J.P. Morgan Chase & Co. JPM, -0.21% and Wells Fargo & Co. WFC, +0.08% reported earnings today, but you may want to steer clear of the Wall Street titans and consider buying shares of tiny banks in Hawaii, Texas and West Virginia.

Largely unknown regional banks have been outperforming their bigger brethren, powered by acquisitions, a stream of deposits and higher-quality loans while avoiding the harsh regulations and scrutiny that’s burdening the investment banks.

Limp trading revenue has been the theme heading into first-quarter earnings announcements for the largest banks. J.P. Morgan said today that profits slumped 19%, missing analysts’ estimates. That follows a forgettable 2013 for J.P. Morgan, which paid a staggering $17.5 billion to settle residential mortgage-backed securities claims. Wells Fargo reported today that earnings rose 14%, though revenue fell.

Other big banks are suffering too. Citigroup Inc. C, -1.47% in March had its annual capital plan rejected by the Federal Reserve for the second time in three years. Bank of America BAC, -0.55% has been a hot stock, but its returns on equity have been unimpressive, as detailed in bank stocks winners and losers for 2014. Besides J.P. Morgan and Wells Fargo today, Citigroup reports earnings Monday, followed by Bank of America on April 16, and Goldman Sachs Group Inc. GS, +0.01% and Morgan Stanley MS, -0.33% on April 17.

For many of the biggest regional players, BB&T Corp. US:BBT of Winston-Salem, N.C., KeyCorp KEY, -0.23% of Cleveland and SunTrust Banks Inc. US:STI of Atlanta, investors can expect more of the same — margin pressure from low interest rates, cost cutting, weak mortgage lending and a focus on growing commercial and industrial loans.

These five components of the KBW Regional Bank Index had the highest returns on common equity during 2013.

The five banks on the table above are the smaller regional names with the strongest 2013 returns on common equity among the 50 components of the KBW Regional Banking Index, according to FactSet. Return on common equity is a key measure for banks, since it gauges how efficiently capital is deployed, while leaving out dividends paid to preferred shareholders.

A look at the table shows that Bank of Hawaii and City Holding Co. have attractive dividend yields — higher than most large-cap banks. All but one of these banks enjoyed massive asset growth during 2013.

Here’s a review of all five small regional banks.

Bank of Hawaii

Bank of Hawaii Corp. BOH, -0.13% ranks first among the 50 components of the KBW Regional Bank Index, with a return on common equity, or ROCE, of 14.80% during 2013. That was down from 16.41% the previous year, the result of an inhospitable interest-rate environment. But the biggest factor in the bank’s earnings decline was the industry-wide slowdown of mortgage-refinancing volume as long-term interest rates rose in anticipation of the Federal Reserve’s decision to begin tapering bond purchases. Earnings during 2013 came to $150.5 million, or $3.38 a share, down from $166.1 million, or $3.68 a share, a year earlier.

It was a tough year for Bank of Hawaii but, overall, performance was still strong. The stock is up 1% this year after a 39% surge in 2013. The bank pays a quarterly dividend of 45 cents for a dividend yield of 3.03%, and the dividend is easily covered by earnings.

Bloomberg

Bank of Hawaii’s total loans grew 4% during 2013. It’s not a stand-out growth play among this group of five banks; its strength lies in its stability and efficiency. Analysts polled by FactSet expect the bank’s earnings to recover this year to their 2012 level, with a consensus EPS estimate of $3.64. The shares trade for 15.3 times the consensus 2015 earnings estimate of $3.90.

First Financial Bankshares

First Financial Bankshares Inc. FFIN, -1.09% of Abilene, Texas, ranks second on our list, with a 2013 ROCE of 13.78%. The bank grew its assets by 16% last year, partially resulting from the purchase of Orange Savings Bank of Orange, Texas, in May. The bank also achieved strong organic growth, with total loans increasing by $602 million, or 29%, to $2.689 billion as of Dec. 31. The Orange Savings acquisition included $295 million in loans.

First Financial is primed for rapid expansion of its loan portfolio, with a strong Tier 1 leverage ratio of 9.84% and a loans-to-deposits ratio of just 65% as of Dec. 31.

The bank’s net interest margin during 2013 was a solid 4.22%. The bank relies on local credit committees to set commercial loan pricing in order to remain competitive while maximizing its loan pricing.

First Financial’s stock is down 9% this year, pulling back after a 73% return in 2013. The shares trade for 19.6 times the consensus 2015 EPS estimate of $3.06. That’s a rather high valuation for a bank stock in the current environment, but there’s no question First Financial has been achieving its goal of rapid growth while continuing to bring home a solid return on common equity.

First Republic Bank

Another rapid grower among regional banks is First Republic Bank FRC, +0.51% of San Francisco, which was spun off by Bank of America in 2009. Bank of America had acquired First Republic as part of its acquisition of Merrill Lynch in 2008.

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First Republic on March 18 completed an offering of 4 million common shares at a price of $52.60 to raise $210.4 million, according to Bloomberg. The underwriters have a 30-day option to purchase 600,000 more shares. First Republic’s stock is up 4.5% this year, following a 61% return in 2013.

The bank continues to grow its private banking and jumbo-mortgage lending businesses in various metropolitan areas, adding four offices during 2013 for a total of 73 offices. Total loans grew 21% last year to $34.0 billion. Comprehensive income — essentially net income available to common shareholders — rose to $444 million, or $3.10 a share, in 2013 from $431.4 million, or 30 cents a share, in 2012. First Republic’s 2013 ROCE was 13.66%, essentially unchanged from the previous year. The bank’s non-interest income grew by a whopping 45% in 2013 to $244.4 million.

First Republic’s stock trades for 15.9 times the consensus 2015 EPS estimate of $3.44. The consensus 2014 EPS estimate is $3.03.

Signature Bank

Signature Bank SBNY, -0.50% of New York is continuing to focus on organic growth. Through the hiring of senior lending and private banking teams from other banks, Signature increased its loan and lease portfolio by 38% during 2013 to $13.4 billion. The bank’s net interest income grew 18% to $648.4 million in 2013, although its non-interest income declined by 12% to $32 million, mainly because of other-than-temporary impairments on securities investments banned under the Volcker Rule, which was finalized by regulators in January.

The bottom line for Signature Bank was an increase in earnings to $228.7 million, or $4.76 a share, in 2013 from $185 million, or $3.91 a share, a year earlier.

Signature Bank’s stock has returned 16% this year, the best performance among the 50 components of the KBW Regional Bank Index. It beats the performance of any large-cap U.S. bank. Signature’s shares returned 51% last year.

City Holding Co.

The last name on our list of five strong regional bank stocks is City Holding Co. CHCO, +0.16% of Charleston, W. Va. The bank’s ROCE improved to 13.26% in 2013 from 11.99% the previous year.

City Holding is growing quickly, with total assets increasing 15% last year and total loans increasing by 21% to $2.606 billion, mainly through the acquisition of Community Financial Corp. of Staunton, Va. That deal included 10 branches, $460 million in assets and $410 million in loans.

The bank’s earnings available to common shareholders increased to $48.7 million, or $3.06 a share, in 2013 from $38.9 million, or $2.61 a share, in 2012.

City Holding pays a quarterly dividend of 40 cents, for a yield of 3.66%, based on Wednesday’s closing price of $43.77. The stock is down 5% this year, following a 38% return during 2013.

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