio of 14.06 and yields 6.10% ($3.76) making the stock very inexpensive by most investing standards.

When it comes to Park National, the dividend yield and inexpensive value aren't the only two factors to consider. In my opinion, there are a few additional factors potential investors should consider. The first variable to consider is the fact the stock is trading at a 7.15% discount to its current 50 DMA and an 8.04% discount to its 200 DMA. The second, and probably the most important thing to consider, is the fact the company continues to shed the troubled loan portfolio of Vision Bank after it sold Vision earlier this year. According to Rick Rouan of Columbus Business First.com, "The Newark-based bank holding company said in its third-quarter earnings report that it has about $90.4 million in assets left over from Vision Bank as of Sept. 30, down from about $107.6 million on June 30. Most of those assets are nonperforming loans, which totaled about $58.8 million at the end of the quarter, down $15.3 million from the $74.1 million level it hit at the end of the second quarter."

The strategy here is to start small and then build up your position as you move forward. In the beginning, I'd establish a small to moderate sized position, and then as the company's earnings and dividend announcements draw near, begin to increase my position.

First Merit Corporation (NASDAQ:FMER) - Founded in 1855, and based in Akron, Ohio, First Merit Corporation currently trades at a P/E ratio of 11.43 and yields 4.80%, which makes the stock cheap and a pretty decent value play by most standards. Analysts are expecting FMER to earn $0.28/share on revenue of $174.94 million in revenue.

If we examine the last three quarters FMER reported, investors will be pleased to see that it has beaten EPS estimates by an average of 9.03%, which leads me to believe that posting EPS results of $0.28/share on revenue of $174.94 million could beat by as much as $0.02/share and $4.5 million in revenue. In an effort to expand its business, First Merit recently announced its acquisition of Citizens Republic Bancorp, Inc. (NASDAQ:CRBC) on September 14th.

According to Zack's Equity Research, not only will First Merit's business benefit but so will the shareholders of Citizens Republic. "Following the deal closure, the combined bank can boast of around $24 billion in total assets and 415 branches, 452 ATMs and more than 5,000 employees across the five Midwest States of Pennsylvania, Ohio, Michigan, Illinois, and Wisconsin. As per the deal terms, the shareholders of Citizens' will get a fixed 1.37 shares of First Merit's common stock for each share of Citizens' common stock. Considering the average ten-day closing stock price of First Merit ended September 12, this will result in a valuation of $22.50 for each of Citizens' shares."

I'd begin by establishing a moderate to medium sized position at these levels for two reasons. The company has a great dividend and management is very conscious of the way it utilizes certain type of capital. By implementing a cost-cutting strategy, the company will begin to save nearly $45 million over the next 18-24 months, and I would consider increasing my position on a regular position over the next few quarters.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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