4 Community Banks To Look At In 2012

by: Wealthcompound

All though there is much gloom and doom plaguing the banking industry, as usual, the forecasts are always more dire than the reality. If you are like me and think 2012 will be a good year for the economy, a good place to look to invest would be healthy, community banks (even with the increased regulation). Many of these banks sailed through the past four years and are in great shape for the future. Here are 4 banks that investors should keep an eye on.

Commercial National Financial Corp (CNAF) - CNAF operates as the holding company for Commercial Bank & Trust of PA. The company currently operates 10 branches and is headquartered in Latrobe, PA. CNAF is one of the best small banks in the country. I stupidly did not purchase shares in the summer of 2010 when they were trading around book value and am still kicking myself. CNAF recently raised the dividend, which currently yields 4.4%. The bank also generates great returns on assets (ROA) which for the 3Q 2011 was 1.92%. Even more impressive though is that the NPA/TA (Non-performing Assets/Total Assets) ratio for FY 2010 was .43%. I fully expect that the ratio for 2011 will be somewhere in that range, most likely a little higher. Although no bargain at its current price of $23.50/share, CNAF is a bank that investors should definitely keep an eye on.

FFD Financial Corp (FFDF) - FFDF operates as the holding company for First Federal Community Bank located in Dover, Ohio. A small 5 branch bank, FFDF is definitely envied by its peers. Currently, a yield of 4.9% keeps investors happy and a NPA/TA ratio for FY 2011 of 0.82 keep the equity safe. One development that has definitely improved this bank in my eyes has been the return to a loan/deposits ratio under 100 which reduces any chance of liquidity risk. This has been the result of significant growth in deposits combined with moderate loan growth. At 99.65, the loan/deposit ratio should hopefully continue to decrease to a more comfortable level (below 90) as management navigates through the turbulent economic waters.

First West Virginia Bancorp (FWV) - FWV is the holding company for Progressive Bank N.A. The branch network currently consists of 9 branches primarily in the upper Ohio Valley of northern West Virginia. At the current share price of $14.98, investors are receiving approximately a 5.1% dividend yield. The NPA/TA ratio has been increasing since 2008 and for year end 2010 sat at a still very manageable 1.77. For 2011, I would expect somewhere in the 1.90 to 2 range for NPA/TA due to the struggling economy in FWV's market. However, this is still manageable (and relatively low) ratio and should be little cause for concern, especially if you feel (like me) that the economy will show signs of improvement this year.

Harleysville Savings Financial Corporation (HARL) - Another PA bank, HARL operates 6 full-service branches in Montgomery County, PA. Much like FFDF, HARL has a loan/deposit ratio that I would like to see decline further (for FY 2011 99.50, up from 97.06 at the end of 2010). However, HARL has a very low NPA/TA ratio of .43 for FY 2011 and a dividend yield of 5.3%. Another area needing improvement for HARL is net interest margin, which was 2.23 for FY 2011. This is not necessarily a bad thing but is lower than many peers and investors should take note of it when doing further research on the company.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.