This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

What Banks Stocks Are Really Worth

NEW YORK ( TheStreet) -- Taking a look under the financial hood can help you better understand which bank stocks are really the "cheapest."

The easiest way to look at a banks real value is by stripping out reserve releases because -- at this point in the economic cycle -- banks are continuing to release loan loss reserves which are providing a boost to their bottom lines.

Each quarter, most banks make a provision for loan loss reserves, which is the amount added to the reserve to cover loan charge-offs. If the provision amounts to less than the bank's net charge-offs (loan losses less recoveries) that quarter, then the bank has "released" reserves. On occasion, a bank may find that it is so over-reserved, that it will report a negative loan loss provision, transferring money from reserves.

As an example of how important reserve releases are at this point in the economic cycle, Regions Financial reported net income available to common shareholders of $284 million, or 20 cents a share, while it released $239 million in loan loss reserves.

While it is important to note that Regions Financial's second-quarter earnings were reduced by $71 million, or five cents a share, from the accelerated discount accretion related to the company's redemption in April of $3.5 billion in preferred shares held by the government, for bailout assistance received through the Troubled Assets Relief Program, or TARP, there's no question that the reserve release was the main earnings driver.

Shares of Regions closed at $7.05 Monday, trading for less than nine times the consensus 2013 earnings estimate of 80 cents a share, among analysts polled by Thomson Reuters.

Stifel Nicoloaus analyst Christopher Mutascio said in a report on Monday that "approximately 26%-27%" of his firm's 2013 EPS estimates for Regions and Bank of America (BAC - Get Report) "are driven by unsustainable loan loss reserve releases." The analyst also said that "between the two, our 2013 EPS estimate for BAC is of higher quality, in our view, given our projected loan loss provision expense estimate of 1.02% of average loans remains above the company's 20-year median range of 0.80%-0.85% while our estimate of 0.32% for RF is actually below its 20 year median range of 0.40%-0.45%."

1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
BAC $15.64 0.00%
JPM $62.60 0.00%
RF $9.58 0.00%
WFC $54.70 0.00%
USB $42.74 0.00%

Markets

DOW 18,080.14 +21.45 0.12%
S&P 500 2,117.69 +4.76 0.23%
NASDAQ 5,092.0850 +36.0220 0.71%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs