Cheap Bank Stocks Exist Despite Rally

NEW YORK ( TheStreet) -- Bank stocks have gotten expensive this year, with some doubling and even tripling from their March lows.

Still, there were 645 publicly traded U.S. banks and thrifts trading for less than $10. Of those, there are five companies whose shares trade below tangible book value, with positive returns on assets for the first three quarters of the year and three-month average daily trading volume of at least 50,000 shares, according to SNL Financial.

File these under: five plays for 2010.

5. Westfield Financial ( WFD) of Westfield, Mass., is a thrift recently included as one of TheStreet.com's three overlooked and undervalued banks. It's the only company on the list that didn't participate in the Troubled Asset Relief Program, or TARP.

The numbers: Westfield had total assets of $1.2 billion as of Sept. 30. Net income for the first three quarters was $3.5 million, or a return on average assets (ROA) of 0.41%, down from $6.5 million and 0.75% a year earlier because of increased provisions for loan-loss reserves.

Credit quality was strong, with a ratio of net charge-offs to average loans of 0.92% for the first three quarters and nonperforming assets (nonaccrual loans and repossessed real estate) comprising 0.5% of total assets as of Sept. 30.

The stock: Westfield has fallen 17% this year. The stock, which is close to tangible book value, yields 2.47%.

The company has a buyback plan in place to repurchase up to 700,000 shares between Dec. 28 and Feb. 2, 2010.

4. The Bancorp ( TBBK) of Wilmington, Del., has a unique business model: It provides private-label banking services for non-banks.

The numbers: The Bancorp had $2 billion in assets as of Sept. 30 and reported net income of $4.1 million for the first three quarters, or an ROA of 0.3%, up from a net loss of $1.2 million a year earlier, when the company booked $8.3 million in securities losses. The net loss for 2008 was $42 million, mainly from $52 million in non-cash goodwill impairment charges in the fourth quarter. The net interest margin increased to 3.76% for the first three quarters of 2009, up from 3.36% a year earlier. Credit quality has held up, with a ratio of net charge-offs to average loans of 0.72% for the first three quarters and a nonperforming-asset ratio of 0.58% as of Sept. 30.

The stock: The Bancorp is up 85% this year, and the shares are at 0.92 times tangible book value. The company owes $45 million in TARP money and pays no dividend.

3. Southwest Bancorp ( OKSB) of Stillwater, Okla., had $3 billion in total assets as of Sept. 30. The company acquired First National Bank of Anthony, Kan., which had $157 million in total assets when it failed in June. The Federal Deposit Insurance Corp. agreed to share in losses on $131 million of the acquired assets.

The numbers: Net income for the first three quarters was $9.4 million, or an ROA of 0.42%, down from $12.3 million and 0.57% a year earlier because of elevated provisions for loan losses. The nonperforming-asset ratio was 3.32%, the highest of these five companies. However, loan losses have been low, with a ratio of net charge-offs to average loans of 0.53% for the first three quarters.

The stock: Southwest Bancorp is down 52% this year, trading at 0.39 times book value and yielding 1.6%. While the company owes $70 million in TARP money, it greatly exceeds regulatory minimums for a well-capitalized bank, and its tangible common equity ratio is a healthy 7.66%. Southwest Bancorp is a deep-value play.

2. Susquehanna Bancshares ( SUSQ) of Litiz, Penn., had $13.7 billion in total assets as of Sept. 30. and owes $300 million in TARP money.

The numbers: Net income for the first three quarters was $5.1 million, or an ROA of 0.05%, down from $63.6 million and 0.64% a year earlier, as elevated loan-loss provisions took a toll. The nonperforming-asset ratio was a decent 2.05% as of Sept. 30, and the ratio of net charge-offs to average loans was 1.06% for the first three quarters.

The stock: Susquehanna Bancshares is down 63% this year. It trades at 0.78 times tangible book value and yields 0.70%. Susquehanna has traditionally been a growth play, with the shares selling in excess of 2 times tangible book value at the end of the past three years, showing tremendous potential when the economy shows clear signs of a recovery.

1. Citigroup ( C), based in New York, announced on Monday a deal to repay $20 billion in TARP money. It plans to raise $20.5 billion by issuing common shares.

The numbers: Citigroup's net income for the first three quarters was $6 billion, or an ROA of 0.47% -- not too shabby considering the pressure the company has been under and the dividend burden on preferred shares issued to the government for TARP and asset guarantees provided by the FDIC and the Treasury. The nonperforming-asset ratio was 2.18% as of Sept. 30, and the net charge-off ratio was 4.78% for the first three quarters, as the company suffered from rising credit card losses.

The stock: Citigroup is down 41% this year. It's trading at 0.88 times tangible book value and pays no dividend. As it escapes TARP, exits the FDIC loss-sharing agreement and the government sells its stake, look for Citigroup to rise several-fold over the next few years.

-- Reported by Philip van Doorn in Jupiter, Fla.

Philip W. van Doorn joined TheStreet.com Ratings., Inc., in February 2007. He is the senior analyst responsible for assigning financial strength ratings to banks and savings and loan institutions. He also comments on industry and regulatory trends. Mr. van Doorn has fifteen years experience, having served as a loan operations officer at Riverside National Bank in Fort Pierce, Florida, 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.

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