By Philip van Doorn, MarketWatch
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Economic turmoil from the coronavirus shutdown points to significant loan losses ahead for banks. But if you are confident that the U.S. economy will recover fairly quickly as states reopen, then this is the time to scoop up shares of banks that are in good overall shape and are trading at discounts to tangible book value, according to Christopher Marinac, director of research at Janney Montgomery Scott.
Below is Janney’s list of 11 “buy” rated bank stocks trading below tangible book value, followed by a much broader list of 48 similarly discounted bank stocks.
Marinac and his team track more than 350 publicly traded U.S. banks, specializing in community and regional players. The research group was formerly FIG Partners, which was acquired by Janney in September.
On May 19, Marinac said in a report that 57% of the banks tracked by his team of analysts were trading below tangible book value. He listed 11 that are rated “buy” by his team. (A bank’s tangible book value is the book value of its common shares, less intangible assets, such as loan servicing rights, goodwill and deferred tax assets.)
Here’s the Janney list, sorted by ticker:
| Bank holding company | Ticker | City, State | Price/TBV | Dividend Yield | Janney’s estimated forward dividend payout ratio | Total return - 2020 |
| BankUnited Inc. | /zigman2/quotes/202832050/composite BKU | Miami Lakes, Fla. | 56% | 6.20% | 56% | -59% |
| First Horizon National Corp. | /zigman2/quotes/207362765/composite FHN | Memphis, Tenn. | 83% | 7.23% | 59% | -49% |
| First Midwest Bancorp Inc. | /zigman2/quotes/202490803/composite FMBI | Chicago, Ill. | 85% | 5.00% | 46% | -51% |
| F.N.B. Corp. | /zigman2/quotes/209819908/composite FNB | Pittsburgh, Pa. | 89% | 7.19% | 65% | -47% |
| Hancock Whitney Corp. | /zigman2/quotes/208577715/composite HWC | Gulfport, Miss. | 62% | 6.05% | 51% | -59% |
| Investors Bancorp Inc. | /zigman2/quotes/210297037/composite ISBC | Short Hills, N.J. | 79% | 6.02% | 62% | -32% |
| Bank OZK | /zigman2/quotes/203507996/composite OZK | Little Rock, Ark. | 76% | 5.37% | 55% | -33% |
| PacWest Bancorp | /zigman2/quotes/205622697/composite PACW | Beverly Hills, Calif. | 84% | 6.23% | 39% | -57% |
| Sterling Bancorp | /zigman2/quotes/206493117/composite STL | Montebello, N.Y. | 83% | 2.63% | 19% | -49% |
| TCF Financial Corp. | Detroit, Mich. | 95% | 5.63% | 50% | -46% | |
| Wintrust Financial Corp. | /zigman2/quotes/207938027/composite WTFC | Rosemont, Ill. | 71% | 3.15% | 30% | -49% |
| Sources, Janney Montgomery Scott, FactSet | ||||||
The numbers in the table are as of the close on May 19, as calculated by FactSet, except for Janney’s estimated dividend payout ratios (cash dividends per common share divided by earnings per share) over the next four quarters.
You will have to scroll the table to see all of the data.
The list features attractive dividend yields, and it is natural to worry about dividend cuts during the unprecedented pandemic-driven economic slowdown. Marinac expects 80% of the banks covered by his team will maintain their dividends.
A deeper dive
Among the 11 sectors of the S&P 500 Index /zigman2/quotes/210599714/realtime SPX +1.01% , the financial services sector has been this year’s second-worst performer, with a 30% decline (energy has been the weakest of the sectors, down 38%).
It isn’t surprising to see the banks lagging during the rally that began after the benchmark index hit its low for the year on March 23. The U.S. economy went from riches to rags, with a massive spike in unemployment when the lockdowns began in March. It takes time for banks’ financial results to reflect an expected wave of loan losses, and with loan forbearance (payment deferral) agreements, we are not likely to see a spike in problem loans until the third quarter, and some analysts believe problem loans will peak in the first quarter of 2021.
Investors with long memories of the 2008/2009 financial crisis, bank bailouts and bank failures are understandably afraid of bank stocks now. But Marinac wrote that investors’ “fear and irrationality overlooks how banks operate today with 25% less leverage in 2020 than 2009.”
He went on to say that in addition to higher capital levels, the banks had the advantage of much lower loan-to-value ratios for commercial real estate loans than in 2008.
“Investors know this is today’s lending reality, yet they’ve lost their common sense. I have seen it before — this is the fourth financial crisis in my career,” Marinac added.
So even though the coronavirus pandemic makes this crisis different from the 2008/2009 banking crisis, Marinac believes the higher capital levels brought about by regulatory reform in 2010, along with tighter credit standards, will allow most banks to weather the storm.
What follows is a much larger list of banks trading below tangible book value, along with consensus price targets among analysts polled by FactSet.
Starting with the Russell 3000 Index (which includes the largest 3,000 stocks traded in the U.S.), there are 48 bank holding companies with market capitalizations of at least $1 billion that traded below tangible book value as of the close on May 19, according to FactSet. The list includes all of Janney’s buy-rated group listed above. This table has been sorted by percentage of “buy” ratings among analysts polled by FactSet:
| Bank holding company | Ticker | Price/ TBV | Dividend Yield | Total return - 2020 | Share 'buy' ratings | Share price - May 19 | Cons. price target | Implied 12-month upside potential |
| Popular Inc. | /zigman2/quotes/202481774/composite BPOP | 64% | 4.42% | -37% | 100% | $36.23 | $53.00 | 46% |
| Flagstar Bancorp Inc. | /zigman2/quotes/206662345/composite FBC | 88% | 0.77% | -32% | 100% | $26.00 | $32.83 | 26% |
| Investors Bancorp Inc. | /zigman2/quotes/210297037/composite ISBC | 79% | 6.02% | -32% | 100% | $7.97 | $10.86 | 36% |
| Sterling Bancorp | /zigman2/quotes/206493117/composite STL | 83% | 2.63% | -49% | 91% | $10.66 | $15.08 | 41% |
| F.N.B. Corp. | /zigman2/quotes/209819908/composite FNB | 89% | 7.19% | -47% | 89% | $6.68 | $9.11 | 36% |
| First Horizon National Corp. | /zigman2/quotes/207362765/composite FHN | 83% | 7.23% | -49% | 85% | $8.30 | $11.04 | 33% |
| Pacific Premier Bancorp Inc. | /zigman2/quotes/208408568/composite PPBI | 96% | 5.41% | -42% | 83% | $18.50 | $26.17 | 41% |
| Citizens Financial Group Inc. | /zigman2/quotes/205410375/composite CFG | 66% | 7.26% | -48% | 80% | $20.67 | $27.50 | 33% |
| First Bancorp | /zigman2/quotes/202320876/composite FBP | 52% | 3.93% | -52% | 80% | $5.09 | $8.00 | 57% |
| WSFS Financial Corp. | /zigman2/quotes/201675777/composite WSFS | 98% | 1.95% | -44% | 80% | $24.57 | $32.80 | 33% |
| Citigroup Inc. | /zigman2/quotes/207741460/composite C | 62% | 4.59% | -43% | 79% | $44.43 | $60.27 | 36% |
| TCF Financial Corp. | 95% | 5.63% | -46% | 79% | $24.86 | $32.43 | 30% | |
| Ally Financial Inc. | /zigman2/quotes/206227672/composite ALLY | 46% | 4.76% | -47% | 76% | $15.96 | $24.75 | 55% |
| Synovus Financial Corp. | /zigman2/quotes/209053698/composite SNV | 64% | 7.59% | -54% | 76% | $17.39 | $23.79 | 37% |
| Iberiabank Corp. | 70% | 4.76% | -49% | 75% | $37.82 | $53.33 | 41% | |
| Wintrust Financial Corp. | /zigman2/quotes/207938027/composite WTFC | 71% | 3.15% | -49% | 73% | $35.55 | $43.67 | 23% |
| Capital One Financial Corp. | /zigman2/quotes/204480509/composite COF | 65% | 2.66% | -41% | 69% | $60.25 | $74.54 | 24% |
| Banner Corp. | /zigman2/quotes/207088686/composite BANR | 93% | 5.16% | -42% | 67% | $31.78 | $42.67 | 34% |
| Morgan Stanley | /zigman2/quotes/209104354/composite MS | 91% | 3.56% | -22% | 65% | $39.33 | $47.60 | 21% |
| Goldman Sachs Group Inc. | /zigman2/quotes/209237603/composite GS | 80% | 2.81% | -22% | 60% | $177.83 | $214.26 | 20% |
| Hilltop Holdings Inc. | /zigman2/quotes/202042940/composite HTH | 78% | 2.25% | -35% | 60% | $16.01 | $23.20 | 45% |
| Fifth Third Bancorp | /zigman2/quotes/207561596/composite FITB | 77% | 6.34% | -44% | 58% | $17.03 | $20.88 | 23% |
| CIT Group Inc. | /zigman2/quotes/200594362/composite CIT | 31% | 8.97% | -65% | 50% | $15.60 | $28.70 | 84% |
| First Midwest Bancorp Inc. | /zigman2/quotes/202490803/composite FMBI | 85% | 5.00% | -51% | 50% | $11.21 | $15.10 | 35% |
| Umpqua Holdings Corp. | /zigman2/quotes/203440669/composite UMPQ | 89% | 8.31% | -42% | 50% | $10.11 | $13.06 | 29% |
| Webster Financial Corp. | /zigman2/quotes/207965570/composite WBS | 89% | 6.76% | -55% | 50% | $23.66 | $27.86 | 18% |
| Regions Financial Corp. | /zigman2/quotes/202396577/composite RF | 83% | 6.43% | -43% | 46% | $9.64 | $12.09 | 25% |
| PacWest Bancorp | /zigman2/quotes/205622697/composite PACW | 84% | 6.23% | -57% | 45% | $16.05 | $22.05 | 37% |
| WesBanco Inc. | /zigman2/quotes/206182198/composite WSBC | 91% | 6.68% | -49% | 43% | $19.17 | $27.60 | 44% |
| KeyCorp | /zigman2/quotes/202852742/composite KEY | 79% | 7.25% | -49% | 41% | $10.21 | $12.75 | 25% |
| BankUnited Inc. | /zigman2/quotes/202832050/composite BKU | 56% | 6.20% | -59% | 31% | $14.85 | $22.50 | 52% |
| Hancock Whitney Corp. | /zigman2/quotes/208577715/composite HWC | 62% | 6.05% | -59% | 30% | $17.84 | $24.83 | 39% |
| Bank OZK | /zigman2/quotes/203507996/composite OZK | 76% | 5.37% | -33% | 30% | $20.12 | $23.78 | 18% |
| UMB Financial Corp. | /zigman2/quotes/208773404/composite UMBF | 87% | 2.79% | -35% | 29% | $44.37 | $55.86 | 26% |
| Zions Bancorporation N.A. | /zigman2/quotes/207521274/composite ZION | 81% | 4.65% | -43% | 29% | $29.22 | $33.05 | 13% |
| Huntington Bancshares Inc. | /zigman2/quotes/209314988/composite HBAN | 96% | 7.61% | -47% | 24% | $7.88 | $9.37 | 19% |
| Cathay General Bancorp | /zigman2/quotes/205157702/composite CATY | 99% | 5.17% | -36% | 20% | $24.00 | $26.80 | 12% |
| Heartland Financial USA Inc. | /zigman2/quotes/207977439/composite HTLF | 97% | 2.85% | -43% | 20% | $28.03 | $35.50 | 27% |
| Simmons First National Corp. Class A | /zigman2/quotes/207792943/composite SFNC | 98% | 4.55% | -44% | 17% | $14.93 | $21.10 | 41% |
| Texas Capital Bancshares Inc. | /zigman2/quotes/206715243/composite TCBI | 54% | 0.00% | -50% | 17% | $28.25 | $30.18 | 7% |
| Wells Fargo & Co. | /zigman2/quotes/203790192/composite WFC | 73% | 8.52% | -54% | 12% | $23.95 | $30.57 | 28% |
| Associated Banc-Corp | /zigman2/quotes/205616505/composite ASB | 86% | 5.73% | -42% | 10% | $12.56 | $15.33 | 22% |
| Comerica Inc. | /zigman2/quotes/207245846/composite CMA | 66% | 8.46% | -54% | 8% | $32.14 | $34.64 | 8% |
| BOK Financial Corp. | /zigman2/quotes/203127086/composite BOKF | 83% | 4.46% | -47% | 0% | $45.75 | $53.33 | 17% |
| First Financial Bancorp. | /zigman2/quotes/206363023/composite FFBC | 97% | 7.97% | -54% | 0% | $11.54 | $15.40 | 33% |
| Fulton Financial Corp. | /zigman2/quotes/204224869/composite FULT | 93% | 5.18% | -42% | 0% | $10.04 | $12.00 | 20% |
| Hope Bancorp Inc. | /zigman2/quotes/208312240/composite HOPE | 68% | 6.55% | -41% | 0% | $8.55 | $10.00 | 17% |
| International Bancshares Corp. | /zigman2/quotes/209282216/composite IBOC | 94% | 4.04% | -36% | N/A | $27.20 | N/A | N/A |
| Source: FactSet | ||||||||
This is a very wide table, and you will need to scroll to see most of the data.
A list of stocks will only include a small amount of information. It is very important to do your own research before making any investment, and consider how well a company can perform over the next decade, at least.
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