While most consumers and corporations like lower interest rates because they help spur both growth and consumption, typically they are not good for the banking industry as margins on deposits are squeezed in the form of loans and banking products like certificates of deposit. With the current federal funds rate of 2.5% actually above the level on the 10-year Treasury bond, investor appetite for the sector has waned dramatically.

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That lack of appetite may be just the ticket for savvy value investors looking to own bank stocks especially the smaller regional and community banks. A new report from SunTrust Robinson Humphrey points out the incredible discount the banks are trading to the overall S&P 500. The report said this:

An inverted yield curve and the prospect of no further rate hikes have depressed the bank sector stocks again. Despite strong balance sheets and greater loan portfolio diversity now, the sector is now trading at a 36% discount to the S&P 500 versus the median 18% discount over the past 20 years. This is the largest relative valuation discount to the general market since 2010.

We screened the SunTrust regional and community banks research university for companies that are rated Buy, are larger and perhaps are in better locations around the country. We found four that look like solid plays now.

Cullen/Frost Bankers

This bank has long been a big player in the Texas market, and it looks poised for an outstanding 2019. Cullen/Frost Bankers Inc. (NYSE: CFR) is one of the largest independent bank holding companies headquartered in Texas, and it is currently ranked fifth in terms of deposit market share in the state. It provides a broad array of products and services throughout numerous Texas markets.

The company’s strong corporate culture is somewhat underappreciated by investors. Every year, the CEO visits every branch from late November to late December. This enables management to get more information on the ground and directly speak to employees’ concerns.

CEO Phil Green also spends about 32 days per year on customer development calls. The bank will continue to ensure the company has a value proposition by making needed technology and personnel investments.

Shareholders receive a 2.62% dividend. The SunTrust price target for the shares is $110, and the Wall Street consensus target is $102.50. Shares closed most recently at $101.56.

IberiaBank

This top mid-cap bank has some serious upside to the SunTrust target. IberiaBank Corp. (NASDAQ: IBKC) is a financial holding company with 278 combined offices, including 180 bank branch offices and three LPOs in Louisiana, Arkansas, Tennessee, Alabama, Texas and Florida; 21 title insurance offices in Arkansas and Louisiana; mortgage representatives in 65 locations in 12 states; eight locations with representatives of IberiaWealth Advisors in four states and one IberiaCapital Partners office in New Orleans.

The analysts have noted in the past that the balance sheet is very asset sensitive, and every 25 basis point fed funds increase can represent as much as four cents is earnings per share benefit. With fed funds likely static for some time, the bank possibly will look for more acquisitions opportunities.

Shareholders receive a 2.34% dividend. SunTrust has a $92 price target, and the consensus target is $88.70. Shares traded at $74.98 on Thursday’s close.

Regions Financial

Many investors are familiar with this larger regional banking play. Regions Financial Corp. (NYSE: RF) is one of the nation’s largest full-service providers of consumer and commercial banking, wealth management, mortgage and insurance products and services. It serves customers across the South, Midwest and Texas, and through its subsidiary, Regions Bank, operates approximately 1,500 banking offices and 1,900 ATMs.

The company’s lending portfolio focuses primarily on residential mortgages, home equity, commercial mortgage and commercial and industrial loans. These short-term loans may have an interest rate based on the LIBOR rate or prime rate and are secured by collateral owned by the business requesting the loan.

Investors receive a 3.77% dividend. The $19 SunTrust price target compares with a $17.42 consensus estimate. Shares were last seen trading at $15.21.

Texas Capital BancShares

This leading mid-cap bank also resides in a very strong area of the country economically. Texas Capital BancShares Inc. (NASDAQ: TCBI) is the parent company of Texas Capital Bank, a commercial bank that delivers highly personalized financial services to businesses and entrepreneurs.

Headquartered in Dallas, the bank has full-service locations in Austin, Dallas, Fort Worth, Houston and San Antonio. With all those markets showing outstanding growth and economies stronger than much of the country, the opportunities for a local bank run by well-known Texans is huge.

The SunTrust price target is $73. The consensus target is $66.25, and shares closed at $58.20 on Thursday.

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Four top companies, while the economy is in great shape and the outlook for 2019 is very positive. With earnings right around the corner, it may make sense to buy partial position now and wait for the results. With that in mind, the historically cheap discount to the broader market won’t last forever.

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