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TheStreet Open House

7 Highest Rated Small-Cap Bank Stocks

NEW YORK ( TheStreet) -- There are only seven bank stocks assigned A-Plus (Excellent) ratings by TheStreet Ratings, all of which have market capitalizations of less than $1 billion.

As we saw in last week's look at three A-rated mid-cap bank stocks, the highest-rated names trade at higher multiples to book value and to forward (or trailing) earnings estimates than the largest U.S. bank holding companies, but most have seen much stronger earnings performance over the past five quarters. All but one saw five-year total returns of 23% or higher.

TheStreet Ratings takes a very conservative, long-term approach to stock ratings, placing its emphasis on long-term total returns as well as revenue trends and capital strength and dividends. The ratings also consider short-term performance, financial stability and volatility.

In contrast, most sell-side brokers have to consider much shorter investor outlooks -- since this is what their customers want -- focusing on 12-month price targets based on forward book value and earnings estimates, the way most sell-side analysts do.

The seven small-cap A-Plus rated banks discussed below trade for more than their tangible book value, according to Thomson Reuters Bank Insight, and for at least 10 times forward earnings estimates, or trailing estimates, for the names not covered by any analysts polled by Thomson Reuters.

The largest three U.S. bank holding companies saw much lower valuations as of Thursday's market close:

  • Shares of JPMorgan Chase (JPM - Get Report) closed at $33.97 Thursday, returning 4% year-to-date, following a 20% decline during 2011. The five-year total return was a negative 21%. The shares traded for 1.1 times tangible book value, according to Thomson Reuters Bank Insight, and for six times the consensus 2013 earnings estimate of $5.40, among analysts polled by Thomson Reuters. Based on a 30-cent quarterly payout, the shares have a dividend yield of 3.53%. The company's operating returns on average assets (ROA) have ranged between 0.66% and 1.06% over the past five quarters, according to Thomson Reuters Bank insight.
  • Bank of America (BAC - Get Report) closed at $7.14 Thursday, returning 28% year-to-date, following last year's 58% drop. The five year total return was a negative 84%. The shares traded for 0.6 times tangible book value, and for seven times the consensus 2013 EPS estimate of $1.03. Bank of America's ROA has ranged from a negative 1.51% to 1.08%, over the past five quarters.
  • Shares of Citigroup (C) closed at $26.66 Thursday, returning 1% year-to-date, following a 44% decline during 2011. The stock's five-year total return was a negative 94%. Citigroup's shares were trading for just over half their tangible book value, and for six times the consensus 2013 earnings estimate of $4.66 a share, among analysts polled by Thomson Reuters. Citi's ROA has ranged from 0.20% to 0.77% over the past five quarters.

Five of the seven A+ rated banks below have all achieved ROA of at least 0.91% in each of the past five quarters.

While there's no question that investors could be looking at long-term bargains with the "big three" listed above, the past month has shown just how volatile these names can be, and the company's continue to face serious regulatory and headline risks, as they continue working through the mortgage mess and deal with the continued phase-in of the Dodd-Frank bank reform legislation.

Here are all seven small-cap bank or thrift stocks rated A+ by TheStreet ratings, ordered by ascending asset size :

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