Honorable MentionsOur selection approach brings several smaller banks to the list, while excluding the following large banks:
- Bank of America (BAC). The company's shares closed at $12.24 Friday, returning 6% this year, after more than doubling during 2012. Despite the run-up, the shares trade just below tangible book value, according to Thomson Reuters Bank Insight, and for 9.3 times the consensus 2014 earnings estimate of $1.31, among analysts polled by Thomson Reuters. The consensus 2013 EPS estimate is 99 cents. Bank of America continues to work through its legacy mortgage repurchase claims. The latest piece of good news for the company is that various institutional investors, including the Federal Home Loan Bank of San Francisco, the attorneys general of New York and Delaware and the Federal Housing Finance Agency, have dropped their objections to the bank's $8.5 billion proposed settlement in June 2011 of mortgage putback claims related to loans originally securitized by Countrywide Financial. Bank of America acquired Countrywide in 2008, and set aside reserves to cover the settlement in the second quarter of 2011. JPMorgan analyst Vivek Juneja said in a note to clients late on Friday that "this removes several objectors to the settlement - few others remain, most notably
American International Group ( AIG). Juneja pointed out that "the hedge fund that started the objection process, Walnut Creek (Baupost), already withdrew its objection to the deal." He added that "there has been significant overhang on Bank of America's stock because of fears about this settlement being overturned and this should reduce some of those concerns." More of Bank of America's mortgage overhang was removed on Monday, and in a very big way, as the company and MBIA (MBI) announced a "comprehensive settlement" of claims against the bank by the bond insurer. As part of the settlement, Bank of America will extend a $500 million credit line to MBIA. In turn, Bank of America will receive warrants allowing the bank to purchase 9.94 million MBIA shares for $9.59 a share, which can be exercised at any time through May 2018. MBIA's shares rose 45% to close at $14.29, putting Bank of America "in the money" on the warrants, by $4.70 per MBIA share, or approximately $46.7 million. Bank of America's shares were up over 5% to close at $12.88.
- Discover Financial Services (DFS). The shares closed at $45.93 Friday, trading for 9.6 times the consensus 2014 EPS estimate of $4.80. The consensus 2013 EPS estimate is $4.56. Discover achieved a very strong first-quarter return on equity of 27%, and with its consistent earnings performance and continued growth, seems like a steal right here. Please see TheStreet's earnings coverage for details on the company's financial performance.
- Wells Fargo (WFC). The shares closed at $37.74 Friday, returning 11% this year, following a 27% return during 2012. The shares trade for 9.7 times the consensus 2014 EPS estimate of $3.90. The consensus 2013 EPS estimate is $3.68. Wells Fargo has been one of the strongest and consistent earnings performers among large banks through the credit crisis and recovery. The company's first-quarter return on tangible common equity was 16.75%, according to Thomson Reuters Bank Insight. Based on a quarterly payout of 30 cents, the shares have a dividend yield of 3.18%. The company in March said it had received Federal Reserve approval for "a proposed increase in common stock repurchase activity for 2013 compared with 2012." Wells Fargo's common share buybacks during 2012 totaled $3.9 billion.