10 Bank Stock Picks for Bottom-Fishing Investors

NEW YORK ( TheStreet) -- The shocking decline in financial stocks over the past week highlights another opportunity for long-term investors to back up the truck and load up on bank stocks that are trading below their liquidation value.

TheStreet has identified 10 actively traded banking names -- large and small - trading below tangible book value, that investors should consider. Most are profitable. All trade at low multiples to consensus 2012 earnings estimates among analysts polled by FactSet.

While there are plenty of headlines screaming about the largest banking names trading below book value, you really need to look at tangible book value to have a realistic picture and avoid exaggerating the situation.

JPMorgan Chase ( JPM), for example, closed at $34.37 Wednesday, which was below its book value of $44.77 a share according to SNL, but was above the company's tangible book value of 31.52, according to SNL Financial. Of course, while the shares are trading slightly above tangible book, JPMorgan seems to be a fantastic bargain right here, as the company is profitable and the shares trade for a historically cheap six times the consensus 2012 earnings estimate of $5.68 a share.

Tangible book value per share excludes intangible balance sheet items such as goodwill, which is an asset carried by a bank to represent the market premium paid for acquisitions. Banks periodically review their goodwill and will write it down if they determine that the market value of previous acquisitions has declined. This leads to losses that don't eat into a bank's tangible equity, but there's no question that goodwill accounting confuses investors.

To come up with a more "solid list" of banks trading below tangible book, we isolated the cheapest names by that measure, excluding those traded on the Pink Sheets, those with three-month average daily trading value below 50,000 shares, and those for which there are fewer than two "buy" recommendations among sell-side analysts.

Here are the 10 banks trading below tangible book value, counting down from the ones trading closed to book value. All saw double-digit declines for the week ended Wednesday. All except one were down year-to-date. All are also cheaply priced to forward earnings estimates. Based on analysts' consensus 12-month price targets, three have over 100% upside.

Happy bottom fishing!

10. Huntington Bancshares

Huntington Bancshares of Columbus ( HBAN), Ohio, closed at $4.71 Wednesday, down 20% from a week earlier and down 31% year-to-date.

The shares traded just below their tangible book value $4.92, according to SNL Financial.

Huntington raised its quarterly dividend payout to four cents from a penny, when the company announced its second quarter results. Based on the increased payout, the shares had a dividend yield of 3.40% at Wednesday's close.

The company earned $145.9 million, or 16 cents a share, during the second quarter, increasing from $126.4 million, or 14 cents a share in the first quarter and $48.8 million, or three cents a share, in the second quarter of 2010. The second-quarter results were boosted by a $62.1 million release of loan loss reserves. Huntington said that total loans increased 4% from a year earlier, with a 9% increase in commercial and industrial loans and 28% year-over-year increase in automobile loans.

Guggenheim Securities analyst Jeff Davis upgraded Huntington to a "buy" rating in July, with a $7 price target, calling the upgrade "a valuation call for a solidly performing Midwest regional bank," and that was when the shares were trading much higher, at 6.09.

The shares trade for 7.7 times the consensus 2012 earnings estimate of 68 cents a share, among analysts polled by FactSet.

Out of 17 analysts covering Huntington Bancshares, 10 rate the shares a buy, six have neutral ratings and one analyst recommends selling the shares.

9. Cathay General Bancorp

Shares of Cathay General Bancorp ( CATY) of El Monte, Calif., closed at $10.21 Wednesday, for a one-week decline of 26% and a year-to-date decline of 39%.

The shares traded for 0.9 times tangible book value as of Wednesday's market close, according to SNL Financial.

The company operates branches in California and New York, as well as other states. It also has a branch in Hong Kong and representative offices in Taiwan and China.

Cathay General owes $258 million in federal bailout funds received through the Troubled Assets Relief Program, or TARP, and is operating under a December 2009 memorandum of understanding, or MOU, with the Federal Reserve not to pay dividends or make other capital distributions. The company raised a net $124.9 in common equity through a public offering in February 2010, and seemed reasonably well-positioned to repay TARP, with a second-quarter profit attributable to common shareholders of $20.2 million, or 26 cents a share, and a Tier 1 leverage ratio of 12.19%, according to SNL.

Following the bank's second-quarter earnings release, Sterne Agee analyst Brett Rabatin on July 21 reiterated his neutral rating for Cathay General, saying the second-quarter results were "good, but not enough to drive consensus expectations or the valuation appreciably higher in the near-term." Then again, the shares closed at $15.78 on the date Rabatin's report was published, pulling back 35% since then.

Rabatin also said that he believes the "MOU and TARP repayment will be addressed next year."

The shares trade just below eight times the consensus 2012 EPS estimate of $1.42 a share, among analysts polled by FactSet.

Out of 13 analysts covering Cathay General Bancorp, three rate the shares a buy, while the remaining analysts all have neutral ratings.

8. Fifth Third Bancorp

Shares of Fifth Third Bancorp ( FITB) of Cincinnati closed at $9.42 Wednesday, for a one-week decline of 22% and a year-to-date decline of 35%.

The shares traded for 0.9 times tangible book value as of Wednesday's market close, according to SNL Financial.

Fifth Third reported second-quarter net income available to common shareholders of $328 million, or 35 cents a share, increasing from to $88 million, or 10 cents a share in the first quarter and $130 million, or 16 cents a share, in the second quarter of 2010. The second-quarter numbers were boosted by a $191 million reserve release.

Following Fifth Third's second-quarter earnings announcement, Guggenheim Securities analyst Marty Mosby reiterated his "Buy" rating for the shares and $16 price target, saying that "pre-provision profits increased by 2% sequentially," and that "FITB generated an annualized 8% sequential quarter growth in commercial loans."

The shares trade for 7.2 times the consensus 2012 EPS estimate of $1.47, among analysts polled by FactSet.

Out of 23 analysts covering Fifth Third Bancorp, 14 rate the shares a buy, eight have neutral ratings and one lonely analyst recommends selling the shares.

7. Virginia Commerce Bancorp

Shares of Virginia Commerce Bancorp ( VCBI) of Arlington closed at $5.79 Wednesday, down 11% from a week earlier -- for the best one-week performance among this group of 10 bank stocks -- and down 6% year-to-date.

The shares traded for 0.9 times tangible book value as of Wednesday's market close, according to SNL Financial.

The company owes $71 million in TARP money.

Virginia Commerce reported second-quarter net income to common stockholders of $7.5 million, or 24 cents a share, increasing from $3.7 million, or 12 cents a share, in the first quarter, and $4.3 million, or 15 cents a share, in the second quarter of 2010. The operating improvement reflected a decline in credit costs, with a second-quarter provision for loan losses of $1.4 million, declining from $5.8 million the previous quarter and $4.2 million a year earlier.

A $3.2 million release of loan loss reserves provided a direct boost to the company's second-quarter results, however, the company's ratio of reserves to total loans was a strong 2.47% of total loans, when compared to an annualized second-quarter ratio of net charge-offs (loan losses less recoveries) to average loans of 0.75%.

CEO Peter Converse said on July 20 when the company announced its second-quarter results that provisions for loan losses would likely "range between the first and second quarter levels through the remainder of this year."

Virginia Commerce's second-quarter net interest margin was 3.99%, which was the same as the previous quarter but up from 3.89% a year earlier. Maintaining a margin of close to 4% in such a low-rate environment is an impressive achievement for the bank.

Total loans were $2.1 billion as of June 30, declining 4% from a year earlier. Converse said that the bank's loan "pipeline is building, our loan officers are heavily involved in prospecting, and our focus on commercial and industrial lending is yielding positive growth. As a result, we expect a reversal of negative loan growth to emerge in the second half."

While Virginia Commerce said its tangible common equity ratio was 7.18% as of June 30, and Converse didn't discuss the company's plans for repaying TARP.

The shares trade for 8.4 times the consensus 2012 earnings estimate of 74 cents a share, among analysts polled by FactSet.

Two of the six analysts covering Virginia Commerce Bancorp rate the shares a buy, while the remaining analysts all have neutral ratings.

While the TARP overhang is placing a drag on the shares, Virginia Commerce appears to be a relatively low-risk play at its reduced valuation.

6. MainSource Financial Group

Shares of MainSource Financial Group ( MSFG) of Greensburg, Ind., closed at $7.46 Wednesday, for a seven-day decline of 19% and a year-to-date decline of 28%.

The shares traded for 0.8 times tangible book value as of Wednesday's market close, according to SNL Financial.

The company owes $57 million in TARP money.

Second-quarter net income available to common shareholders was $6.9 million, or 34 cents a share, increasing from $3.8 million, or 19 cents a share in the first quarter and $1.4 million, or seven cents a share, in the second quarter of 2010. The earnings improvement reflected a decline in the provision for loan losses to $4 million in the second quarter, from $5.6 million the previous quarter and $12.8 million a year earlier.

The company released $2 million in reserves during the second quarter. Reserves covered 2.63% of total loans as of June 30, and the second-quarter ratio net charge-off ratio was 1.20%.

The second-quarter net interest margin was a strong 4.30%, increasing from 4.09%, although CEO Archie Brown said that Virginia Commerce expected that its revenue would "be under increased pressure as loan demand remains relatively weak and total loans outstanding continue to decline." He added that the bank was "working diligently to identify prudent avenues for additional loan growth."

The shares trade for 8.3 times the consensus 2012 EPS estimate of $1.04, among analysts polled by FactSet.

Two of the five analysts covering MainSource Financial Group rate the shares a buy, while the remaining analysts all have neutral ratings.

Like MainSource, Virginia Commerce appears to be a relatively low-risk play, especially with such low multiples, however, the company is not confident about its prospects for near-term loan or revenue growth.

5. Citizens Republic Bancorp

Shares of Citizens Republic Bancorp ( CRBC) of Flint, Mich., closed at $6.36 Wednesday, declining 31% from a week earlier, but up 3% year-to-date.

The shares underwent a 1-for-10 reverse split on July 5.

The company also owes $300 million in TARP money, and has deferred its last six quarterly dividend payment to the government.

Citizens Republic reported second-quarter net income applicable to common shareholders of $18.5 million, or 46 cents a share, which was its first quarterly profit in three years. The profit mainly resulted from a $17.8 million release of loan loss reserves and a $10 million income tax benefit. The second-quarter numbers compared to a net loss to common shareholders of $74.3 million, or $1.89 a share, the previous quarter and a loss of $44.7 million, or $1.27 a share, a year earlier.

KBW analyst John Barber on July 11 raised his rating for Citizens Republic to "Outperform" with a price target of $13, saying the company had "significantly improved its credit quality and differentiated itself from peers."

The shares traded for 0.7 times tangible book value as of Wednesday's market close, according to SNL Financial.

The shares trade for 4.8 times the consensus 2012 EPS estimate of $1.43 cents a share, among analysts polled by FactSet. That's the lowest forward P/E among this group of 10 bank stocks.

Three out of four analysts covering Citizens Republic rate the shares a buy, while the remaining analyst has a neutral rating.

4. Oriental Financial Group

Shares of Oriental Financial Group ( OFG) of San Juan, Puerto Rico, closed at $10.05 Wednesday, for a one-week decline of 19%. The shares were also down 19% year-to-date.

The shares traded for 0.7 times tangible book value as of Wednesday's market close, according to SNL Financial.

Oriental reported second-quarter net income available to common shareholders of $25.3 million, or 56 cents a share, increasing from $1.9 million, or 4 cents a share, in the first quarter, and a loss of $4.2 million, or 13 cents a share, in the second quarter of 2010.

The second-quarter results included $9.1 million in gains on the sale of securities and a $3 million tax benefit. These items were partially offset by a $3.6 million loss on derivatives, "from the strategic decision, as previously announced, to sell Oriental's remaining swap options, purchase new swaps to manage interest rate exposure, and apply hedge accounting on them."

The second-quarter provision for loan losses -- excluding loans covered by Federal Deposit Insurance Corp. loss-sharing guarantees -- was $3.8 million, which was the same as in the previous quarter, but down from $4.1 million a year earlier.

The company reported that during the second quarter, total loans -- excluding those covered by FDIC loss-sharing -- increased 2% from the previous quarter, to $1.2 billion, "primarily due to a 14.6% increase in commercial loans."

Following the company's second-quarter earnings release in July, KBW analyst Derek Hewett reiterated his "Outperform," or buy rating, for Oriental Financial Group, with a $16 price target, noting the loan growth "despite the difficult operating environment," and that its capital was "likely the highest on the island."

Hewett also increased his 2012 earnings estimate to $1.65 a share, from $1.26.

After completing a $30 million stock repurchase in June, Oriental's board of directors approve a "new program to purchase an additional $70 million of common stock in the open market," according to the company's second-quarter 10-Q filing.

The shares trade for 6.6 times the consensus 2012 EPS estimate of $1.67, among analysts polled by FactSet.

All four analysts covering Oriental Financial Group rate the shares a buy.

3. Popular, Inc.

Shares of Popular, Inc. ( BPOP) of Hato Rey, Puerto Rico, closed at $2.05 Wednesday, down 16% from a week earlier and declining 35% year-to-date.

The shares traded for 0.7 times tangible book value as of Wednesday's market close, according to SNL Financial.

Popular reported second-quarter net income applicable to common stock of $109.8 million, or 11 cents a share, compared to $9.2 million, or a penny a share, in the first quarter, and a net loss of $236.2 million, or 28 cents a share, for the second quarter of 2010.

The results for the second quarter of 2010 reflected the company's capital raise that quarter, which was initially a preferred issue, but was later converted to common shares after shareholder approval to increase the common share count. Upon conversion, the company recorded one-time $192 million dividend on preferred shares during the second quarter.

Second-quarter results were boosted by "a tax benefit of $59.6 million related to the timing of loan charge-offs for tax purposes." Popular had agreed with Puerto Rico's Department of the Treasury to defer tax deductions related to loan charge-offs that occurred in 2009 and 2010 to 2013 through 2016. The company said that "As a result of the agreement, the Corporation made a payment of $89.4 million to the P.R. Treasury and recorded a tax benefit on its financial statements of $143 million, or $53.6 net of the payment made" to the Puerto Rico Treasury."

Popular's second-quarter net interest income totaled $374.5 million, increasing by $31.2 million from the previous quarter, reflecting improved yields on loans acquired when the company purchased the failed Westernbank Puerto Rico from the FDIC in April 2010 increased, and the company's second-quarter purchase of $282 million "performing mortgage loans in Puerto Rico."

Popular has a tendency to report "busy quarters" as the company transforms its business, continues to digest the Westernbank transaction, and deals with FDIC loss-share accounting and tax issues.

Following "another messy quarter due to a tax benefit and loss share accounting noise," Derek Hewitt of KBW reiterated his "Outperform" rating for Popular, with a $4.50 price target, saying that the company's "higher accretable yield, lower funding costs and some opportunistic portfolio purchases drove higher spread revenue," and that its capital continued to grow.

The shares trade for just over six times the consensus 2012 earnings estimate of 37 cents a share, among analysts polled by FactSet.

Four out of five analysts covering Popular rate the shares a buy, while the remaining analyst has a neutral rating.

2. Citigroup

Shares of Citigroup ( C) closed at $28.49, declining 24% from a week earlier and declining 40% year-to-date.

The shares traded for 0.6 times tangible book value as of Wednesday's market close, according to SNL Financial.

Citi reported second-quarter net income of $3.3 billion, or $1.09 a share, increasing from $3 billion, or 99 cents a share, in the first quarter, and $2.7 billion, or 90 cents a share, during the second quarter of 2010.

Credit losses declined to $5.1 billion in the second quarter from $6.4 million the previous quarter and $8 billion a year earlier. The company released $2 billion in reserves during the second quarter, directly boosting earnings, although this was the smallest reserve release since the second quarter of 2010.

Following the second-quarter announcement, Richard Staite of Atlantic Equities reiterated his "Overweight" or buy rating for Citi, with a price target of $63, saying that the company achieved "faster than expected loan growth," with total loans -- outside of those placed in runoff mode within Citi Holdings, as part of CEO Vikram Pandit's strategy to trim Citigroup's non-core assets -- increasing by "an impressive 16% YoY driven by 22% growth in corporate and 21% in international consumer."

The shares trade for 6.2 times the consensus 2012 EPS estimate of $5.13, among analysts polled by FactSet.

Out of 22 analysts covering Citigroup, 16 rate the shares a buy, four have neutral ratings and two analysts recommend selling the shares.

Amid the fear springing from S&P's downgrade of its long-term debt rating for the United States, along with additional downgrades of government-sponsored enterprises and insurers, it's no surprise to see Citigroup's shares decline along with the rest of the financials.

But Citi remains an international growth story, and the company's capital levels continue to rise, with earnings improving, beyond the loan loss reserve releases.

With the shares of this profitable company trading so low to tangible book value and to forward earnings expectations, and with Rochdale Securities analyst Richard Bove estimating that at Wednesday's market close the shares were trading for just 31% of the company's liquidation value -- defined by Bove as "cashlike holdings (cash, plus net Fed Funds and Repos) exceeding both book and market values -- it's hard to see the shares going much lower.

For a long-term investor who can commit for a few years and who hasn't been scared witless by the screaming headlines, Citi is a screaming buy.

1. Bank of America

Shares of Bank of America ( BAC) closed at $6.77 Wednesday, for a one-week decline of 29% and a year-to-date decline of 49%.

The shares traded for half their tangible book value as of Wednesday's market close, according to SNL Financial.

Bank of America symbolizes investors' fear of the unknown, as evidenced by the New York Times report earlier this week that American International Group ( AIG) was planning to sue the nation's largest bank for $10 billion in losses springing from mortgage-backed securities packaged by Countrywide and Merrill Lynch before Bank of America acquired the companies.

News of the lawsuit followed Bank of America's supposed $8.5 billion settlement in June of Countrywide mortgage putback claims by institutional investors, which fed the company's $8.8 billion second-quarter net loss.

The shares trade for five times the consensus 2012 EPS estimate of $1.51, among analysts polled by FactSet.

Based on Wednesday's market data, 11 of the 26 analysts covering Bank of America rate the shares a buy, 14 have neutral ratings, and only one analyst is telling investors to bail.

So the analysts generally don't recommend selling a stock trading for half its book value that has already lost half its value this year. A long term investor patiently building a position on the dips could make a killing on Bank of America, but it requires patience and luck. The bank clearly has a target on its back, and CEO Brian Moynihan has a tremendous mess to clean up, mainly from his predecessor's decision in 2008 to pay to acquire Countrywide's toxic mortgage mess.

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

To contact the writer, click here: Philip van Doorn.

To follow the writer on Twitter, go to http://twitter.com/PhilipvanDoorn.

To submit a news tip, send an email to: tips@thestreet.com.

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.

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