4 Community Banks Out-Earning the Big Guys

NEW YORK (TheStreet) -- TheStreet has identified a select group of community banks that are expected to continue their strong earnings track records, when first-quarter results are reported.

The KBW Bank Index (I:BKX) was up 24% year-to-date through the end of last week -- following a 25% drop during 2011 -- marking a rally driven by very low price multiples to book value, at the end of the year.

This year's rally is driven by the large national and regional banks that dominate the industry, and most of the group still hasn't managed to put up impressive earnings numbers, with bottom lines padded by the release of loan loss reserves, as bankers face narrowing net interest margins in the prolonged low-rate environment, and several hits to fee revenue, including the Durbin Amendment's cap on debit card interchange fees.

Using data provided by HighlineFI, we have identified a very small list of four actively traded community bank stocks that achieved respectable returns on average assets (ROA) of a at least 1.00% during each quarter of 2011, and for which the consensus first-quarter 2012 earnings estimates predict year-over-year earnings growth, with results at least matching those of the fourth quarter.

We identified "community banks" as those with total assets of less than $10 billion as of Dec. 30, and stuck with actively traded names, with average daily trading volume of at least 40,000 shares.

It won't be much of a surprise that these four strong community banks trade at relatively high price multiples, with price-to-tangible-book-value ratios ranging from 1.4 to 2.6, and shares trading for between 13 and 16 times the consensus 2013 earnings estimates, among analysts polled by Thomson Reuters.