9. Peoples Financial

Shares of Peoples Financial ( PFBX) of Biloxi, Miss., closed at $9.05 Monday, declining 11% during 2011.

The shares trade for just 0.4 times their reported Sept. 30 tangible book value of $21.64, and for 15 times the consensus 2013 EPS estimate of 60 cents. Based on a semiannual dividend of 10 cents, the shares have a yield of 2.21%.

Peoples Financial had $813 million in total assets as of Sept. 30. The company reported third-quarter earnings of $749,000, or 14 cents a share, increasing from $562,000, or 11 cents a share, in the second quarter, and $577,000, or 12 cents a share, during the third quarter of 2011.

Third-quarter net interest income was $5.6 million, declining from $5.7 million the previous quarter, but increasing from $5.4 million a year earlier. The net interest margin expanded to 3.07% during the third quarter, from 3.04% in the second quarter, although it narrowed from 3.24% in the third quarter of 2011.

Peoples Financial is strongly capitalized, with a tangible common equity ratio of 13.67% as of Sept. 30, according to Thomson Reuters Bank insight, but the low price-to-book value reflects weak earnings performance, with ROA ranging from a negative 0.31% to 0.36% (in the third quarter), according to TR Bank Insight, and a relatively high ratio of nonperforming assets -- including nonaccrual loans and repossessed real estate -- of 7.53%, as of Sept. 30.

Christopher Marinac on Oct. 26 upgraded rates Peoples Financial to "Outperform," saying that "over the next 6 to 12 months, we think shares of PFBX are capable of rising 40%+ to $12.00. This is a function of the price-to-tangible book valuation improving from 39% currently based on a share price of $8.23 on Oct. 25 to 55%, as well as moderate growth in the tangible book per share to $22.10 by late-2013."

Marinac said that a portion of the company's nonperforming loans "are a senior-secured position (which has remained current) from a borrower with publicly traded equity and debt," and that the company had been "asked by regulators several quarters ago to place certain credits (such as the one referenced above) on nonaccrual status even though these have not missed payment. Their sustained positive performance could eventually trigger an easing in the examiner's interpretation on these loans which would impact the NPA ratio."

Further supporting his expectation for the company's price-to-book ratio to increase, Marinac said that "our 2013 EPS forecast is $0.60 which covers the annual dividend by 3x and permits a rising tangible book trajectory. While the earnings do not yet support a 100% price-to-tangible book valuation, we feel the enormous discount can slowly improve and reward patient investors who accumulate PFBX shares."

PFBX Chart PFBX data by YCharts

Interested in more on Peoples Financial? See TheStreet Ratings' report card for this stock.

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