NEW YORK (TheStreet) -- With the earnings outlook for banks turning bleaker, there may be some diamonds in the rough among smaller banks.
The recovery in smaller regional banks has taken a long time to play out. Unlike larger banks that have been able to rely on income from capital market activities to bolster their profits, regional banks that mostly do "plain vanilla" lending have been more exposed to credit losses since the crisis.
Many of them are significantly exposed to residential and commercial real estate and construction lending. In the last two years, the banks have worked on recapitalizing their balance sheets and have tried to shift focus from construction lending and towards commercial loans.
In more recent quarters they begun to see the benefits of improvement in asset quality and many of them are beginning to stage a turn around.TheStreet identified banks that have seen a loss in recent quarters that are expected to move back into the black in the next 12 to 18 months. Not included in our shortlist is Bank of America (BAC), which took a loss in the second quarter as mortgage-related claims against the bank soared. Analysts are not quite sure just when Bank of America would turn the corner. The others in the list are banks that have either seen a recent return to profitability or are likely to by the end of 2012. Analysts are counting on banks' ability to set off the significant losses racked up in recent years against future profits, which would reduce tax liabilities and boost profits. However, their recovery is tenuous, as the threat of another recession looms. The pace of improvement in credit quality could moderate, while revenue growth remains elusive. Still, consensus estimates do show significant earnings upside for these banks. Here are 10 banks that look set to turn the corner.
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