Updated with information on Wells Fargo.
NEW YORK (
has identified a select list of
Using data provided by SNL Financial, we pared down the list of roughly 900 publicly traded U.S. bank and thrift stocks to the 157 names with average daily trading volume of more than 50,00 shares. Then we isolated the 10 with the most upside based on mean price targets among analysts polled by FactSet, while only including names that are rated buys by a majority of analysts.
This approach excludes some of the best-known bank stocks, including
Bank of America
, which was heavily discounted, with shares trading for just 5.6 times the consensus 2012 earnings estimate of 99 cents a share, and 0.43 times tangible book value at Friday's closing price of $5.72, according to SNL Financial. The shares have 66% upside potential based on the consensus 12-month price target, but less than half of the analysts covering Bank of America rate the shares a buy.
is also excluded from the list, since the shares "only" had 21% upside as of Friday's market close, with a closing price of $26.91 and a consensus price target of $32.57.
JPMorgan Securities analyst Vivek Juneja is
, reiterating on Wednesday his "Overweight" rating on the shares, with a $41 price target.
The analysts have certainly been "early" on many picks, especially for the largest U.S. banks, with mortgage woes and a continued regulatory onslaught, including enhanced Basel III capital requirements and the latest round of Federal Reserve stress tests set for next month, which will feature a
At some point, the political pendulum will swing the other way, and investors who have been building long-term positions in Bank of America and the rest of the "big four" U.S. banks will make loads of money. Two of the big four members are included in the following list.
The list is fairly diverse, including some relatively small players and two holding companies that still owe money to the government for bailouts received through the Troubled Assets Relief Program, or TARP.
Here's the select list of 10 bank stocks with the most upside for 2012, ordered by ascending upside potential:
10. Bank of New York Mellon
Bank of New York Mellon
closed at $19.60 Friday, for a year-to-date decline of 34%. The shares have 28% upside potential, based on the mean price target of $25.02, among analysts polled by FactSet.
Based on a quarterly payout of 13 cents, the shares have a dividend yield of 2.65%.
for a summary of the company's third-quarter results.
Guggenheim Securities analyst Marty Mosby in November reiterated his buy rating for BNY Mellon a buy, with a $25 price target, saying after the company's Investor Day review that even though the company's projection of operating earnings growth at the lower-end of a range of "7% to 11%," caused him to lower his 2012 EPS projection by 28 cents to $2.35, "BK represents significant upside potential (+22% to +45%) with limited downside (-4%)."
On Tuesday, the analyst predicted that Bank of New York would raise its dividend payout to 3.5% in 2012, while reducing its share count by 7% through $1.8 billion in share buybacks.
The shares trade for 8.1 times the consensus 2012 earnings estimate of $2.35 a share, among analysts polled by FactSet, and 2.3 times tangible book value, according to SNL Financial.
Out of 18 analysts covering Bank of New York Mellon, 10 rate the shares a buy, seven have neutral ratings, and one analyst recommends selling the shares.
Interested in more on Bank of New York Mellon? See TheStreet Ratings' report card for
9. First Commonwealth Financial
First Commonwealth Financial Corp.
of Indiana, Pa., closed at $4.88 Friday, declining 30% year-to-date. Based on a consensus price target of $6.38, the shares have 31% upside potential.
Based on a quarterly payout of three cents, the shares have a dividend yield of 2.46%.
First Commonwealth had $5.7 billion in total assets as of Sept. 30, operating 112
First Commonwealth Bank
offices in 15 counties in western and central Pennsylvania.
On Dec. 5, the company announced that CEO John Dolan would retire, effective Dec. 31, with the board of directors naming First Commonwealth Bank president T. Michael Price as interim CEO.
The company reported third-quarter earnings of $8.3 million, or 8 cents a share, declining from $10.6 million, or 11 cents a share, in the third quarter of 2010.
The year-over-year earnings decline reflected an 8% decline in net interest income to a tax-adjusted $48.8 million in the third quarter, as the company saw its loan portfolio shrink 8% "as the result of more disciplined underwriting guidelines concerning geography and size for commercial loans, the managing down of large credit relationships over $15 million," and weak loan demand.
Earnings were also affected by a $7.0 million third-quarter provision for loan losses, increasing from $4.5 million a year earlier.
First Commonwealth's nonperforming assets ratio was 3.45%, increasing from 3.22% the previous quarter and 2.70% a year earlier, with one commercial credit relationship in Pennsylvania representing $32.8 million, or 17% of the company's $195.2 million in nonperforming assets.
The third-quarter net charge-off ratio was 1.00% and loan loss reserves covered 1.81% of total loans as of September 30.
The third-quarter return on average assets (ROA) was 0.59%, according to SNL Financial.
Following First Commonwealth's earnings announcement in October, Sterne Agee analyst Mike Shafir reiterated his Buy rating on the shares, with a price target of $6.50, and said that "While NPAs rose during the quarter, the company exhibited positive trends with a higher net interest margin, lower expenses, and a reduction in the pace of loan decline."
The shares trade for 11.2 times the consensus 2012 EPS estimate of 42 cents, and 0.8 times their Sept. 30 tangible book value of $5.77, according to SNL.
Five out of eight analysts covering First Commonwealth rate the shares a buy, while the remaining analysts all have neutral ratings.
Interested in more on First Commonwealth? See TheStreet Ratings' report card for
8. Washington Banking Co.
Washington Banking Co.
of Oak Harbor, Wash., closed at $11.21 Friday, down 17% year-to-date. Based on the consensus price target of $14.69, the shares have 31% upside potential.
The shares have a 1.78% dividend yield, based on a quarterly payout of five cents.
Washington Banking Co. had $1.7 billion in total assets as of Sept. 30, with 30 branches in Northwest Washington. The company expanded through the acquisition of two failed banks from the Federal Deposit Insurance Corp. in 2010, and CEO John Wagner said during an interview with the American Banker in September, that Washington Banking Co. was looking for more FDIC deals in the Puget Sound area.
Third-quarter net income was $3.6 million, or 24 cents a share, compared to $16.0 million, or $1.04 a share, a year earlier, when the company booked a $19.9 million bargain purchase gain on its purchase of the failed institutions from the FDIC. The third-quarter net interest margin -- the difference between a bank's average yield on loans and investments and its average cost for deposits and wholesale borrowings -- was a very strong 5.43%, increasing from 5.06% a year earlier.
The third-quarter ROA was 0.86%, according to SNL Financial.
FIG Partners analyst Timothy Coffey in November reiterated his "Outperform," or "Buy" rating on Washington Banking Co., with a $14.50 price target, based on EPS estimates of $1.13 for 2012 and $1.18 for 2013, and a projected year-end 2012 tangible book value of $11.30 a share, saying that although acquired loan portfolios have been running off, "the organic loan portfolio is almost the same size it was a year ago at near $800 million, or 75% of total loans."
The shares trade for 10.2 times the consensus 2012 earnings estimate of $1.06 a share among analysts polled by FactSet, and for just above tangible book value, according to SNL.
Five out of six analysts covering Washington Banking Co. rate the shares a buy, while the remaining analyst has a neutral rating.
Investors will need Washington Banking Co. to score at least one decent-sized FDIC deal to realize the gains that analysts expect over the next year.
Interested in more on Washington Banking Co.? See TheStreet Ratings' report card for
7. TFS Financial Corp.
of Cleveland closed at $9.14 Friday, returning 1% year-to-date. Based on the mean price target of $12.00 among analysts polled by FactSet, the shares have 31% upside potential.
The company is part of a mutual thrift holding company structure, with roughly 16.5% of common shares held by the public, and the rest held by
Third Federal Savings and Loan Association of Cleveland, MHC
, as of Sept. 30
Third Federal S&LA
entered into an Office of Thrift Supervision Memorandum of Understanding, or MOU, in August of last year, agreeing to reduce its concentration in home equity loans. The company has a plan in place to reduce home equity loan commitments by $1 billion, including a $300 million reduction in home equity balances, by the end of 2011. In February, the MOU was terminated, but replaced with two new MOUs, under which both holding companies and the thrift subsidiary agreed to outside reviews of interest rate risk policies, management compensation policies and an "independent enterprise risk management study and a plan to address any deficiencies," as well as other managerial and operating improvements.
TFS said in its annual report for its fiscal year ended Sept. 30, that it was in compliance with all stipulations of the new MOUs.
TFS had $10.9 billion in total assets as of Sept. 30. For its fiscal 2011, the company reported earnings of $9.3 million, or three cents a share, compared to $11.3 million, or four cents a share, in fiscal 2010. Fiscal 2011 net interest income increased 9% to 247.6 million. The provision for loan losses declined to $98.5 million in Fiscal 2011, from $106 million in Fiscal 2010.
The decline in earnings mainly reflected $25.3 million in gains on loan sales, recorded the previous year.
The company reported an ROA of 0.09% for fiscal 2011, and a net interest margin of 2.32%, improving from 2.16% the previous year.
Sterne Agee analyst Mike Shafir on Nov. 17 reiterated his "Buy" rating for TFS Financial, with a $12.00 price target, saying that the company was "closer to the MOU termination," because of a "reduction in home equity concentration." Shafir added that "Positive trends in the quarter included a higher net interest margin (NIM), a lower level of non-accrual loans, and lower credit costs."
The consensus among the two analysts covering the company is for earnings of 14 cents a share in 2012, followed by earnings of 20 cents a share in 2013. The shares trade for 1.6 times their tangible book value of $5.71, according to SNL.
Both analysts covering TFS Financial rate the shares a buy.
The company is clearly a work in progress, with the regulators stepping in after mismanagement led to poor returns for several years. Over the past five fiscal years, the ROA has ranged from 0.09% to 0.52%.
On the other hand, TFS is very strongly capitalized, with a tangible common equity ratio of 16.21% as of Sept. 30, according to SNL Financial.
For a mutual thrift holding company, common shareholders always look forward to a "second step conversion" to full stock ownership. Under that scenario, Shafir estimates that a fully converted TFS Financial would have a tangible book value ranging from $11.84 to $13.67 a share, which would be a very significant return for investors.
Interested in more on TFS Financial? See TheStreet Ratings' report card for
6. Zions Bancorporation
of Salt Lake City closed at $15. 50 Friday, down 36% year-to-date. Based on the mean price target of $21.23among analysts polled by FactSet, the shares have 37% upside potential.
Zions owes $1.4 billion TARP money.
The company had $51.5 billion in total assets as of Sept. 30, and reported third-quarter earnings applicable to common shareholders of $65.2 million, or 35 cents a share, compared to a net loss of $80.5 million, or 47 cents, in the third quarter of 2010.
The earnings improvement mainly reflected a decline in the provision for loan losses to just $14.6 million in the third quarter, compared to a provision of $184.7 million a year earlier.
The company also reported other operating improvements, with net interest income increasing 4% year-over-year to $470.6 million in the third quarter, while noninterest income was up 10% year-over-year to $121 million, mainly because of a decline in derivative losses to $5.7 million in the third quarter, from $16.8 million in the third quarter of 2010.
The third-quarter net interest margin was 3.99%, improving from 3.62% a year earlier.
The third-quarter ROA was 0.84%, according to SNL Financial.
Guggenheim Securities analyst Marty Mosby has a neutral rating on the shares, with a $16.50 price target, saying after the third-quarter results were reported in late October that "there are only two significant factors that could move ZION's operating earnings meaningfully over the next year or two: lower credit-related operating expenses (+$0.40) or an eventual reduction in capital cost (+$0.60). Both could take most of 2012 and 2013 before they could be realized."
The shares trade for 9.4 times the consensus 2012 earnings estimate of $1.62 a share among analysts polled by FactSet, and for 0.8 times tangible book value, according to SNL.
Out of 24 analysts covering Zions Bancorporation, 13 rate the shares a buy, nine have neutral ratings, and one analyst recommends selling the shares.
Interested in more on Zions Bancorporation? See TheStreet Ratings' report card for
5. JPMorgan Chase
closed at $33.18 Friday, for a year-to-date decline of 20%. Based on the mean price target of 45.91 among analysts polled by FactSet, the shares have 38% upside potential.
Based on a 25-cent quarterly payout, the shares have a dividend yield of 3.01%.
JPMorgan stands out among the largest U.S. banks with that generous dividend payout, and following the next round of Federal Reserve
, investors are hoping for an increased return of capital, with a higher dividend payout and/or share buybacks.
for discussion of the company's third-quarter results.
After JPMorgan Chase announced its third-quarter results, FBR analyst Paul Miller lowered his 2012 earnings estimate for the company to $5.00 a share from $5.65, but reiterated his buy rating and $46.00 price target for the shares, saying the company was "well positioned with a 7.7% Tier 1 common ratio per Basel III requirements."
The shares trade for 6.6 times the consensus 2012 EPS estimate of $4.88 among analysts polled by FactSet, and for just above tangible book value, according to SNL Financial.
Out of 25 analysts covering JPMorgan Chase, 23 rate the shares a buy and two have neutral ratings.
Interested in more on JPMorgan? See TheStreet Ratings' report card for
4. Metro Bancorp
of Harrisburg, Pa., closed at $8.69 Friday, down 21% year-to-date. Based on the mean price target of $12.33 among analysts polled by FactSet, the shares have 42% upside.
The company's main subsidiary Metro Bank is operating under an April 2010 consent order, agreeing with state regulators and the FDIC "to correct and prevent certain unsafe or unsound banking practices," and to analyze Bank Secrecy Act and Office of Foreign Assets Control staffing needs, as well as "qualifications and an analysis and assessment of the independence and performance of the Bank's directors and senior executive officers,"
The company reported a third-quarter net loss of $5.7 million, or 41 cents a share, compared to earnings of $2 million, or 14 cents in the second quarter, and a net loss of $6.2 million, or 46 cents, in the third quarter of 2010.
During the third quarter, Metro Bancorp recorded a $13.8 million provision for loan losses, after setting aside just $1.7 million for reserves the previous quarter. A year earlier, the provision totaled $13.4 million.
The company's annualized ratio of net charge-offs (loan losses less recoveries) to average loans during the third quarter was a high 3.34%, with loan losses rising "as a result of updated appraisals of collateral and financial information during the period associated with seven loan relationships," all of which were "originated in the years 2004 through 2008," according to CEO Gary Nalbandian.
While the company's nonperforming assets "trended lower for the fifth consecutive quarter to $45.5 million, or 1.87%, of total assets at September 30, 2011 from a high of $70.6 million, or 3.22%, or total assets at June 30, 2010," according to Nalbandian, a relatively low 1.61% ratio of loan loss reserves to total loans could point to additional quarterly losses if the bank is surprised again by declining collateral values.
The shares trade for 0.6 times tangible book value, according to SNL Financial, and 15.9 times the consensus 2012 EPS estimate of 52 cents.
All three analyst covering Metro Bancorp rate the shares a buy.
Metro Bancorp is a book value play, until its asset quality settles down, and it moves past the FDIC consent order.
Interested in more on Metro Bancorp? See TheStreet Ratings' report card for
closed at $28.77 Friday, declining 39% year-to-date, adjusting for the 1-for-10 reverse split on May 6. Based on the mean price target of $42.39 among analysts polled by FactSet, the shares have 47% upside potential.
CEO Vikram Pandit on Dec. 6 that the company was planning layoffs of 4,500 employees and would take a related $400 million charge during the fourth quarter. Pandit also warned that if the fourth quarter had ended on Dec. 5, the company would have booked a $200 million charge on credit spreads and a $300 million hedging loss, according to an SNL Financial report.
On Nov. 29, U.S. District Judge Jed S. Rakoff in Manhattan
to settle securities fraud charges with the Securities and Exchange commission for $285 million, while neither admitting or denying guilt. The judge said that the agreement was "neither reasonable, nor fair, nor adequate, nor in the public interest."
full coverage of Citigroup's
and the progress of Pandit's good bank/bad bank strategy of
Atlantic Equities analyst Richard Staite has an "Overweight" or "Buy" rating on Citi, with a $52 price target, saying on Dec. 7 that the company "still aims to return capital to shareholders in 2012 even after taking account of the severe stress test that will be imposed by the Fed.," which he sees as "an important positive catalyst for Citigroup." Staite added that the stress test results "should show Citi in a strong position relative to BAC and JP Morgan."
The shares trade for 6.4 times the consensus 2012 EPS estimate of $4.35 among analysts polled by FactSet, and for 0.6 times tangible book value, according to SNL Financial.
Out of 22 analysts covering Citigroup, 15 rate the shares a buy, five have neutral ratings, and two recommend selling the shares.
Interested in more on Citi? See TheStreet Ratings' report card for
2. Park Sterling Corp.
Park Sterling Corp.
of Charlotte, N.C., closed at $3.74 Friday, down 39% year-to-date. Based on the consensus price target of $6.20, the shares have 66% upside potential.
Park Sterling was formed on October 6, 2010 as the holding company for Park Sterling Bank, which was chartered in September 2008. The company is rapidly expanding, and typically for a "de novo" bank, has not yet achieved consistent profits.
On Nov 1. Park Sterling acquired Community Capital Corp. of Greenwood, S.C., and doubled its asset size to $1.2 billion, with 22 branches.
Park Sterling reported a third-quarter net loss of $1.4 million, or 5 cents a share, improving from losses of $3.1 million, or 11 cents a share the previous quarter, and $3.7 million, or 23 cents a share, a year earlier.
KBW analyst Jefferson Harralson in November reiterated his "Outperform" or "Buy" rating for Park Sterling, with a $5.60 price target, saying he would expect the company to continue leveraging its excess capital by announcing "its next deal within the next six months."
The shares trade for 0.7 times of Harralson's estimated tangible book value of $5.60, following the Community Capital acquisition.
The consensus among analysts is for Park Sterling to post a fourth-quarter net loss of 2 cents a share, followed by earnings of 2 cents a share in 2012.
All three analysts covering Park Sterling rate the shares a buy.
Interested in more on Park Sterling? See TheStreet Ratings' report card for
1. Popular, Inc.
of Hato Rey, Puerto Rico, closed at $1.32 Friday, declining 58% year-to-date. Based on a consensus price target of $3.55, the shares have 154% upside potential.
Popular owes $935 million in TARP money. The company was an innovator in converting the government's preferred shares to trust-preferred share in August 2009. While the conversion didn't change the amount of money owed to the government or the 5% coupon on the shares held by the U.S. Treasury, the transaction "resulted in a favorable impact to accumulated deficit on the exchange date of $485.3 million," because Popular assumed a discount rate of 16%, taking into account the much greater dividend rate it would pay if it had offered trust-preferred shares in the open market.
Popular had $11.6 billion in total assets as of Sept. 30 and reported third-quarter earnings to common shareholders of $26.6 million, or 3 cents a share, compared to second-quarter earnings of $109.8 million, or 11 cents a share, and third-quarter 2010 earnings of $494.1 million, or 48 cents a share, when the company booked a $531 million gain on the sale of a 51% stake in its Evertec subsidiary.
Third quarter earnings declined from the previous quarter because of a $32 million increase in provisions for loan losses and because the second-quarter results included "a tax benefit of approximately $59.6 million related to the timing of loan charge-offs for tax purposes."
Third-quarter provisions increased because the company on September 29 "completed the sale of construction and commercial real estate loans with an unpaid principal balance and net book value of approximately $358 million and $128 million, respectively," the majority of which were nonperforming loans.
The third-quarter ROA was 0.29%, according to SNL.
Following the earnings announcement, Cantor Fitzgerald analyst Michael Diana reiterated his "Buy" rating on Popular, raising his price target for the shares to $2.50 from $2.25.
The shares trade for 5.1 times the consensus 2012 EPS estimate of 25 cents and 0.4 times tangible book value, according to SNL.
All five analysts covering Popular rate the shares a buy.
Popular is a survivor, taking advantage of the economic turmoil in Puerto Rico to acquire the failed Westernbank in April 2010, to take a commanding market share position in the island territory. While the shares are still pressured from the TARP overhang, the slow economic recovery, and a series of "messy" quarters as the company transforms its balance sheet, analysts see a long-term winner for investors.
Interested in more on Popular, Inc.? See TheStreet Ratings' report card for
>>To see these stocks in action, visit the
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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.