2 Midwestern Banks I'm Buying Now

By Markets Fool.com

As someone who grew up in the Buckeye State, I do have a soft spot for most things Midwest.

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That disclaimer out of the way, it's for pure investment reasons that I'm buying more shares of two Midwest banks for thethe real-money portfolioI run for the Motley Fool.

When it comes to bank stocks, the numbers usually speak for themselves, and I continue to be impressed with those ofMidwest One Financial Group and Fifth Third Bancorp .

Both banks show solid numbers all around, including efficiency ratios south of 60%, returns on equity around 10%, and dividends in the 2%-2.5% range. And both trade at reasonable multiples -- 1.2-1.3 times book and 12-13 times earnings.

Operationally, MidWest One has announced a merger with fellow small bank Central Bancshares that close to doubles its size. When the deal closes during the second quarter of 2015, it'll grow from 25 branches in Iowa to 45 branches, mostly in Iowa and its neighboring states of Minnesota and Wisconsin.

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Any deal of that relative magnitude comes with risks, but the deal makes geographical sense in that it allows MidWest One to expand its footprint pretty contiguously. And if you believe management's estimates, the deal makes financial sense: "MidWestOne expects the transaction to be immediately accretive to its 2015 earnings per share (excluding transaction expenses), and to be at least 20% accretive to its earnings per share in 2016."

We'll have to keep an eye on how the merger goes, but for now, I'm trusting management based on what we've seen in the past.

Meanwhile, the Cincinnati, Ohio-based Fifth Third operates on much larger scale with over 1,300 branches across a dozen states.

Here's some of what its CEO Kevin Kabat had to say during last quarter's earnings release: "Success in these volatile markets continues to come from managing expenses and growing current earnings while avoiding exposures that do not generate appropriate returns for the risks taken."

Yeah, those are banking cliches you can hear most every bank executive spout off. But the difference here is that the historical numbers seem to back him up.

In fact, when I wrote an article explaining my philosophy on bank investing, I used Fifth Third as my example bank.

So as long as Fifth Third and MidWest One stick to their conservative banking knitting and trade for reasonable valuations, they'll be welcome in my banking-centric real-money portfolio. I'll be adding more to my position in each later this week.

The article 2 Midwestern Banks I'm Buying Now originally appeared on Fool.com.

Anand Chokkavelu, CFA owns shares of Fifth Third Bancorp and MidWest One Financial Group. The Motley Fool owns shares of Fifth Third Bancorp and MidWest One Financial Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.