NEW YORK ( TheStreet) -- The concept of a cheap bank stock with good earnings potential may sound like an oxymoron, but there are a few out there these days.

Using data provided by SNL Financial, TheStreet has narrowed down the 10 bank stocks trading under $5 with the highest earnings expectations for 2010, and it's a hit-and-miss proposition. The list includes both quality names as well as those that investors may want to avoid because of capital shortfalls or crippling levels of problem loans.

Out of the roughly 1,000 publicly traded domestic bank and thrift holding companies (excluding those traded on the Pink Sheets), around 300 closed last week below $5 a share. We narrowed our list down to exclude stocks with an average daily trading volume of less than 25,000, and those with total risk-based capital ratios of less than 10%. This ratio needs to exceed 10% for most banks and thrifts to be considered well capitalized by regulators, although many institutions have been ordered to hold higher levels of capital.

Holding companies for which this ratio wasn't available were only included if their ratios of tangible common equity to tangible assets were at least 5%, as provided or calculated by SNL Financial.

That left us with 26 companies, including some pretty risky names, and some that have turned the corner. The following are the top ten listed in ascending order of projected earnings per share for 2011 as compiled by Thomson Reuters.

Shares of Synovus Financial ( SNV) of Muscogee, Ga. closed at $2.51 Wednesday, up 23% year-to-date. The company owes the government $968 million in bailout money received through the Troubled Assets Relief Program, or TARP. The consensus earnings estimate for 2011 is a loss of 3 cents a share.

Second-quarter results: Synovus reported a second-quarter net loss to common shareholders of $242.6 million or 36 cents a share, missing the consensus estimate of a 30 cent loss per share, among analysts polled by Thomson Reuters. The company reported a decline in nonperforming assets and while net charge-offs -- loan losses less recoveries -- totaled $433 million; its provision for loan losses was $299 million.

The $134 million reserve release followed the trend for many of the largest banks, which are turning the corner on asset quality and allowing their loan loss reserves to decline, which boosts earnings.

Other recent developments for Synovus include the company's move to reduce operating and regulatory expenses by combining its 30 separate bank charters into one. This was completed in June, although it's pretty obvious that it should have been done years earlier. Synovus also raised $1.1 billion in capital during the second quarter.

Keefe, Bruyette & Woods analyst Jefferson Harralson rates the shares "Market Perform" with a 12-month price target of $3.50, which would be a hefty 39% return from Wednesday's close.

Seacoast Banking Corp. of Florida ( SBCF) of Stuart, Fla. closed at $1.22 Wednesday, down 25% year-to-date and sliding significantly from a closing high of $2.50 on April 14. The company owes $50 million in TARP money and has raised capital several times through the crisis, allowing it to continue working through a high level of problem loans.

The consensus earnings estimate for 2011 is a loss of 2 cents a share.

Seacoast reported a second-quarter net loss to common shareholders of $14.7 million or 25 cents a share, improving from a net loss of $2.5 million, or 4 cents a share, during the second quarter and a net loss of $63.9 million or $3.35 a share a year earlier, which included a non-cash goodwill write-down of $49.8 million, or $2.61 a share.

Second-quarter earnings declined from the first quarter because the provision for loan losses increased to $16.8 million from $2.1 million. Seacoast said asset quality continued to improve, as the company's ratio of nonperforming assets to total assets was 5.25% as of June 30, declining from 7.02% a year earlier.

Prospects: FIG Partners analyst Christopher Marinac has a "market perform" rating on the shares and said Tuesday that his firm had "strong conviction" that SBCF will be a survivor and once again a 'thriver' among community banks along the South Florida 'Treasure Coast' and also in Central Florida.

While Seacoast's shares closed Wednesday at a low 0.8 times tangible book value, Marinac said that based on his firm's estimate of normalized earnings-per-share at a "$.12 annual pace" in mid-2011, "at an 11x P/E a year from today, the stock is only worth today's stock price."

Shares of United Community Banks ( UCBI) of Blairsville, Ga. closed at $3.40 Wednesday, flat for 2010. The company owes $180 million in TARP money. The consensus earnings estimate for 2011 is 5 cents a share.

The company reported a second-quarter net loss to common shareholders of $62.1 million, or 66 cents a share, which included a non-cash charge of $45.3 million on the sale of $100 million in nonperforming assets to Fletcher International.

In comparison, United Community's net losses to common shareholders were $35.9 million or 38 cents a share the previous quarter and $18.6 million or 38 cents a share a year earlier.

The company's ratio of nonperforming assets to total assets declined to 4.55% as of June 30 from 5.32% in March and 4.63% in June 2009. While the company's provision for loan losses kept pace with loan losses, the ratio of net charge-offs to average loans remained high, at 4.98% during the second quarter.

Prospects: Guggenheim Securities analyst Jeff Davis on Monday lowered his firm's earnings estimate for 2010 to a loss of $1.53 a share and his 12-month price target to $3.50, supporting a neutral rating for the shares. Also supporting the rating were the continued high level of nonperforming loans and overhang from the eventual need to repay TARP.

Superior Bancorp ( SUPR) of Birmingham, Ala. closed at $1.86 Wednesday, down 43% year-to-date. The company's $69 million in preferred shares issued to the Treasury for TARP bailout money was converted to trust-preferred securities, which netted the company a $23.1 million gain.

The consensus earnings estimate for 2011 is for Superior to earn 5 cents a share, but analyst coverage of the shares is very limited.

The thrift holding company has not yet scheduled its second-quarter earnings announcement. For the first quarter, Superior Bancorp reported a net loss to common stockholders of $5.7 million or 49 cents a share, compared to positive earnings of $10.9 million or 94 cents the previous quarter, which reflected the gain on the TARP conversion.

Superior had $3.3 billion in total assets as of March 31. Nonperforming assets totaled $223.9 million, increasing significantly from $201.5 million in December and $100.2 million in the first quarter of 2009. The ratio of nonperforming assets to total assets was 6.69% as of March 31, which compared to a national aggregate ratio of 3.43%, reported by the Federal Deposit Insurance Corporation.

Main subsidiary Superior Bank's total risk-based capital ratio was 10.11% as of March 31, just above the 10% threshold required for most institutions to be considered well capitalized by regulators.

Prospects: Superior Bancorp's shares were changing hands Wednesday at just 0.12 times the company's reported March 31 tangible common book value of $13.93. The shares could be an excellent bargain right now, but with the company experiencing a late-cycle surge of nonperforming loans and a possible capital shortfall, investors are probably better off waiting until second-quarter results are announced before considering whether to jump in.

Shares of West Coast Bancorp ( WCBO) of Lake Oswego, Ore. closed at $2.59 Wednesday, up 23% year-to-date. The company is not a TARP participant and the consensus earnings estimate for 2011 is 6 cents a share.

The company had some very good news earlier this month, announcing that the FDIC had terminated a Cease and Desist order issued to main subsidiary West Coast Bank last October, requiring the bank to raise capital and improve management and credit administration.

As of June 30, West Coast Bancorp had raised $173 million in capital through several offerings, and its total risk-based capital ratio was a very strong 17.10%. The company is in the midst of a discretionary $30 million offering of common shares, and had raised $7.9 million through this program as of June 30. So there's still some limited dilution risk.

For the second quarter, the company reported a net loss of $3.8 million or 4 cents a share, following a net loss of $888 thousand or once cent a share in the first quarter and $6.4 million or 41 cents a share a year earlier. Loan losses were subsiding, as the net charge-off ratio for the second quarter was 1.15%, its lowest level since the fourth quarter of 2007. The company's net loss resulted mainly from a continued build of loan loss reserves, but also reflected a $1.7 million provision for income taxes.

The second-quarter provision for reserves was $7.6 million, while net charge-offs totaled $4.7 million. Nonperforming assets comprised 4.6% of total assets as of June, which the company said was the fifth quarterly decline, but still a high level.

Prospects: With so much capital being raised and loan quality improving, West Coast Bancorp appears to be turning the corner very nicely. Shares were trading just above book value on Wednesday. KBW analyst Matthew Clark rates the shares "Outperform" (which is a buy rating) with a 12-month target of $3.50.

MBT Financial ( MBTF) of Monroe, Mich. closed at $1.74 Wednesday, up 16% year-to-date. The consensus earnings estimate for 2011 is 14 cents a share, but with limited analyst coverage, the estimate should be taken with a grain of salt.

The company is not a TARP participant, but main subsidiary Monroe Bank & Trust was ordered by the FDIC on July 12 to raise capital.

The bank was required to increase its Tier 1 leverage ratio to 8% and its total risk-based capital ratio to 11% within 90 days of the order, and to increase the ratios to 9% and 12% within 180 days. These ratios were 6.18% and 10.23% as of March 31. The bank subsidiary's June 30 call report is not yet available.

MBT Financial reported a second-quarter net loss of $372 thousand or 2 cents a share, following first quarter earnings of $248 thousand or 2 cents a share and a net loss of $5.3 million or 33 cents a share in the second quarter of 2009.

After a profitable first quarter, the company slipped back into the red as it recorded $2.5 million in prepayment fees as it reduced its borrowings from the Federal Home Loan Bank by$115 million to $113.5 million. The company also increased its provision for loan losses from the previous quarter, and theses items were partially offset by gains on securities sales.

The holding company had $1.3 billion in total assets as of June 30, a decline of 12% over the past year, which helps boost capital ratios. MBT reported a nonperforming assets ratio of 8.98%, increasing from 8.27% the previous quarter and 6.17% a year earlier. The net charge-off ratio for the first quarter was a moderate 1.88%, but can be expected to increase over coming quarters because of the high level of problem assets.

Prospects: MBT's shares were trading Wednesday for just one third of the $5.31 book value the company reported as of June 30. Although the shares are quite cheap by that measure, investors face serious dilution of common shares going forward, as the company works to meet its increased regulatory capital requirements.

Popular, Inc. ( BPOP) of Hato Rey, Puerto Rico closed at $2.81 Wednesday, up 24% during 2010. Shares closed just above tangible book value. The company converted the $935 million in preferred shares for TARP money to common shares last August.

The consensus 2011 earnings estimate for Popular is 19 cents a share. Shares were trading for 14.8 times the 2011 estimate and 10.1 times the 2012 estimate of 28 cents a share.

The company's second-quarter earnings release reflected its acquisition of the failed Westernbank Puerto Rico on April 30 and its common equity raise of $1.15 Billion. The company's tier 1 leverage ratio was 8.79% and its total risk-based capital ratio was 13.86%.

To raise capital in the second quarter, the company initially issued preferred shares, pending shareholder authorization of management's plan to issue more common shares. Upon approval in May, the new preferred shares were all converted to common, but the company was forced to record a one-time $192 million dividend on preferred shares during the second quarter. Including this item, the second quarter net loss to common shareholders was $247.5 million, or 29 cents a share, compared to a first quarter net loss of $85 million, or 13 cents a share, and a loss to common shareholders of $207.8 million, or 71 cents a share, during the second quarter of 2009.

Excluding the one-time preferred dividend, operating earnings for the second quarter were $55.8 million, improving from $85 million in the first quarter and $176.5 million a year earlier. A major factor in the operating earnings improvement was a reduced provision for loan loss reserves, which was $202.3 million for the second quarter, down from $240.2 million in March and $349.4 million in June 2009.

The provision kept pace with net charge-offs, which were an annualized 3.58% of average loans during the second quarter, improving from 3.85% in the first quarter and 3.65% a year earlier. The ratio of nonperforming assets - excluding acquired loans from Westernbank covered by a loss-sharing agreement with the FDIC - to total assets was 6.44% as of June 30, declining from 7.24% in March but up from 5.71% in June 2009.

Prospects: In a report reiterating his firm's buy rating for Popular's shares following the earnings release, Sterne Agee analyst Adam Barkstrom said the "key takeaway" from the company's second quarter was that "legacy credit metrics experienced additional stabilization." Barkstrom's 12 month target for the shares is $5.00.

Shares of First California Financial Group ( FCAL) of Westlake Village, Calif. closed at $2.56 Wednesday, down 7% year-to-date. The company owes $25 million in TARP money.

The consensus earnings estimate for 2011 is 19 cents a share.

Factoring in $312,500 in dividends paid on preferred shares held by the U.S. Treasury, First California reported a second-quarter net loss to common shareholders of $166,000, or a penny a share, compared to net losses to common shareholders of $196,000, or 2 cents a share the previous quarter and $96,000, or a penny a share a year earlier.

First California raised $41 million in common stock during the first quarter, and reported a tier 1 leverage ratio of 11.56% and a total risk-based capital ratio of 17.32% as of June 30.

The company had total assets of $1.45 billion as of June 30. The nonperforming assets ratio was 2.90%, declining from 3.16% in March and 2.93% in June 2009. There was a large shift from nonaccrual loans to foreclosed real estate, as First California completed the foreclosure of a $21 million construction project. Nonaccruals also declined as some borrowers were able to pay off their balances. Earlier stage delinquencies -- loans past due 30 to 89 days, also declined significantly. Loan loss reserves covered 1.85% of total loans as of June 30, well-ahead of the net charge-off ratio, which was 0.40%.

Prospects: First California's shares were trading Wednesday for 0.7 times the company's tangible book value of $3.64. The company seems likely to return to profitability in the third quarter, since its high reserve coverage and improving credit quality should enable it to greatly reduce its quarterly provision for loan loss reserves. There is some overhang with the eventual need to repay TARP, but the recent capital raise and discount to book value provide a nice cushion for long-term investors.

First Busey Corp. ( BUSE) of Champaign, Ill. closed at $4.52 Wednesday, up 20% year-to-date. The company owes $100 million in TARP money.

The consensus earnings projection for 2011 is 34 cents a share.

On Tuesday, First Busey reported second-quarter net income available to common stockholders of $4.4 million, or 7 cents a share, following net income to common shareholders of $2.9 million, or 4 cents a share for the first quarter and a net loss to common shareholders of $20.5 million, or 57 cents a year earlier, when the company recorded a $47.5 million loan loss provision.

The company had $3.7 billion in total assets as of June 30. Nonperforming assets comprised 2.76% of total assets, improving from 3.22% in March and 3.32% in June 2009.

Loan loss reserves covered 3.52% of total loans, and while First Busey didn't provide a net charge-off ratio, net charge-offs declined to $10.3 million during the second quarter from $20 million in the first quarter and $47.5 million a year earlier. The annualized ratio of net charge-offs to period-end net loans for the second quarter was 1.63%. Since the company's second-quarter provision for loan loss reserves was $7.5 million, the company released $2.8 million in reserves, and this appeared likely to continue.

Prospects: Howe Barnes Hoefer and Arnett analyst John Rodis told TheStreet that First Busey's tangible common equity ratio of 5.24% was " a bit light" and that the company was likely to raise capital over the next year. He maintained his neutral rating on the shares, although he noted the improvement in credit quality. "Given the outlook for another capital raise, the stock is pretty fairly valued in the near term," he said.

Citigroup ( C) tops our list with a consensus projection for 2011 earnings of 46 cents a share. Shares closed at $4.09 Wednesday and were up 24% year-to-date.

The company reported second quarter net income of $2.7 billion, with a significant portion of earnings coming from a release of loan loss reserves .

Please read Laurie Kulikowski's extensive Citigroup coverage for details on second-quarter earnings, market reaction and pressure on the shares as the Treasury continues selling its stake in the company, left over from a conversion of TARP preferred to common shares.

Prospects: Rochdale analyst Richard Bove remains enthusiastic about the shares, with a 12 month target price of $6.90. After the second-quarter earnings release, Bove highlighted Citigroup's very liquid position, with "$184 million in cash on the balance sheet," and said it was "comforting to know that the bank's balance sheet is in a better state than it has been for a considerable period of time." Bove also indicated he agreed with CEO Vikram Pandit that Citigroup would face little fallout from the recently-passed financial reform legislation.

Citi seems like a steal, with shares trading for 8.7 times the 2011 earnings projection.

-- 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 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.