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5 'Best' Bank Stock Ideas from Sterne Agee

Stocks in this article: BACCPNCTCBFMBITFSLTBBKI:BKX

3. First Midwest Bancorp
Shares of First Midwest Bancorp (FMBI) of Itasca, Ill., closed at $12.69 Monday, returning 25% year-to-date, following a 12% decline during 2011.

The shares trade for 1.4 times tangible book value, and for 14 times the consensus 2013 EPS estimate of 89 cents. The consensus 2012 EPS estimate is 45 cents.

Sterne Agee's price target for First Midwest is $15, implying 18% upside potential.

First Midwest had $8.1 billion in total assets at the end of the second quarter, with a stubbornly high level of nonperforming loans, which made up 3.90% of total loans as of June 30. Some analysts expect the company to announce a bulk sale of problem loans and/or repossessed real estate before the end of the year.

Sterne Agee analyst Kenneth James says that the consensus earnings view of First Midwest "continues to reflect well below potential profitability. The analyst estimates FMBI will earn a dollar a share in 2013, and said on Monday that the shares were "priced on the less expensive end of the group" of small-cap banks covered by his firm, "despite being a top-tier franchise from a deposit and core profitability perspective."

The analyst said that "despite spotty growth trends nationally, we believe loan growth trends could be a positive for FMBI over the balance of the year," and noted "that roughly 1/3 of the commercial lending staff overall has turned over in the past ~18 months towards more commercial and industrial oriented lenders," and that "the recently hired asset-based lending team had yet to be fully operational for a full quarter as of 6/30."

FMBI Chart FMBI data by YCharts

Interested in more on First Midwest Bancorp? See TheStreet Ratings' report card for this stock.

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