Gas Up Your Portfolio With Banks
AnnaLisa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Regional banks may be the best way to play natural gas. Why? Two words. Marcellus and Utica. The areas of the Utica and Marcellus Shale regions are attracting banks to expand and offer their Wealth Management services to newly rich landowners and royalty rights owners in Pennsylvania, West Virginia, Ohio, and New York. Very much like the oil and pipeline boom that built up the Oklahoma and Texas banks with oil money, now its the Mid-Atlantic's turn.
These new royalty rights owners even have an organization, NARO (National Association of Royalty Owners), that keeps them apprised of the newest shale, fracking, and drilling developments as well as some financial networking. When Jed Clampett found his Texas Tea he forged a relationship with wealth manager Milburn Drysdale at The Commerce Bank of Beverly Hills. These rights owners are like latter day Jed Clampetts who need a place to bank and sound financial advice. That's where these banks come in.
Who's Really Working The Shale Assets?
Forget the Big Banks, the J.P. Morgan, Citibank and Bank of America, there were already smaller banks in this region who had likely built relationships with the Nouveau Shale Riche before the boom.
F.N.B. Corporation (NYSE: FNB) better known as First National Bank of Pennsylvania, offers a 4.6% yield with a P/E of 13.65. F.N.B is one of these Pennsylvania banks just beginning to benefit from the "Shale Rush" and they are actively courting shale money, witness this web site from F.N.B. Bank.
CEO Vincent Delie, Jr. sums it up on their Marcellus Fact sheet, which features an illuminating map of the Marcellus and their branches. “First National Bank of Pennsylvania has a 148-year history of serving the individuals and businesses of our region. We understand each local market, and we have experts on the ground right where you need them. Our institution is well-recognized and well-positioned to handle needs related to Marcellus Shale development."
They offer 260 full-service branches in the shale areas and advertise their dedicated Marcellus Shale Impact Team of experts to help manage the wealth of the newest millionaires. Not content to court just shale wealth, F.N.B. just announced its purchase of Annapolis Bancorp to broaden its base from Pennsylvania and northeast Ohio to Maryland. FBR Capital Markets is very bullish on this name after a meeting with several Western Pennsylvania banks to discuss banking in The Marcellus.
Another bank FBR liked after the meeting was First Commonwealth Financial (NYSE: FCF), which they upgraded to Outperform. It's the smallest of these names with a 618 million market cap but has 111 community banking offices concentrated in Central and Western Pennsylvania. It is trading below book of 7.44 and pays a 3.30% dividend. The forward P/E is 12.2. Their Wealth Management offers a wide range of professional services for a smallish regional bank but their main advantage is, as they say in real estate, location, location, location.
Slightly larger than F.N.B.'s market cap at $1.45 billion is Susquehanna Bancshares (NASDAQ: SUSQ) a $1.74 billion market cap bank, with 260 branches in Pennsylvania, West Virginia, New Jersey, and Maryland. While Susquehanna should pick up some shale wealth they are not as strategically located as competitor F.N.B. not do they advertise in particular to possible shale wealth clients. That doesn't mean they aren't courting them, though.
They have assets of $17.5 billion and their Wealth Management division has $7.5 billion under management. Susquehanna has been acquiring community banks since 1989. It has a 2.90% yield and a 14.33 P/E. Analysts do expect superior growth from this name at 64.30%. It's currently trading in the middle of its 52-week range around $9.30, down almost 10% since early November.
A Buffett Name
One of the biggest regionals in the Mid-Atlantic is M&T Bank (NYSE: MTB), which has 700 branches in DC, Maryland, West Virginia, Virginia, Delaware, New York, and Pennsylvania, covering three of the shale states. Their banks are like banks used to be, where these newly minted millionaires will feel at home. Tellers still call customers by name at M&T Banks, which have strong community roots as they have bought up 23 smaller banks since 1987 (list here).
Warren Buffett likes M&T Bank -- not as much as he loves Wells Fargo, but he likes this regional bank with a community feel. Granted, Mr. Buffett has held his 5,382,040 shares for some time and bought at lower prices but it's at number 17 in his portfolio.
From the share price low in 2009 in the mid-$30's the stock has tripled as it reached a 52 week high this year of $105.33 on October 18. The stock is up 36.33% in the last year alone. It has a 2.90% yield and a 15.33 P/E.
They just bought Hudson City Bank Bancshares this August. Hudson City Bank had very high lending standards and no shortage of high net worth customers in Connecticut and New York. When the merger is complete, Hudson City Bank's Tier One assets should bump up M&T Bank's ratio and make M&T Bank even more atttractive. Of all these shale names M&T Bank is the largest and most geographically diversified.
Fracking for Fortune
These Marcellus and Utica shale areas have created great sudden wealth and all the jobs natural gas drilling creates will spur further economic development in these regions, some of them famous for their poverty in the past. Strong community banks will be the beneficiaries. To play in the natural gas patch you can pick up some of these banks instead of drillers, frackers etc. and avoid risk while picking up yield.
Even without shale money the Mid-Atlantic is no latecomer to high net worth individuals and jumbo mortgages. None of these banks are solely dependent on a natural gas rush. They are all going and growing concerns but if you truly believe in the future of natural gas and the promise of those two words, Marcellus and Utica, you might want to drill further in these names.
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