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Banks to Watch After TARP Redemption

Stocks in this article: CYN OCFC BPFH

NEW YORK ( TheStreet) -- Investors have reset their sights on big banks such as Citigroup (C) and Wells Fargo (WFC) after they redeemed themselves by paying back the government's bailout money, but three of their smaller rivals are more attractive as investments. A fourth bank, rebounding from a loss, warrants waiting.

Shares of Citigroup and Bank of America (BAC) have fallen in the past month, even though a brace of large banks fully repaid the government's Troubled Asset Relief Program, or TARP. Wells Fargo has risen marginally. Investors are expecting big rebounds from the country's largest banks, with Thomas Villalta, manager of the Jones Villalta Opportunity Fund, saying Bank of America's stock could double this year.

The following four banks are worthy of being placed on investors' watch list. Data were provided by SNL Financial.

Peapack-Gladstone Financial

Peapack-Gladstone Financial (PGC) of Gladstone, N.J., repaid the government $7.2 million on Jan. 6, about 25% of the $28.7 million capital infusion received a year earlier.

After a fourth-quarter 2008 net loss of $32.6 million, mainly from losses on securities, the company was profitable during the first three quarters of 2009, although an increase in loan-loss provisions dragged down earnings in the third quarter.

Still, Peapack-Gladstone has maintained good credit quality, with nonperforming assets, including loans past due 90 days or in nonaccrual status, comprising 1% of total assets as of Sept. 30, compared with the industry average of 3.07%. The company's tier 1 capital ratio was 12.2% as of Sept. 30.

The shares closed at $10.63 on Monday, just above book value. This probably reflects concerns that Peapack-Gladstone won't be able to fully exit TARP without a capital increase, since its total risk-based capital ratio -- which needs to be at least 10% for most banks to be considered well-capitalized -- had slipped to 9.77% at the end of 2008, before the TARP money was received.

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