NEW YORK (
) -- The future favors stocks of smaller, growing bank holding companies, judging by valuation based on earnings estimates.
This makes sense because so much of the regulatory pile-on is focused on larger banks.
to the Dodd-Frank Wall Street Reform and Consumer Protection Act - signed into law by President Obama last July - severely limits the interchange fees that banks with over $10 billion in total assets can charge merchants to process debit card purchases.
As discussed in
's initial proposal for implementing the Durbin Amendment would cut the interchange fees by an average over 70%, severely cutting into profits for some banks, including
The battle over Durbin is still being played-out, through
against the Fed - saying, among other things, that the bias against larger banks' fee income is unconstitutional - as well as ongoing discussions in Congress.
Of course, Durbin is only one factor in the ongoing regulatory evolution following the passage of Dodd-Frank. For the largest banks, headline risks and major risks to earnings from buybacks of securitized mortgages, the regulatory onslaught over foreclosure processes and associated legal expenses, are having their effect. It is striking how cheap the "big four" appear, by forward price-to-earnings ratios:
- For Bank of America (BAC) - Get Report, the forward price-to-earnings ratio was 7.5, based on Friday's closing price of $13.48 and the 2012 consensus earnings estimate of $1.79 a share.
- For JPMorgan Chase (JPM) - Get Report, the forward P/E was 8.3, based on Friday's closing price of $46.84 and the 2012 consensus EPS estimate of $5.61.
- For Citigroup (C) - Get Report, the forward P/E was 8.6, based on Friday's closing price of $4.53 and the 2012 consensus EPS estimate of 53 cents.
- For Wells Fargo (WFC) - Get Report, the forward P/E was 8.8, based on Friday's closing price of $31.62 and the 2012 consensus EPS estimate of $3.59.
For this article, we selected a list of 10 stocks of bank holding companies with less than $5 billion in assets, with the most upside implied by mean 12-month price targets among analysts polled by FactSet. We pared the list by only including stocks with three-month average trading volume of over 20,000 shares, and those with at least two "buy" ratings from analysts.
For the most part, this group is held in higher regard by in investors than the big four, as all but two trade above 12 times their estimated 2012 earnings. The group clearly benefits from not facing the same threats to earnings as many larger banks. Some of the smaller banks are also expected by analysts to recover ground that was lost over the past year.
Here are the
, with all data supplied by SNL Financial with consensus earnings estimates provided by FactSet. Analyst sentiment is very strong for half the group.
10. 1st United Bancorp
1st United Bancorp
of Boca Raton, Fla., closed at $7.08 Friday, down 14% from a year earlier. Based on a consensus 12-month price target of $8.50 among analysts polled by FactSet, the shares have 20% upside potential.
The company had $1.3 billion in total assets as of December 31, and operated 16 branches. 1st United's balance sheet expanded 25% in 2010, as the company purchased the failed
Federal Deposit Insurance Corp.
in December. 1st United's previous acquisition was the failed
of Miami, which was shuttered by the Office of Thrift Supervision in December 2009.
1st United reported net income of $2.2 million, or 9 cents a share, for 2010. Consensus earnings estimates are 12 cents a share in 2011 and 26 cents a share in 2012.
The company raised a net $30.5 million in common equity through a public offering of $5 million shares priced at $6.50, completed in March.
In February, after the company announced its fourth-quarter results, Peyton Green of Sterne Agee reiterated his "buy" rating for the shares with a price target of $7.50, saying that the company would "have more than ample opportunity to sweep up additional FDIC-assisted deals in S. FL given the depth of damage to real estate valuations and the resultant effect on bank loan portfolios."
Green also estimate that "37 banks and thrifts with assets of $20 billion carried Texas ratios greater than 100% in S. FL." That would make for 37 targets for acquirers in the state. The Texas ratio is a bank's ratio of nonperforming assets over the sum of its core capital and loan loss reserves. Considering how easy it is for a bank to lose 50% of a loan balance on a problem credit in a weak real estate market, a Texas ratio of over 100% is a dire situation.
Five of the six analysts covering 1st United Bancorp rate the shares a buy.
9. First PacTrust Bancorp
First PacTrust Bancorp
( FPTB) of Chula Vista, Calif., closed at $15.87 Friday, returning 81% over the previous year. With a quarterly payout of 10.5 cents, the shares have a dividend yield of 2.65%.
Based on a consensus 12-month price target of $19.08, the shares have 20% upside potential.
The company had $862 million in total assets as of December 31, with nine offices in San Diego and Riverside Counties.
After raising $60 million through a private placement completed in November, First PacTrust redeemed $19.3 million in preferred shares held by the government for bailout assistance received through the Troubled Assets Relief Program, or TARP. The company later completed its exit from the program by repurchasing for $1 million a warrant held by the U.S. Treasury to purchase common shares.
Net income available to common shareholders for 2010was $1.9 million, or 37 cents a share in 2010. The consensus earnings estimates are a dollar a share in 2011 and $1.25 a share in 2012.
After a "noisy" fourth quarter for the company, FIG Partners analyst Timothy Coffey reiterated his "outperform" or buy rating for First PacTrust with a $17.50 price target, saying that CEO Gregory Mitchell had assembled a "powerful team of bankers," and that with "the impressive capital base now in place," he was expecting "positive signs of growth to emerge."
All six analysts covering First PacTrust rate the shares a buy.
8. Heritage Financial Corp.
Heritage Financial Corp.
of Olympia, Wash., closed at $14.54 Friday, declining 6% from a year earlier.
Based on a consensus price target of $17.50, the shares have 20% upside potential.
The company had $1.4 billion in total assets as of December 31, with the balance sheet expanding 35% during 2010, with the government-assisted acquisitions of the failed
of Longview, Wash., in July and
of Tacoma in November.
The company raised a net $57.6 million in common equity through a public offering of 4.4 million shares priced at $13 a share. Heritage Financial then redeemed the $24 million in preferred shares held by the Treasury for TARP assistance, saying it would negotiate with the Treasury for the repurchase of an outstanding warrant, to complete its exit from the program.
Heritage announced on April 4 an agreement to purchase a branch in Kent, Wash., from
Charter Private Bank
, which is a subsidiary of
Boston Private Financial Holdings
During 2010, Heritage Financial reported net income available to common shareholders of $11.7 million, or $1.04 a share. Earnings included $11.8 million in gains on acquisitions. The consensus earnings estimates are 59 cents a share for 2011 and 87 cents for 2012.
After meeting with the company's management, KBW analyst Jacquelynne Chimera upgraded the shares to "outperform" or buy, with a $19 price target, saying that CEO Brian Vance was still on the prowl, with Heritage "interested in banks that are below $500 million in assets and have a Texas ratio below 75%."
All six analysts covering Heritage Financial Corp. rate the shares a buy.
7. Bryn Mawr Bank Corp.
Bryn Mawr Bank Corp.
of Bryn Mawr, Pa., closed at $19.99 Friday, returning 9% over the previous year. With a quarterly payout of 15 cents, the shares have a dividend yield of 3.00%.
Based on a consensus price target of $24.25, the shares have 21% upside potential.
The company had $1.7 billion in total assets as of December 31, with the balance sheet expanding 40% during 2010, mainly from the acquisition of First Keystone Financial in July.
Bryn Mawr Bank Corp. raised $26.3 million in common equity last May.
The company announced in February an agreement to purchase the private wealth management unit of
Hershey Trust Company
for $18.3 million, including $8.2 million in cash, $6.5 million in common shares, and pay the remaining $3.6 million in cash installments over an 18-month period following completion of the deal. The acquisition is expected to be completed during the second quarter.
2010 net income was $9.2 million, or 85 cents a share. The consensus estimates are for earnings of $1.48 a share in 2011 and $1.79 in 2012.
In February, Stifel Nicolaus snalyst Collyn Gilbert upgraded Bryn Mawr Bank Corp. to a "buy" with a price target of $26, saying the company had "grown to a level of becoming well positioned to take share in
a fragmented market" in the Philadelphia area, and that its balance sheet had "reliance on longer-term fixed rated assets, placing it in a more favorable position in the event interest rates should rise."
All three analysts covering Bryn Mawr Bank Corp. rate the shares a buy.
6. ESSA Bancorp
of Stroudsburg, Pa., closed at $12.63 Friday, down 1% from a year earlier. With a quarterly payout of 5 cents, the shares have a dividend yield of 1.58%.
Based on a consensus price target of $15.50, the shares have 23% upside potential.
The company had $1.1 billion in total assets as of December 31, with 18 offices in Monroe, Northampton and Lehigh Counties, in Pennsylvania
ESSA Bancorp earned $1 million, or 9 cents a share, during its first fiscal quarter ended December 31. For fiscal 2010, ended September 30, the company earned $4.5 million, or 36 cents a share. The consensus earnings estimates are 35 cents a share in fiscal 2011 and 37 cents a share in fiscal 2012.
After the fiscal first-quarter results were announced, Laurie Hunsicker of Stifel Nicolaus reiterated her buy rating for ESSA Bancorp with a price target of $16, saying that based on tangible book value, the shares were trading at a "discount relative to its Mid-Atlantic community bank peer group," and that ESSA was a "clean, over-capitalized bank that
would continue to return capital to shareholders via dividends along with a solid share repurchase policy."
Both analysts covering ESSA Bancorp rate the shares a buy.
5. First Financial Holdings
First Financial Holdings
( FFCH) of Charleston, S.C., closed at $11.47 Friday, down 19% from a year earlier. Based on a quarterly payout of 5 cents, the shares have a dividend yield of 1.74%.
Based on a consensus price target of $14.22, the shares have 24% upside potential.
The company had $3.3 billion in total assets as of December 31, with 66 offices along the coast of South Carolina, and also in the Florence, S.C., and Wilmington, N.C. areas.
The company owes $65 million in TARP money.
For the first fiscal quarter ended December 31, First Financial Holdings reported net income to common shareholders of $210 thousand, or a penny a share. For fiscal 2010 ended September 30, the company reported a net loss to common shareholders of $40.6 million, or $2.46 a share. The loss mainly resulted from a $125.2 million provision for loan losses, increasing from $66.9 million the previous fiscal year.
The consensus estimates are for First Financial Holdings to earn 6 cents a share in fiscal 2011 and 94 cents a share in fiscal 2012.
On March 9, Christopher Marinac of FIG Partners upgraded First Financial Holdings to an "outperform" or buy rating with a price target of $15.11, saying a recent visit with the bank's management had reaffirmed his "conviction that classified loans are beginning to stabilize and that necessary credit marks are quite measurable for the next several quarters." Marinac forecasted annual earnings power of "$1.95 by the end of
Two of the seven analysts covering First Financial Holdings rate the shares a buy, while the other five analysts all have neutral ratings.
4. Tennessee Commerce Bancorp
Tennessee Commerce Bancorp
of Franklin closed at $4.50 Friday, down 43% over the previous year.
Based on a consensus price target of $5.75, the shares have 28% upside potential.
The company had $1.5 billion in total assets as of December 31.
Tennessee Commerce disclosed in a Securities and Exchange Commission filing on April 1 that its 2010 10-K report would be delayed because the company was "evaluating the impact" of an examination report from Tennessee regulators and the FDIC on its main subsidiary Tennessee Commerce Bank.
In a January 21 filing, the company announced net income available to common shareholders of $1.9 million in 2010, or 24 cents a share. The consensus estimates are for Tennessee Commerce to earn 32 cents a share in 2011 and 66 cents a share in 2012.
The company owes $30 million in TARP money, and raised $26.2 million in common equity in August.
After the earnings announcement on January 21, Sterne Agee analyst Kenneth James reiterated his buy rating for Tennessee Commerce with a $6 price target, describing the shares as a "higher-risk, high-return opportunity for investors with a longer time horizon.
Three of the four analysts covering Tennessee Commerce Bancorp rate the shares a buy, while the remaining analyst has a neutral rating.
3. Beneficial Mutual Bancorp
Beneficial Mutual Bancorp
of Philadelphia closed at $8.45 Friday, down 14% from a year earlier.
Based on a consensus price target of $10.86, the shares have 29% upside potential.
The company had $4.9 billion in total assets as of December 31, with 37 branches in Chester, Delaware, Montgomery, Philadelphia and Bucks Counties, in Pennsylvania, and 28 branches in Burlington and Camden Counties, in New Jersey.
As part of "an expense management reduction program after the completion of a comprehensive review of the Company's and Bank's operating cost structure," the company announced on March 23 that it would reduce its workforce by about 4% during the first quarter, taking a charge of about $2.7 million for severance expenses. The bank also said it would consolidate five branches, taking another $1.5 million in expense charges.
Beneficial Mutual Bancorp reported a net loss of $9 million, or 12 cents a share for 2009, mainly because of a $70.2 million provision for loan losses, increasing from $15.7 million in 2009. The consensus estimates are for Beneficial Mutual Bancorp to earn 14 cents a share in 2011 and 31 cents a share in 2012.
On January 29, Laurie Hunsicker of Stifel Nicolaus reiterated her buy rating for Beneficial Mutual Bancorp and raised her price target to $11 from $10.50, based on a strong market for second-step conversions of mutual holding companies. Meanwhile, Sandler O'Neill's Frank Schiraldi cut his rating to "hold" while lowering his price target to $9.50 from $10.
Four of the seven analysts covering Beneficial Mutual Bancorp rate the shares a buy, while the remaining analysts all have neutral ratings.
2. Ameris Bancorp
of Moultrie, Ga., closed at $9.79 Friday, returning 1% over the previous year.
Based on a consensus price target of $12.75, the shares have 30% upside potential.
Ameris Bancorp had $3 billion in total assets as of December 31, with 59 branches in Georgia, Alabama, Northern Florida and South Carolina. The company has acquired six failed institutions over the past two years, including
and Tifton Banking Company, which were both closed by regulators in November.
The company owes $52 million in TARP money, and raised $90 million in common equity in April 2010. At Ameris Bancorp's annual meeting on May 26, shareholders will be asked to approve a proposal to increase the number of authorized common shares to 100 million from 30 million.
For 2010, the company reported a net loss to common shareholders of $7.2 million, or 35 cents a share. The provision for loan losses was $50.5 million, increasing from $42.1 million the previous year. The consensus estimates are for the company to earn six cents a share in 2011 and 66 cents a share in 2012.
After Ameris Bancorp announced its fourth quarter results, Peyton Green of Sterne Agee reiterated his buy rating for the shares with a $13 price target, saying the shares will move higher with restored profitability in mid-2011, after the company "consolidates all of its FDIC-assisteddeals onto a common platform and credit quality continues to improve." Green also said that Ameris Bancorp's "first six FDIC-assisted deals have ensured that
the company will exit the cycle with strong profitability well ahead of most GA-based banks."
Two of the analysts covering Ameris Bancorp rate the shares a buy, while the remaining analysts have neutral ratings.
1. BOFI Holding, Inc.
BOFI Holding, Inc.
of San Diego, Calif., closed at $15.59 Friday, down 2% from a year earlier.
Based on a consensus price target of $22, the shares have 41% upside potential.
The company had $1.7 billion in total assets as of December 31, operating mainly over the Internet through its main subsidiary,
Bank of Internet USA
For the second quarter of its fiscal 2011 ended December 31, BOFI Holdings reported $4.9 million in net income to common shareholders, or 45 cents a share. For fiscal 2010 ended June 30, net income attributable to common stock was $20.5 million, or $2.22 a share.
The consensus estimates are for the company to earn $2.05 a share in fiscal 2011 and $2.58 a share in fiscal 2012.
B. Riley analyst Joe Gladue on February 4 reiterated his buy rating for BOFI Holding with a price target of $25, saying that the company had a "well-defined business model," and that "Despite the rapid growth, the bank has maintained very strong asset quality and exceptional profitability."
BOFI's shares trade for just six times the consensus earnings estimate for 2012, making for an unusually low valuation for a bank that is "is still early in its growth phase," according to Gladue, who also said that the company's "potential remains largely unrecognized by investors."
Both analysts covering BOFI Holding, Inc., rate the shares a buy.
Written by hilip 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.