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TheStreet Open House

5 Cheap Small Bank Stocks (Update 2)

Stocks in this article: BACWIBCOFGFISIBANCIBCA

Corrected, as Financial Institutions Inc. fully redeemed its TARP preferred shares in March 2011.

Updated with the U.S. Treasury's public auction of Wilshire Bancorp's TARP preferred shares, which commenced Monday morning.

NEW YORK ( TheStreet) -- Following up on last week's look at the bank stocks trading at the lowest multiples to forward earnings estimates, TheStreet has now applied the same approach to small-cap bank stocks.

Since the approach of seeking out bank stocks trading at the lowest multiples to book value may no longer work in the midst of a strong market rally, and with so many banks set to achieve more "normalized" earnings performance in 2013, we have once again focused on forward P/E ratios.

When we looked at all bank stocks with average daily trading volume of at least 40,000 shares last week, four of the five names trading lowest to consensus 2013 EPS estimates were among the best-known U.S. banking names, including Bank of America, Citigroup, JPMorgan Chase, and Capital One.

Bank of America's shares returned 73% year-to-date to close at $9.60 on Thursday. The shares were still trading at a low 0.8 times tangible book value -- reflecting investor fears over mortgage putback demands -- the shares traded for a relatively high 14 times the consensus 2012 earnings estimate of 69 cents, among analysts polled by Thomson Reuters.

But looking ahead, Bank of America trades for only eight times the consensus 2013 EPS estimate of $1.19. Together with the discount to book value, the shares are still attractive for long-term investors who believe in the economic recovery and can commit for a few years.

We have now taken the same approach for small-cap bank stocks, with market capitalization below $1 billion and average daily trading volume of at least 40,000, using Thursday's closing market data provided by HighlineFI.

Doral Financial made both lists, trading for just six times the consensus 2013 EPS estimate at Thursday's closing price of $1.52, and has been excluded from our new small-cap list.

This list has its risks, with three of the companies still owing federal bailout funds received through the Troubled Assets Relief Program, or TARP. Three of the names trade below tangible book value. Three of the five have decent, or better, dividend yields.

Excluding Doral, here are the five actively traded small-cap bank stocks trading cheapest to consensus 2013 earnings estimates, ordered by descending forward price-to-earnings ratios:

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