NEW YORK (
has narrowed down the hundreds of bank stocks trading below $5 to
implied by analysts' consensus price targets.
All five bank holding companies have pulled back significantly this year, with four of them declining even more than the
KBW Bank Index
which had pulled back 32% year-to-date through Friday's close at 39.50.
All but one of the five names trade significantly below their Sept. 30 tangible book value, according to SNL Financial, and two of the names are more speculative, with with nonperforming assets increasing sharply late in the credit cycle.
Two of the names are expected by analysts to report full-year losses for 2011, although one of these is a very strongly capitalized bank, formed just over a year ago.
Two of the five bank stock picks below $5 trade below seven times forward earnings estimates.
A comparison to the "big four" U.S. bank holding companies -- all trading below eight times forward earnings, with two trading significantly below book value -- shows that the entire banking industry could be grossly undervalued, despite the continued political and media onslaught against the group..
Bank of America's
forward price-to-earnings ratio was 6.4, based on Friday's closing price of $6.49 and a consensus 2012 earnings estimate of $1.02, among analysts polled by FactSet. The shares trade for just under half the company's reported Sept. 30 tangible book value of $13.22.
, the forward P/E was 6.9, based on Friday's close at $33.97 and the consensus 2012 EPS estimate of $4.94. The shares trade just above their tangible book value of $32.53, according to SNL.
also has a forward P/E of 6.9, based on a closing price of $30.34 Friday and a 2012 consensus earnings estimate of $4.42. The shares trade for 0.6 times the company's reported Sept. 30 tangible book value of $49.50.
forward P/E was 7.9, based on Friday's closing price of $25.40 and consensus 2012 EPS estimate of $3.22. The shares trade just over the company's reported book value of $24.13, as of Sept. 30.
Out of 895 publicly traded U.S. bank and thrift stocks -- excluding those trading on the Pink Sheets -- 273 trade for less than $5 a share, according to data supplied by SNL.
We narrowed down the list down to 21 names with three-month daily average trading volume of more than 50,000 shares.
We further pared the list to the five names with the most upside implied by mean price targets among analysts polled by FactSet, limiting the group to bank and thrift holding with "Buy" ratings from at least half the covering analysts.
Here are the
, ranked by ascending upside potential based on consensus price targets:
5. Wilshire Bancorp
of Los Angeles closed at $3.42 Friday, down 55% year-to-date. The shares have 18% upside potential, based on a mean 12-month price target of $4.04, among analysts polled by FactSet.
The company had $2.7 billion in total assets as of Sept. 30, with 24 branches in Southern California, Texas, New Jersey, and the New York City area, and six loan production offices in n Colorado, Georgia, Texas (two offices), New Jersey, and Virginia.
Wilshire Bancorp owes $62.2 million in federal bailout funds received through the Troubled Assets Relief Program, or TARP. The company raised $100 million in common equity during the second quarter, following an agreement with the Federal Deposit Insurance Corp. and state regulators to bring main subsidiary Wilshire State Bank's Tier 1 leverage ratio up to at least 10%. The Bank subsidiary's Tier 1 leverage ratio was 13.24% as of Sept. 30.
The holding company reported third-quarter net income available to common shareholders of $10.2 million, or 14 cents a share, increasing from $2.1 million, or 4 cents a share, during the second quarter, and $5.0 million, or 14 cents a share, during the third quarter of 2010.
The main factor in the earnings improvement was a reduction in credit costs, with a third-quarter provision for loan losses of $2.5 million, declining from $10.3 million the previous quarter and $18.0 million a year earlier. A $5.7 million decline in loan loss reserves during the third quarter directly boosted earnings.
With the company continuing its aggressive reduction of its commercial real estate loan portfolio and its nonperforming loans, Wilshire Bancorp's total assets declined 17% from a year earlier. During the third quarter, the company sold $28.7 million in loans, most of which were nonperforming, for a gain of $1.7 million.
Net interest income declined 14% year-over-year to $25.5 million in the third quarter, reflecting the balance sheet reduction.
The net interest margin -- the difference between a bank's average yield on loans and investments and its average cost for loans and deposits -- was a strong 4.23% in the third quarter, which was down from 4.42% the previous quarter, but up from 3.393% a year earlier.
Wilshire Bancorp's ratio of nonperforming assets to total assets was 2.46% as of Sept. 30, improving from 3.22% the previous quarter and 2.87% a year earlier. The annualized ratio of net charge-offs -- loan losses less recoveries -- to total loans was 0.46%, and with reserves covering 5.27% of total loans, the company appeared well-positioned for continued significant releases of reserves.
FIG Partners analyst Timothy Coffey on Oct. 28 reiterated his "Outperform" or "Buy" rating for Wilshire Bancorp, raising his 12-month price target to $4.50 from $3.80, also "estimating tangible book values of $3.43 in 2011, $4.21 in 2012 and $4.84 in 2013." The analyst said that he anticipated that "could start to reverse the DTA-Deferred Tax Asset valuation allowance over the coming quarters," and that "the improvement in the earnings power has resulted in losses below management's projections, which has increased the valuation allowance to $40 million." Coffey estimated that "company could have no tax expense or very limited expense in 2012 before a normalized expense returns in 2013."
The shares trade for 6.8 times the consensus 2012 earnings estimate of 50 cents, among analysts polled by FactSet, and just above their Sept. 30 tangible book value of $3.27, according to SNL Financial.
Four out of seven analysts covering Wilshire Bancorp rate the shares a buy, while the remaining analysts all have neutral ratings.
4. First Commonwealth Financial Corp.
Commonwealth Financial Corp.
of Indiana, Pa., closed at $4.75 Friday, declining 31% year-to-date. Based on a consensus price target of $6.46, the shares have 36% upside potential.
Based on a quarterly payout of three cents, the shares have a dividend yield of 2.53%.
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.
The company reported third-quarter earnings of $8.3 million, or 8 cents a share, increasing from $7.4 million, or 7 cents a share, during the second quarter, but 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 an 8% decline in its loan portfolio, "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.
The net interest margin declined to 3.81%, increasing from 3.76% the previous quarter, but declining from 3.90% a year earlier.
Earnings were also affected by a $7.0 million third-quarter provision for loan losses, which was down from $9.1 million the previous quarter, but up 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 reserves covered 1.81% of total loans as of September 30.
Following First Commonwealth's earnings announcement, 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 11.3 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 Financial.
Six out of nine analysts covering First Commonwealth rate the shares a buy, while the remaining analysts all have neutral ratings
3. Southwest Bancorp
of Stillwater, Okla., closed at $4.58 Friday, for a year-to-date decline of 63%. The consensus price target of $7.00 implies 53% upside for the shares.
The shares dropped 37% on July 26, after the company announced second-quarter loss to common shareholders of $4.0 million, or 21 cents a share, driven by a $20.1 million provision for loan losses, which CEO Rick Green said was taken "as a result of new appraisals received on collateral dependent commercial real estate loans from states outside of our home markets of Oklahoma, Texas, and Kansas."
The company had $2.6 billion in total assets as of Sept. 30 and holds two bank subsidiaries, including
Stillwater National Bank and Trust Co.
of Stillwater, Okla., and
Bank of Kansas
, of South Hutchinson, Kan.
Southwest Bancorp owes $70 million in TARP money.
The company's shares declined 17% on October 20, after the company reported a third-quarter net loss to common shareholders of $10.6 million, or 54 cents a share, compared to earnings of $2.8 million, or 15 cents a share, a year earlier.
During the third quarter, Southwest Bancorp recorded a $24.6 million provision for loan losses, which exceeded the company's net interest income of $24.0 million. Green said the company was continuing "to focus on the identification and resolution of problem and potential problem credits, and we have taken important additional steps this year to improve our lending, banking, and credit functions.
Nonperforming assets totaled $203.5 million as of Sept. 30, or 7.91% of total assets, increasing from 6.74% the previous quarter and 6.08% a year earlier.
The third quarter net charge-off ratio was 2.70%, and reserves covered 3.25% of portfolio loans as of Sept. 30.
The company reported a tangible common equity ratio of 11.38% as of Sept. 30.
The consensus among analysts polled by FactSet is for Southwest Bancorp to report a fourth-quarter loss of 31 cents a share, followed by a 2012 loss of 60 cents a share. The shares trade for a third of their Sept. 40 tangible book value of $14.85, according to SNL Financial.
The four analysts covering Southwest Bancorp are evenly split between buy ratings and neutral ratings.
Southwest Bancorp is obviously a play on the tremendous discount to book value. However, Despite a relatively strong level of tangible capital as of Sept. 30, Southwest Bancorp is quite a speculative play, with an alarming late-cycle increase in problem loans, in a market are that wasn't hit anywhere near as hard from the credit crisis as Florida, Georgia and California.
2. Park Sterling Corp.
Park Sterling Corp.
of Charlotte, N.C., closed at $4.00 Friday, down 35% year-to-date. Based on the consensus price target of $6.20, the shares have 55% upside potential.
Park Sterling was formed on October 6, 2010 to serve as the holding company for Park Sterling Bank, which was chartered in September 2008. The company is rapidly expanding, and -- as is typical for a "de novo" bank -- has not yet achieved consistent profits.
On Nov 1. Park Sterling completed its acquisition of Community Capital Corp. of Greenwood, S.C., to double the company's size to $1.2 billion, with 22 branches. James Perry remains as Park Sterling's CEO, with Bill Stevens, the former CEO of Community Capital, remaining as the combined company's CEO for its South Carolina market area.
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 on Nov. 3 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 consensus among analysts is for Park Sterling to swing 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.
1. Popular, Inc.
, of Hato Rey, Puerto Rico, closed at $1.75 Friday, declining 44% year-to-date. Based on a consensus price target of $3.55, the shares have 103% upside potential.
The company owes $935 million in TARP money.
Popular had $11.6 billion in total assets as of Sept. 30 and announced 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 sequentially 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.
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.
All five analysts covering Popular rate the shares a buy.
>>To see these stocks in action, visit the
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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.