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10 Most Profitable Banks Trading Below Book Value

4. First Commonwealth Financial

Shares of First Commonwealth Financial (FCF) of Indiana, Pa., closed at $7.07 Thursday, returning 3% during January following a 35% return in 2011. The shares traded just below tangible book value at the end of January, and for 13.3 times the consensus 2014 EPS estimate of 53 cents. The consensus 2013 EPS estimate is 48 cents.

Based on a 5-cent quarterly payout, the shares have a dividend yield of 2.83%. The company repurchased $37 million worth of common shares during 2012, and was authorized to buy back approximately $13 million in additional shares as of Dec. 31. First Commonwealth in January announced a new authorization to buy back up to $25 million in additional shares.

The company had $6 billion in total assets as of Dec. 31, and its 2012 ROA was 0.71%.

First Commonwealth reported fourth-quarter earnings of $8.7 million, or 9 cents a share, declining from $9.8 million, or 9 cents a share, in the third quarter, but improving from a net loss of $5.7 million, or 5 cents a share, in the fourth quarter of 2011.

The sequential earnings decline mainly resulted from "a $1.9 million termination fee for a joint venture with another financial institution" in the third quarter. The fourth-quarter 2011 net loss reflected a $25.9 million provision for credit losses, taken as the company aggressively wrote-down nonperforming commercial real estate loans.

The company's fourth-quarter net interest income was $48.2 million, increasing from $47.7 million in the third quarter, although it was down from $48.9 million in the fourth quarter of 2011. The fourth-quarter net interest margin was 3.57%, compared to 3.54% the previous quarter and 3.78% a year earlier. First Commonwealth CFO Bob Rout said during the company's earnings conference call on Jan. 30 that he previously expected the margin to contract by 5 to 7 basis points per quarter, but that he would "probably back off on that somewhat, based upon fourth-quarter results."

Miller rates First Commonwealth Financial "outperform," with an $8 price target, and estimates the company will earn 52 cents a share this year and 57 cents a share in 2014.

The analyst said in a report on Thursday that "despite a rocky road to normalized earnings (we estimate closer to $0.15/share/quarter in this environment), we continue to recommend FCF at these levels, given attractive valuation and capital deployment."

Looking ahead over the next few years, Miller sees the company to see major benefits from the increasing natural gas drilling in the Marcellus Shale formation, with an expanded bid to "leverage its relationships to both drillers and ancillary service providers."

Miller also sees a possible sale for First Commonwealth over the next few years, saying that "its exposure to Marcellus Shale, low-cost deposit franchise, and digestible size could make it an attractive target." The analyst also pointed out that during 2011, there were three bank acquisition deals for over $100 million in Pennsylvania, at an average price-to-tangible-book ratio of 1.57, "and an average one-day premium of 54%."

FCF Chart FCF data by YCharts

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