U.S. Bank Stock Portfolio Update: +29.72% After Eight Months; Near Full Value

by Gene Kirsch, Senior Banking Analyst | September 26, 2012

See also: Weiss Ratings Series – U.S. Bank Portfolio

The 14 undervalued bank stocks we selected as good investment values in January are up 29.72 percent, to the highest level since inception. The increase was sparked by a stabilizing economy, overall stock market performance and the Federal Reserve’s promise for another quantitative easing (QE3).

The portfolio was up 19.75 percent through August 24, but let’s take a closer look at how the undervalued banks in the portfolio have performed since August. Eight-month performance results are shown here relative to the market, peer group and industry benchmarks. See full original table in January article.

Institution Name Ticker Weiss Financial Strength Rating1 Stock Price as of 1/26/12 Price Target Set on 1/26/12 Current Price /
% of Target 9/21/12
Book Value2 /
% of Current Price 9/21/12
% Change in Stock Price 1/26/12 to 9/21/12
1st Constitution Bancorp FCCY       C+
7.30
8.60
9.23 107.3% 9.66
95.5%
26.44%
Bank of America Corporation BAC       C-
7.30
8.83
9.11 103.1% 13.20
69.0%
24.79%
Bank of Commerce Holdings BOCH       C-
3.73
4.18
4.50 107.6% 5.07
88.8%
20.64%
Central Valley Community Bancorp CVCY       C-
6.13
7.21
8.50 118.0% 7.84
108.4%
38.66%
Citigroup Inc. C       C+
30.38
47.31
33.67 71.2% 50.34
66.9%
10.83%
Evans Bancorp, Inc. EVBN       C
12.46
16.16
15.60 96.6% 14.44
108.0%
25.20%
Fidelity Southern Corporation LION       D
6.56
8.14
9.78 120.2% 8.86
110.4%
49.04%
Hanmi Financial Corporation HAFC       C
8.10
10.46
13.28 127.0% 10.66
124.6%
63.95%
Intervest Bancshares Corporation IBCA       C-
2.84
5.46
3.79 69.4% 8.05
47.1%
33.45%
KeyCorp KEY       B-
7.88
10.34
8.91 86.1% 9.10
97.9%
13.07%
MainSource Financial Group, Inc. MSFG       C+
9.17
11.27
12.56 111.4% 10.31
121.8%
36.97%
Parke Bancorp, Inc. PKBK       D
6.10
15.69
5.44 34.7% 12.37
44.0%
-10.82%
Preferred Bank PFBC       C-
8.00
10.69
14.20 132.8% 11.69
121.5%
77.50%
SunTrust Banks, Inc. STI       C-
20.50
21.04
28.43 135.1% 25.06
113.4%
38.68%
Undervalued Portfolio
136.45
177.00    
29.72%
KBW Bank Index (BKX) BKX
42.56
50.22
18.00%
S&P Banking Index (BIX) BIX
137.20
165.04
20.29%
S&P 500 $INX
1,318.43
1,460.15
10.75%
Dow $INDU  
12,734.63
  13,579.47      
6.63%

1Weiss Financial Strength Ratings based on 06/30/2012 data. Green indicates upgrade; red indicates downgrade
2Book value based on tangible book value per share price at September 30, 2011

The value of the basket of 14 stocks is up a very impressive 29.72 percent in eight months following an increase of 8.3 percent since August 24 and an increase of 8.2 percent since its previous peak on March 27. The 10-day average trading volume increased considerably—70 percent since the seven-month valuation—but still fell almost 49 percent from its peak 10-day volume in March. The rally, with the volume increase, mirrors the broader market trend for the last month and indicates that the price increases noted appear to be much broader based with the support of market participants.   

This sector has clearly had a continued resurgence since the early summer trough to surpass the March peak levels, with the basket of 14 outperforming all of the banking sector indices and broader markets in general. The S&P Banking Index (BIX), a much broader banking index that includes all banks in the Standard & Poor’s, gained 20.29 percent since January 26 and is up almost 4.4 percent since August 24. The KBW Bank Index (BKX), a weighted index of 24 geographically diverse stocks representing national money centers and leading regional institutions, gained 18 percent the since August 24 (up 1.3 percent from the March peak). The overall market during September, as measured by the S&P 500 gained 10.75 percent, while the Dow gained 6.63 percent since January 26, both significant improvements from August.

After eight months, the portfolio had only one stock in the red, erasing all of its previous gains (one fewer than the prior period): Parke Bancorp, Inc. (PKBK). However, in the past month, all 14 of the stocks improved. Large cap names such as Bank of America (BAC), Citigroup, Inc. (C) and SunTrust Bank (STI) led the portfolio significantly higher with double-digit improvements during September. The highest overall performers since the portfolio’s inception are Preferred Bank (PFBC), Hanmi Financial Corp. (HAFC) and Fidelity Southern Corporation (LION) with gains of 77.5 percent, 64 percent and 49 percent, respectively. SunTrust Banks, Inc. (STI) remains the best performing large cap stock, up 38.9 percent through September 21. 

Nine of the 14 stocks (highlighted in yellow in the table) moved above their price targets in the eight months (up from eight last month), while seven (highlighted in green) are at or above their book value (no change from last month). This means that the portfolio is nearing full value and is a less desirable buying opportunity.   

Some of the best values remaining are Parke Bancorp (PKBK), Intervest Bancshares (IBCA) and Citigroup (C), which are only at 35 percent, 69 percent and 71 percent of their price targets, respectively. The current average stock price in the portfolio is at 95.5 percent of the group’s aggregate price target (up from 88 percent last month). With an almost 96 percent aggregate price target and a 90 percent aggregate price-to-book ratio for the group, now may be a good time to pause buying or begin taking profits. In fact, investors may want to consider selling any shares held in the stocks at or above their price targets.

See also:

Weiss Ratings’ Portfolio of High Dividend Bank Stocks
14 Undervalued Bank Stocks
U.S. Bank Stock Portfolio Update: +19.75% After Seven Months

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To review bank performance, see Weiss Ratings’ complete lists of the strongest and weakest banks at www.weissratings.com/banklists.

Gavin Magor

Gene Kirsch, senior banking analyst at Weiss Ratings, has more than 20 years of financial industry experience in credit-risk management, commercial lending and loan review analysis within various sized credit unions, finance companies and banks at both the retail and commercial level. He leads the firm's bank and thrift ratings division and developed the methodology for Weiss' credit union ratings and global bank ratings.