Two weeks ago, one of our recommendations here was the SPDR S&P Regional Banking ETF (KRE). As Benjamin Shepherd wrote in his recommendation of the fund, “The data show that while small banks are at a disadvantage to large banks in terms of their cost of funds — both interest and noninterest expense ratios are higher than at larger banks — they rate much higher in terms of efficiency and financial condition. For example, measures such as earning assets to total assets and tier 1 capital ratios tend to consistently run between 50 basis points and 300 points higher. They also tend to have higher net loans to asset ratios, which reflect the fact that their core business is making loans in their local markets. In other words, these are traditional banks.”
Today’s recommendation is one of those small, traditional banks, Cardinal Financial Corp. (CFNL). CFNL has a market cap of $334 million and closed yesterday at $11.45.
“Headquartered in Virginia, Cardinal Financial Corp. (CFNL) serves the Washington metropolitan area through 27 offices. The company also operates a residential mortgage-lending business with 10 locations and offers trust, brokerage, and asset-management services.
“Cardinal earns an Overall Quadrix score of 97, versus an average of 59 for the 288 regional banks in our research universe. The stock scores above 80 in three key Quadrix categories — Momentum (89), Value (84) and Quality (85).
“Cardinal posted impressive results in 2011, with per-share earnings up 52% to $0.94. Total assets soared 26%; deposits rose 15%; and loans held for investment increased 16%. On Dec. 31, nonperforming assets as a percentage of total assets were a reasonable 0.69%. For 2012, Wall Street expects per-share earnings of $0.95, up 1%. That figure seems low given the company’s operating momentum.
“Cardinal is being initiated as a Buy.”
- Richard J. Moroney, Upside, April 2, 2012