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10 Bank Stock Picks: Heroes vs. Zeros

10. Hudson Valley Holding Corp.

Shares of Hudson Valley Holding Corp. (HVB) of Yonkers, N.Y., closed at $20.12 Friday, rising 16% since Sept. 3, 2010, which was the market close upon which our original list of 10 Cheapest Bank Stocks for 2011 was based.

Based on a regular quarterly payout of 20 cents, the shares have a dividend yield of 3.96%.

Hudson Valley had $2.9 billion in total assets as of Sept. 30, with 35 branches in New York and Connecticut.

The company in November paid a 10% common stock dividend, making 2011 "the 28th consecutive year that a stock dividend or stock split [had] been declared.

Third-quarter net income was $8.5 million, or 48 cents a share, increasing from $4.1 million, or 23 cents a share, in the third quarter of 2010. Net interest income for the third quarter increased 10% year-over-year, to $30.0 million, with net loans increasing 19% year-over-year, to $2.0 billion as of Sept. 30. The third-quarter net interest margin -- the difference between a bank's average yield on loans and investments and its average cost for deposits and wholesale borrowings -- increased to a strong 4.47% in the third quarter, from 4.09% a year earlier.

Credit costs declined, as the third-quarter provision for loan losses was $2.5 million, compared to $6.6 million a year earlier. Hudson Valley was one of only two banks out of the 10 listed here that didn't see a boost to the third-quarter bottom line by a release of loan loss reserves. Reserves totaled $42.2 million as of Sept. 30, increasing from $41.9 million in June.

The third-quarter return on average assets (ROA) was 1.19% according to SNL Financial.

The shares trade for 11.7 times the consensus 2012 earnings estimate of $1.72 a share among analysts polled by FactSet, and for 1.4 times tangible book value, according to SNL.

All four analysts covering Hudson Valley rate the shares a buy.

Hudson Valley has seen strong loan growth over the past year, which CEO James Landy attributes to a focus "on business banking in the Metro New York communities we've served for so long and so well." The company's consistent payout policy has also benefitted the shares.

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