After The Big Banks' Rally, These Small Banks Could Be Next To Surge

Melvin's picks are mostly unheard regional banks that see little to no coverage from the Wall Street community. Meanwhile, the large-cap big banks may have run up too far, especially when assuming that President-elect Donald Trump's policies won't benefit these banks.

Specifically, there can never be enough support among politicians and law makers to ease regulations on the largest financial institutions. However, smaller banks will see capital freed up from the eased regulatory environment that will flow to the bottom line, while other banks will see capital freed up that can be allocated toward accretive M&A activity.

Melvin said many small banks either do a good job in building their businesses along with paying investors a solid dividend or buying back their own stock. However, small banks have found it difficult to operate given the regulatory environment that has resulted in some industry consolidation. Either one of those is a great outcome for investors who can buy a solid bank and hold on to shares for some time.

First on Melvin's list is Equitable Financial Corp. EQFN, a regional bank with a market cap of around $32 million that operates in Grand Island, Nebraska.

Equitable Financial is trading at 86 percent its tangible book value, boasts a great loan portfolio and a fantastic balance sheet. Moreover, there is a lot of "smart money" invested in the stock along with some activist shareholders.

Hamilton Bancorp

Hamilton Bancorp Inc HBK, a Baltimore, Maryland-based regional bank, is trading at approximately 75 percent to its tangible book value.

Melvin noted the Maryland banking market has seen some consolidation as of late. This is expected to continue, and Hamilton Bancorp should be considered as a target to be acquired.

Listen to the full discussion in the clip below.

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