NEW YORK ( TheStreet) - Using market and regulatory data provided by SNL Financial, TheStreet has developed a list of ten actively traded bank and thrift holding companies that are cheaply priced and face earnings weakness through 2011, which could facilitate decisions to merge with larger competing institutions.

With so many bank stocks trading below book value and smaller players facing continued weakness in the economy and other earnings challenges from new regulations limiting overdraft fees and a coming torrent of new rules based on the banking reform legislation passed in July, it's only a matter of time before bank M&A heats up.

Here are the criteria we used to develop our list of likely targets that are actively-traded:
  • Closing price below tangible book value as of Aug. 27.

  • Total risk-based capital ratio above 10%.

  • Nonperforming assets (NPA) below 6% of total assets.
  • Consensus full-year 2011 net loss per share estimate among analysts polled by Thomson Reuters.
  • Three-month average daily trading volume of at least 50 thousand shares, according to data prepared by SunGard and provided by SNL Financial.
  • Despite reports that "the bargains are over" for failed banks, the Federal Deposit Insurance Corporation's gravy train continues: Most buyers of failed institutions are still getting 80% loss-sharing deals from the agency, and most premiums paid for acquired deposits are relatively small.

    With this set of criteria, we have excluded the banks that are likely to fail, since potential buyers would save themselves a lot of risk by waiting for failure and bidding on a government-assisted acquisition.

    We have also excluded holding companies that expected to post positive earnings per common share for 2010 or 2011. While there are certainly many attractive merger candidates among profitable holding companies, boards of directors of companies expected to post negative earnings per share for 2011 might face extra pressure from shareholders to sell, as patience runs out. This approach excludes companies like BOFI Holding ( BOFI), which has remained profitable through the crisis, and has traded around book value for years.

    We also chose not to exclude companies owing the government for bailout funds received via the Troubled Assets Relief Program, or TARP. While having preferred shares held by the government is considered by some to be a barrier for merger deals, Toronto-Dominion Bank ( TD) agreed in May to acquire The South Financial Group ( TSFG), with the Treasury agreeing to a big haircut on TD's redemption of TSFG's TARP preferred upon completion of the deal. Although it's not really a target since the company has a pending merger agreement in place, we've kept TSFG in our group of ten, since the deal hasn't been completed.

    The following are the ten holding companies that met our criteria sorted by total assets, with the smallest companies listed first.

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