Bank Bets: Fulton, Citizens & Lazard


Doug Hughes Image Doug Hughes Editor,

Doug Hughes focuses on smaller cap banking and financial stocks; here, the editor of Bank Newsletter looks at two regional banking stocks and an asset management firm — each offering value and upside potential.

Steve Halpern:  Our special guest today is Doug Hughes, editor of Bank Newsletter.  How are you doing today Doug?

Doug Hughes:  Great, how you doing Steve?

Steve Halpern:  Good, thanks for taking the time.  You've been a long-standing expert in small and regional bank stocks; could you explain some of the overall benefits you see in this market niche relative to those who follow the larger financial firms?

Doug Hughes:  The small banks tend to be more nimble and meet very small/medium businesses in their local communities much faster decisions they can make on their loans.  That's what developers, businessmen want, and with the big banks you're under so much scrutiny, all the regulations, it's a little tougher for them.

Steve Halpern:  Now can you briefly walk us through some of the most important factors you consider when assessing the investment value of a small bank stock?

Doug Hughes:  Sure, Steve.  First, obviously we always love asset quality, making sure the bank has very few bad loans, the people running it usually goes hand-in-hand.  

If they're very smart, usually there are very few bad loans, and then third, we like an affluent area where there are people with some money, usually the money areas get the bigger premiums and takeover candidates and that's generally what we're looking for.  

We're always looking for a takeover and somebody that has growing earnings, growing dividends, and great asset quality.

Steve Halpern:  Now one specific regional thing that you favor is Fulton Financial (FULT).  Where do they operate and what makes this an attractive situation?

Doug Hughes:  Their headquartered in Lancaster, PA.  They're a large bank over 250 offices throughout Pennsylvania and Maryland.  The bank's just been around almost 135 years.  

They've done a couple of acquisitions, nothing in a long time, and it just seems like the management's setting up there to sell.  

The premium franchise trading the tangible book's around nine, usually a bank like this would sell for about two times tangible book or around $18 a share.