2010 Bank Stock Awards - Losers
NEW YORK (
) -- Following on the heels of
TheStreet's
year-end
, we present the five publicly traded banks and thrifts coming in last in all five award categories.
Using data supplied by SNL Financial for publicly traded U.S. banks and thrifts - excluding those traded on the Pink Sheets -
TheStreet
has compiled year-end awards highlighting aspects of bank performance that may illuminate investment opportunities.
TheStreet
has already published articles detailing which actively-traded bank and thrift stocks had the
and
year-to-date total returns, as well as the names operating with the
. All three of those lists include attractive opportunities for investors.
The award categories are for best and worst return in the following categories:
Return on average assets (ROA)
for the first three quarters of 2010.
Growth of non-interest bearing deposits
.
Improvement of net interest margin
for the first three quarters of 2010.
Projected earnings growth for 2011
among analysts polled by Thomson Reuters.
Price upside
based on price targets among analysts polled by Thomson Reuters.
Since two award categories are based on analyst coverage, we have narrowed down the list to banks and thrifts with average daily trading volume of at least 50,000 shares over the past three months.
Here are the five losers among banks and thrifts with stocks trading below tangible book value:
Terms
For each of the 5 banks discussed on the following pages, we'll be looking at capital strength, earnings quality and asset quality. For an explanation of those terms you can click on the box below.
Worst ROA
Company Profile
Among publicly traded banks and thrifts with average daily trading volume of at least 50,000 shares, the company with the lowest return on average assets for the first three quarters of 2010 was
Hampton Roads Bancshares
(HMPR)
of Norfolk, Va.
The company's return on average assets for the first three quarters of 2010 was -8.16%, as it suffered a continued decline in asset quality.
The shares closed at 50 cents Wednesday, down 72% from a year earlier.
The company is operating under a June agreement with the
Federal Reserve
, requiring Hampton Roads Bancshares to strengthen its board of directors oversight and credit risk management, improve the asset quality of its banking subsidiaries, improve earnings, submit a capital plan to regulators and make other operating improvements.
Income Statement
For the first three quarters, Hampton Roads Bancshares reported a net loss to common shareholders of $64.5 million, or $2.63 a share, with the bottom line being boosted by $112.1 million in accretion of discount on its conversion of $80.3 million in preferred shares held by the government to common shares on September 30.
During the first three quarters of 2009, the net loss to common shareholders was $56.6 million, or $2.60 a share.
Loan quality has been the story for Hampton Roads, as the company set aside $183.9 million for reserves during the first three quarters of 2010.
Balance Sheet
With capital levels at dangerously low levels, Hampton Roads raised $235 million in common equity on September 30 by selling newly issued shares to a private investor group led by
Anchorage Advisors, LLC
,
CapGen Financial Group
and
The Carlyle Group
. The company said it expected to raise another $20 million in common equity during the fourth quarter.
Total, assets were $3.1 billion as of September 30 and the company said it had returned to well-capitalized status, with the new investments bringing its Tier 1 leverage ratio to 6.32% and its total risk-based capital ratio to 10.77%. The tangible common equity ratio was 5.13% according to SNL Financial.
The nonperforming assets ratio - including loans past due 90 days, nonaccrual loans and repossessed assets - was 11.91% as of September 30. The annualized net charge-off ratio for the first three quarters of 2010 was a very high 19.93%, with most of the charge-offs coming in the third quarter, probably as a result of the agreement with the Fed. Loan loss reserves covered 7.64% of total loans as of September 30.
Stock Ratios
The shares trade for 2.2 times book value according to SNL.
Analyst Ratings
There are no analysts covering the company.
Biggest Decline in Non-interest Bearing Deposits
Company Profile
Among publicly traded banks and thrifts with average daily trading volume of at least 50,000 shares, the bank with the largest year-over-year decline in non-interest bearing deposits was
MB Financial
(MBFI) - Get Report
of Chicago, which saw an outflow of 42% of these favored transaction account. However, this was expected following a spike in out-of-market transaction account deposits acquired when MB Financial purchased deposits and some assets of the failed
of Chicago from the FDIC.
Shares closed at $16.45 Wednesday, down 15% over the previous year.
MB Financial also grew through the FDIC-assisted acquisitions of New Century Bank and Broadway Bank, which were among the
seven Illinois banks that failed
on April 23, as well as
in December 2009.
Income Statement
Net income available to common shareholders for the first three quarters was $9.6 million, or 18 cents a share, compared to a net loss of $24.1 million, or 65 cents a share, a year earlier. With nonperforming assets continuing to increase through the first three quarters, earnings continued to suffer from elevated provisions for loan loss reserves. These totaled $197.2 million during the first three quarters, increasing from $161.8 million during the first three quarters of 2009.
On a brighter holiday note, MB Financial's tax-adjusted net interest margin increased to 3.92% for the first three quarters, from 2.85% a year earlier.
Balance Sheet
Total assets were $10.6 billion as of September 30 with nonperforming assets - including loans past due 90 days, nonaccrual loans and repossessed real estate - making up 5.72% of total assets. The net charge-off ratio for the first three quarters of 2010 was 3.88% and reserves covered 2.83% of total loans as September 30, indicating that the provision for loan losses will continue placing a drag on earnings in the coming quarters.
MB Financial's The company reported a Tier 1 leverage ratio was 10.38%, and its total risk-based capital ratio was 17.10% as of September 30. The tangible common equity ratio was 7.02% according to SNL Financial.
The company owes $196 million in TARP money.
Stock Ratios
The shares trade for 1.2 times tangible book value according to SNL Financial and 23 times the consensus earnings estimate of 73 cents a share for 2011. The forward P/E drops to 10, based on the 2012 consensus earnings estimate of $1.68 a share.
Analyst Ratings
While MB Financial's bargain acquisitions have primed the pump for the eventual economic recovery and associated loan growth, credit concerns have placed a drag on the shares this year.
Among 13 analysts covering the company, five rate the shares a buy, while seven have hold ratings and one analyst recommends investors sell the shares. John Rodis of Howe Barnes Hoefer & Arnett has a neutral rating on the shares, and while he was disappointed with the company's third quarter results, he said his firm "would be better buyers of the stock on continued weakness," and saw MB Financial as "ultimately be one of the winners in the Windy City banking market."
Most-compressed Net Interest Margin
Company Profile
Among publicly traded banks and thrifts with average daily trading volume of at least 50,000 shares, the bank with the worst contraction of its net interest margin was
Independent Bank Corporation
(IBCP) - Get Report
of Ionia, Mich., with a tax-adjusted net margin of 4.36% for the first three quarters of 2010, declining from 5.16% a year earlier.
That being said, 4.36% is actually a good interest spread when compared to the national aggregate net interest margin of 3.78% for all U.S. banks and thrifts for the first three quarters, as reported by the FDIC.
Independent Bank's shares closed at $1.53 Wednesday, down 79% over the previous year, as continued loan losses have taken their toll.
Income Statement
The company reported a net loss to common shareholders of $15.9 million during the first three quarters of 2010, or $3.71 a share, improving from a net loss of $45.3 million, or $19.02 a share, a year earlier. The shares underwent a reverse 10 to 1 split in August.
The provision for loan losses totaled $39.3 million during the first three quarters, down from $78.2 million a year earlier.
Balance Sheet
Total assets were $2.7 billion as of September 30 and the nonperforming assets ratio was 4.19%. The net charge-off ratio for the first three quarters of 2010 was 3.07% and reserves covered 3.64% of total loans as of September 30.
The company owes $72 million in TARP money and has deferred its last three dividend payments on preferred shares held by the government.
The Tier 1 leverage ratio was 6.28% and the total risk-based capital ratio was 10.70% as of September 30. According to SNL Financial, the tangible common equity ratio was a very low 1.62%.
Stock Ratios
The shares trade for 0.3 times tangible book value according to SNL.
Analyst Ratings
The only analyst still covering Independent Bank Corporation has a hold rating on the shares.
Largest Projected Earnings Decline
Company Profile
Among publicly traded banks and thrifts with average daily trading volume of at least 50,000 shares that analysts projected would report full-year profits for 2010, the company expected to see the largest decline in earnings per common share for 2011 is
TFS Financial Corp.
(TFSL) - Get Report
of Cleveland, Ohio.
The consensus earnings estimate for all of 2010 among the two analysts covering the company according to Thomson Reuters is nine cents a share, dropping to a penny a share for 2011.
Shares closed at $8.50 Wednesday, down 29% over the previous year.
Following the company's announcement of a net loss of $10.7 million, or 4 cents a share, for its fiscal fourth quarter ended September 30, Mike Shafir of Sterne Agee maintained his neutral rating on TFS's shares, but lowered his fiscal 2011 operating earnings estimate to a loss of 4 cents a share, from earnings of 10 cents a share.
The company is operating under a memorandum of understanding with the Office of Thrift Supervision, requiring it to submit plans and take action to reduce its exposure to home equity loans.
Income Statement
For the fiscal year ended September 30, TFS reported net income of $11.4 million, or 4 cents a share, down from $14.4 million, or 5 cents a share, the previous fiscal year.
The provision for loan losses was $106 million during fiscal 2010, declining from $115 million during fiscal 2009. The net interest margin for fiscal 2010 was 2.16%, declining from 2.20% a year earlier.
Balance Sheet
Total assets were $11.1 billion as of September 30. For main subsidiary
Third Federal Savings and Loan
, revolving home equity line balances made up 24% of total assets, down slightly from 25% a year earlier.
The nonperforming assets ratio for the thrift subsidiary was 2.37% and its Tier 1 leverage ratio was 12.14%, with a total risk-based capital ratio of 19.17%.
TFS Financial is not a TARP participant. The holding company's tangible common equity ratio was a strong 15.75% as of September 30, according to SNL Financial.
Stock Ratios
The shares trade for 1.5 times tangible book value according to SNL.
Analyst Ratings
One analyst covering TFS Financial rates the shares a buy, the other recommends investors hold the shares.
Largest Projected Decline by Price Target
Company Profile
Among publicly traded banks and thrifts with average daily trading volume of at least 50,000 shares, the company with the highest downside based on analysts' consensus price targets is
Macatawa Bank Corp.
(MCBC) - Get Report
of Holland, Mich.
The shares closed at $3.59 Wednesday, up 67% over the previous year.
Based on Wednesday's closing price and the consensus price target of $1 among the two analysts polled by Thomson Reuters, the shares have 72% downside. After the company released its third-quarter results, Keefe, Bruyette and Woods analyst Eileen Rooney reiterated her "market perform" or hold rating and $1 price target for the shares, citing Macatawa Bank Corp.'s "elevated level of NPAs" and "modest capital position."
The company is operating under a July agreement with the Federal Reserve, requiring Macatawa to submit a capital plan within 60 days. Main subsidiary
Macatawa Bank
is operating under a February 22 consent order from the FDIC and state regulators, requiring it to achieve a Tier 1 leverage ratio of 8% and a total risk-based capital ratio of 11% within 90 days. These ratios for the bank were 6.55% and 9.23% as of September 30.
Income Statement
Macatawa Bank Corp. reported a net loss to common shareholders of $18.7 million, or $1.06 a share, for the first three quarters of 2010, improving from a net loss of $57.3 million, or $3.30 a share, a year earlier. The provision for loan losses declined to $22.1 million during the first three quarters from $52.7 million the previous year. The year-to-date net interest margin was 3.24% as of September 30, improving from 2.75% the previous year.
Balance Sheet
Total assets were $1.6 billion and the tangible common equity ratio was a low 2.08% as of September 30, according to SNL Financial. The nonperforming assets ratio was 8.58%. The net charge-off ratio for the first three quarters was 2.33% and reserves covered 4.06% of total loans as of September 30.
Stock Ratios
The shares trade for 1.9 times tangible book value according to SNL Financial.
Analyst Ratings
One of the analysts covering Macatawa Bank Corp. rates the shares a buy, the other recommends investors hold the shares.
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--
Written by Philip van Doorn in Jupiter, Fla.
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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.