This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

10 Banks That Defy The Great Recession

NEW YORK ( TheStreet) - An analysis by TheStreet has identified the 10 large bank holding companies that have outperformed peers by reporting decent or better earnings through the worst credit crisis in generations.

Using data provided by SNL Financial, we started with the group of 62 U.S. bank and thrift holding companies with more than $10 billion in total assets as of June 30. We then isolated the ten holding companies that have posted returns on average equity (ROE) - based on earnings before extra items - of greater than 7% for the full years 2005 through 2009, and for the first half of 2010.

As we saw in TheStreet's profile of Bank of Hawaii (BOH), a very strong industry performer will shoot for an ROE of 20%, but during 2009 a 7% ROE wasn't too shabby, as most banks saw their earnings dip as they took credit losses, boosted loan loss reserves, and suffered the effects of reduced fee income from transaction processing and loan origination.

The following are the 10 bank holding companies with ROE exceeding 7% from 2005 through the first half of 2010, ranked by ascending ROE so far this year:

10. FirstMerit Corporation

Company Profile

Shares of FirstMerit Corp. (FMER) of Akron, Ohio closed at $18.32 Friday, down 7% year-to-date. Based on a quarterly payout of 16 cents, the shares have a dividend yield of 3.49%.

Income Statement

For the first half of 2010, FirstMerit reported net income of $50.3 million, or $2.05 a share, increasing from $44.9 million, or 46 cents a share, a year earlier. The company's ROE for the first half of 2010 was 8.34% and over the previous five years peaked at 14.05% in 2007.

According to SNL, FirstMerit's net interest margin - the difference between the average yield on loans and investments and the average cost of funds - was 4.03% for the second quarter, increasing from 3.55% a year earlier and moving in line with the industry trend in the low interest rate environment.

Balance Sheet

FirstMerit had $14.5 million in total assets as of June 30 an increase of 36% from a year earlier. The company has acquired two failed institutions in the Chicago area during 2010, including Midwest Bank & Trust of Elmwood Park, Ill. in May and George Washington Savings Bank of Orland Park, Ill. in February. The Federal Deposit Insurance Corp. agreed to cover 80% of losses on the majority of assets acquired. In February, FirstMerit also acquired 24 Chicago-area branches from First Bank of Creve Coeur, Mo.

To support its expanding balance sheet, the company raised $320 million through the sale of common shares to Credit Suisse Securities (USA) LLC, RBC Capital Market Corporation and Sandler O'Neil & Partners, L.P.

FirstMerit's Tier 1 leverage ratio was 8.00% and its total risk-based capital ratio was 12.48% as of June 30. These ratios need to be at least 5% and 10% for most banks to be considered well-capitalized by regulators.

The company's tangible common equity ratio was 7.34% as of June 30, according to SNL. While this ratio is not a standard regulatory capital ratio, investors and analysts have been focused on tangible common equity since it excludes preferred and trust-preferred equity and also excludes intangible assets such as goodwill. Many analysts consider 7% to be a good benchmark for the tangible common equity ratio for a profitable bank.

Nonperforming assets - including loans past due 90 days or more or in nonaccrual status (less government-guaranteed balances) and repossessed real estate - comprised 1.35% of total assets as of June 30. In comparison, the combined "noncurrent assets" ratio as of June 30 for all U.S. banks was 3.31% according to the FDIC.

The annualized ratio of net charge-offs (loan losses less recoveries) to average loans for the first half of 2010 was 1.10%, compared to the national aggregate charge-off ratio of 2.74% reported by the FDIC.

Stock Ratios

The shares trade for 1.9 times tangible book value according to SNL Financial. For all ten of the companies discussed here, the price-to-tangible-book ratios may appear high in a market where roughly 2/3 of bank stocks (excluding those trading on the Pink Sheets) trade below book value, however, most of those companies don't have earnings track records anywhere near as consistent as this group.

Based on the consensus estimate of $1.41 per share in earnings for 2011 among analysts polled by Thomson Reuters, FirstMerit's shares trade for 13 times forward earnings. Based on the 2012 consensus earnings estimate of $1.75 a share, the forward P/E would drop to 10.5.

Analyst Ratings

Out of 13 analysts covering FirstMerit, four rate the shares a buy, while nine recommend investors hold the shares.

1 of 10

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,203.77 -75.97 -0.44%
S&P 500 1,993.19 -17.21 -0.86%
NASDAQ 4,518.1510 -61.6380 -1.35%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs