) -- New Jersey is famous for its malls but that's not where

Wilbur Ross

, a well-known distressed investor, plans to go shopping.

Instead, he's going after banks in the Garden State. In discussing last week's investment by his firm W.L. Ross & Co. in

Sun Bancorp


of Vineland, N.J., Ross told

The New York Times

that this deal could be his first of many in the state.

"The next 18 banks in size after this one, together, have around $5 billion in deposits, and there's another 100-some-odd banks that, in total, have $40 billion in deposits," Ross said in the


article. "That's just way too many banks for one state to have."

In light of Ross's stated agenda,


decided to poke around the Garden State Parkway's many exits and try to pinpoint some attractive targets, large and small.

The Bigger Players

The largest bank headquartered in New Jersey is

Hudson City Savings Bank

of Paramus, which had $61 billion in total assets and is the main subsidiary of

Hudson City Bancorp


. Hudson City has been widely covered as an absolute bargain among

quality bank stocks

, with shares trading at 1.2 times tangible book value as of Friday, with a dividend yield of 4.81%. Year-to-date, shares are off 9.1%.

The next-largest bank in the state is

Valley National Bank

of Wayne, which is held by

Valley National Bancorp

(VLY) - Get Report

. Valley National has been a steady performer throughout the crisis with strong asset quality and decent earnings. The holding company settled its TARP tab of $300 million in December, and the stock was up a little more than 2% so far in 2010 through Friday's close.

Valley National acquired the failed

LibertyPointe Bank


Park Avenue Bank

, both of New York City, in March, in government-assisted deals that Guggenheim Securities analyst David Darst expects "to be accretive to EPS by (approximately) 10% on an annualized basis." Darst has a neutral rating on the shares.

Valley's shares closed at $14.44 Friday or 2.5 times tangible book value. By that measure, the stock is way more expensive than a sorely undervalued name like Hudson City. Then again, the shares traded above 3 times book value at the end 2007 and 2008.

Provident Bank

of Jersey City has performed decently of late and didn't participate in TARP. The bank is held by

Provident Financial Services

(PFS) - Get Report

, which closed at $12.43 Friday, or 1.4 times tangible book value. Shares were trading at 14 times the consensus 2010 earnings projection of 82 cents a share, among analysts polled by

Thomson Reuters


The ratio of price-to-projected earnings drops to 11 times for 2012. Provident could be a candidate for a takeout since it trades at a low multiple to book value, doesn't have excessive capital and hasn't been growing quickly. Meanwhile, it's not weighed-down with problem loans.

In April, Sterne Agee Matthew Kelly estimated Provident Financial could have a "potential terminal value" ranging between $15 and $17 a share. The higher figure would represent a 37% premium to Friday's close.

That's not an outlandish figure compared to the 98% premium that privately-held Eastern Bank Corp agreed to pay for

Wainwright Bank & Trust

( WAIN) in late June. That deal was discussed in detail as part of


10 Potential Small Bank Takeout Targets


Smaller New Jersey Names

According to data provided by

SNL Financial

, there were 123 banks and savings and loan associations in New Jersey as of March 31. According to


numbers, the next largest 18 New Jersey institutions by size after Sun had total deposits of $21.5 billion.

As shown in the table above, most of the 18 banks and thrifts had higher capital ratios than Sun National Bank did before Ross's investment in the holding company was announced. In order to be considered

well capitalized

by regulators, most banks and thrifts need to maintain a Tier 1 capital ratio of at least 5% and a total risk-based capital ratio of 10%.

Sun National Bank's total risk-based capital ratio was 10.99% as of March 31, and the bank had entered into an agreement with the Office of the Comptroller of the Currency to raise that ratio to 11.50% by June 30.

Out of the next largest 18 New Jersey institutions after Sun National Bank, most names were very strongly capitalized with good asset quality as of March 31.


Amboy Bank

of Old Bridge might be seeking additional capital, since the bank had a nonperforming assets ratio of more than 10% as of March 31. Nonperforming assets include loans past due 90 days or more or in nonaccrual status, less government-guaranteed balances, along with repossessed real estate. Most of Amboy's problem assets were construction loans, in keeping with the bank's business model. The bank did raise significant additional capital during the first and second quarters of 2009, and loan losses have been relatively light so far. Amboy's senior management was unable to comment in time for this article.

Out of the group of 18, the institution with the lowest Tier 1 leverage ratio was

Skylands Community Bank

, a unit of

Fulton Financial Corp.

(FULT) - Get Report

of Lancaster, Pa. While Skylands had $1.3 billion in total assets as of March 31, Fulton Financial had $16.4 billion in total assets, with eight subsidiary banks, including

The Bank

of Mount Laurel, which is also on the list. Fulton Financial raised $230 million through a common stock offering in May, and it plans to put those monies toward repaying its $376.5 million in outstanding TARP money.

With Fulton's capital raise behind it, Darst initiated Guggenheim's coverage of the shares with a buy rating and a 12-month target of $12, which would be a 17% return from Friday's closing price of $10.25. The analyst cited Fulton's high efficiency and the prospect of the holding company "play offensive in its M&A strategy."

The institution with the next-lowest Tier 1 leverage ratio out of the group of 18 was

Peapack-Gladstone Bank

the main subsidiary of

Peapack-Gladstone Financial

(PGC) - Get Report

. After the bank slipped below well-capitalized status following a $22 million net loss stemming from securities impairment changes in 2008, the holding company lowered its annual dividend to 20 cents a share from 64 cents and received $28.7 million in TARP money in January 2009. The holding company partially repaid TARP in June, redeeming $7.2 million in preferred shares held by the Treasury.

With good asset quality and improving earnings, it will be fascinating to see if the company can gradually exit TARP without raising additional common equity. Meantime, the shares look cheap, closing Friday at $12.66, or 1.2 times tangible book value and 8.5 times projected earnings per share for 2012.

Unity Bank

of Clinton had a Tier 1 leverage ratio of 7.71% as of March 31, and a nonperforming assets ratio of 3.47%. The bank is a subsidiary of

Unity Bancorp

(UNTY) - Get Report

, which received $20.6 million TARP money in December 2008.

Securities losses and elevated provisions for loan loss reserve weakened Unity's earnings over the four quarters ended March 31. Loan losses have been light through the crisis, but with nonperforming assets and early state delinquencies increasing, the company may well need to seek additional capital.

For private equity investors like Wilbur Ross, banks like Unity and Peapack-Gladstone that may need additional capital are prime candidates for investment and eventual consolidation. For smaller investors considering more actively traded names in New Jersey, Hudson City still looks like the stock to beat.


Written by Philip van Doorn in Jupiter, Fla.

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 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.