Following up on last week’s look at the bank stocks trading at the lowest multiples to forward earnings estimates, TheStreet has now applied the same approach to small-cap bank stocks.
Since the approach of seeking out bank stocks trading at the lowest multiples to book value may no longer work in the midst of a strong market rally, and with so many banks set to achieve more “normalized” earnings performance in 2013, we have once again focused on forward P/E ratios.
When we looked at all bank stocks with average daily trading volume of at least 40,000 shares last week, four of the five names trading lowest to consensus 2013 earnings per share estimates were among the best-known U.S. banking names, including Bank of America, Citigroup, JPMorgan Chase, and Capital One Financial.
Bank of America’s shares returned 73 percent year-to-date to close at $9.60 on Thursday. The shares were still trading at a low 0.8 times tangible book value — reflecting investor fears over mortgage putback demands — the shares traded for a relatively high 14 times the consensus 2012 earnings estimate of 69 cents, among analysts polled by Thomson Reuters.
But looking ahead, Bank of America trades for only eight times the consensus 2013 earnings per share estimate of $1.19. Together with the discount to book value, the shares are still attractive for long-term investors who believe in the economic recovery and can commit for a few years.
We have now taken the same approach for small-cap bank stocks, with market capitalization below $1 billion and average daily trading volume of at least 40,000, using Thursday’s closing market data provided by HighlineFI.
Doral Financial made both lists, trading for just six times the consensus 2013 earnings per share estimate at Thursday’s closing price of $1.52, and has been excluded from our new small-cap list.
This list has its risks, with three of the companies still owing federal bailout funds received through the Troubled Assets Relief Program, or TARP. Three of the names trade below tangible book value. Three of the five have decent, or better, dividend yields.
Excluding Doral, here are the five actively traded small-cap bank stocks trading cheapest to consensus 2013 earnings estimates, ordered by descending forward price-to-earnings ratios:
5. First PacTrust Bancorp
Shares of First PacTrust Bancorp of Chula Vista, Calif., closed at $11.53 Thursday, returning 14 percent year-to-date, following a 20 percent decline during 2011. Based on a 12-cent quarterly payout, the shares have a dividend yield of 4.16 percent.
The shares trade for just over nine times the consensus 2013 earnings estimate of $1.24 a share, among analysts polled by Thomson Reuters. The consensus 2012 earnings per share estimate is 62 cents.
First PacTrust’s shares trade for 0.7 times tangible book value, according to HighlineFI. First PacTrust had $999 million in total assets as of Dec. 30.
The company has two acquisition deals in place that are expected to be completed during the second quarter, agreeing to pay $17 million in cash for the privately held Gateway Bancorp of Cerritos, Calif., and approximately $37.4 million in cash and stock for Beach Business Bank of Manhattan Beach, Calif. First PacTrust expects to have roughly $1.3 billion total assets following the two transactions.
The company on March 15 reported a fourth-quarter net loss to common shareholders of $6 million, or 52 cents a share, compared to earnings to common shareholders of $1.2 million, or 15 cents a share, during the fourth quarter of 2010. The net loss reflected elevated credit costs, including a $4.1 million provision for loan losses, increasing from $328,000 a year earlier, and a $3.0 million valuation allowance for losses on repossessed real estate, compared to $1.3 million a year earlier. The loss also included a $1.3 million valuation allowance on deferred tax assets.
Wunderlich Securities analyst Kevin Reynolds on March 16 reiterated his “buy” rating for First PacTrust, while lowering his price target for the shares to $16 from $20, calling the company’s fourth quarter “cleanup quarter to end year one of a multi-year transition towards a more commercially oriented institution.”
Reynolds also cited “strong loan and deposit growth,” with “net loan growth of nearly $84 million on $107 million of new loan originations, primarily in CRE and residential loans,” while “deposits grew by almost $75 million, with 22 percent of the growth attributed to [new] branches, which continue to generate very strong deposit inflows.”
The analyst said that First PacTrust “seems to be an acquirer of choice in its markets, with 2012 strategic plans calling for one to two additional acquisitions and three to five de novo branches in Southern California.”
Reynolds estimates the company will earn 55 cents a share this year, followed by 2013 earnings per share of 90 cents.
4. Intervest Bancshares
Intervest Bancshares of New York has seen its stock climb 47 percent year-to-date, closing Thursday at $3.90. The shares declined 10 percent during 2011.
According to Thomson Reuters, Michael Sarcone of Sandler O’Neill is the only analyst covering Intervest. The shares trade for nine times Sarcone’s 2013 earnings per share estimate of 44 cents. The analyst’s 2012 earnings estimate is 47 cents a share.
Intervest trades for just under half its tangible book value. The company owes $25 million in TARP money.
Intervest reported fourth-quarter net income available to common shareholders of $2.7 million, or 13 cents a share, increasing from $437,000, or two cents a share, during the fourth quarter of 2010. The earnings improvement reflected a decline in the quarterly provision for loan losses to just $40,000 during the fourth quarter, from $2.7 million a year earlier, and a decline in the provision for real estate losses to $1.4 million, from $2 million in the year-earlier period.
Another bright spot for the company — running counter to most of the banking industry in the prolonged low-rate environment last year — was an improvement in the net interest margin to 2.22 percent during the fourth-quarter, from 2.06 percent a year earlier, although this was “largely offset by a planned decrease in the bank’s assets and liabilities, as well as decreased lending opportunities due to current economic conditions.”
After Intervest reported its fourth-quarter results, Sarcone on Jan. 17 reiterated his “buy” rating for the shares, with a 12-month price target of $4, “based on valuation, with the shares trading at 36 percent of our one year forward tangible book value forecast, which is a meaningful discount to the peer group.”
Sarcone estimates that “the shares will trade at 50 percent of our forward year tangible book value forecast,” and with the shares nearing the analyst’s target, we could see a downgrade soon.
The analyst noted that his “earnings per share estimates do not currently assume TARP repayment,” but he also pointed out that “the dividend on IBCA’s TARP preferred shares increases to 9 percent in December of 2013.”
3. Financial Institutions Inc.
Shares of Financial Institutions Inc. of Warsaw, N.Y., closed at $15.87 Thursday, down 1 percent year-to-date, following a 12 percent decline during 2011. Based on a 13-cent quarterly payout, the shares have a dividend yield of 3.28 percent.
The shares trade for nine times the consensus 2013 earnings per share estimate of $1.80, and for 1.2 times tangible book value.
The consensus 2012 earnings per share estimate is $1.71. The company finished redeeming TARP preferred shares in March 2011.
Financial Institutions, in January agreed to purchase four branches in New York and Connecticut from and four from First Niagara Financial Group, in connection with the latter company’s purchase of about 200 HSBC branches, and divestiture of about 100 branches.
Financial Institutions reported fourth-quarter net income applicable to common shareholders of $5.4 million, or 39 cents a share, increasing from $4.2 million, or 38 cents a share, a year earlier.
Janney Capital Markets analyst Rick Weiss on Jan. 27 reiterated his “buy” rating for Financial Institutions, with a fair value estimate of $20, saying that the fourth-quarter results and the branch deal “affirm our opinion that management continues to improve the company’s attractive upstate New York franchise.”
Weiss estimates that the company will earn $1.70 a share during 2012, followed by 2013 earnings per share of $1.80.
2. Oriental Financial Group
Shares of Oriental Financial Group of San Juan, Puerto Rico, closed at $12.11 Thursday, for a flat year-to-date return, following a 1 percent decline during 2011. Based on a six-cent quarterly payout, the shares have a dividend yield of 1.98 percent.
The shares trade for just nine times the consensus 2013 earnings per share estimate of $1.40, and for 0.8 times tangible book value. The consensus 2012 earnings per share estimate is $1.10.
Oriental had $6.7 billion in total assets as of Dec. 30, and saw a major expansion with its purchase of the failed Eurobank of San Juan from the Federal Deposit Insurance Corp. in April 2010.
The company reported a fourth-quarter net loss to common shareholders of $13.1 million, or 31 cents a share, compared to earnings of $3.9 million, or eight cents a share, in the fourth quarter of 2010. The fourth-quarter loss mainly resulted from a $15 million impairment charge on securities.
B. Riley analyst Joe Gladue has a “neutral” rating on Oriental, with a $12 price target, and said on Jan. 31 after the fourth-quarter results were announced that “Oriental maintains very high capital, enabling the company to pursue strategic acquisitions or to return capital to shareholders through dividends and stock repurchases.”
The analyst expects Oriental “to continue to pursue its stock repurchase program aggressively over the next few quarters,” and for the company “to raise the dividend gradually from the current $0.06 per quarter toward the $0.14 quarterly dividend the company paid out prior to the financial crisis.”
Gladue estimates Oriental will earn 90 cents a share this year, followed by 2013 earnings per share of $1.16.
1. Wilshire Bancorp
Shares of Wilshire Bancorp of Los Angeles closed at $4.82 Thursday, returning 33 percent year-to-date, following a 52 percent decline during 2011.
The shares trade for eight times he consensus 2013 earnings per share estimate of 59 cents and for 1.5 times tangible book value. The consensus 2012 earnings per share estimate is 55 cents.
Wilshire Bancorp owes $62.2 million in TARP money. The U.S. Treasury on Monday commenced a public auction of the company’s preferred shares held by the government, along with those of six other banks that still owe TARP money. The auction end after Wednesday’s market close.
The company reported fourth-quarter net income applicable to common stockholders of $5.8 million, or eight cents a share, improving from a loss of $40.3 million, or $1.37 a share, during the fourth quarter of 2010, when Wilshire set aside $57.3 million for loan loss reserves, “largely driven by the disposal of a significant number of problem assets through note sales and charge-offs.” The fourth-quarter 2011 provision for loan losses was only $1.5 million.
FIG Partners analyst Timothy Coffey on Jan. 25 maintained his “outperform” rating for Wilshire, with a $4.50 price target, saying the “credit recovery story at the company is well under way,” and that in light of an “excessive reserve position,” the company could see an earnings boost by potentially booking no provisions for loan loss reserves during 2012.
The analyst estimates that Wilshire will earn 67 cents a share this year, followed by 2013 earnings per share of 84 cents.
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