This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
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
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

5 Regional Banks With High Yields

Stocks in this article: HBAN KRE BBT FITB CNAF

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

By Carla Pasternak

NEW YORK ( Street Authority) -- Banks are among the most hated institutions in the world, as they are seen by many as the epitome of corporate greed. Investors have no love to spare for banks, either. Financials were the worst-performing sector in the S&P 500 in 2011, with losses of more than 20%, compared with about 2% for the overall market.

But the sector is diverse, from big money centers such as Bank of America (BAC) to smaller regional banks such as Huntington Bancshares (HBAN). There's a big difference between these two groups, and it's not just in their size.

While both groups are federally chartered, they operate under different legislation. As a result, most regional banks focus on the traditional banking activities of savings deposits and mortgages and other loans.

They devote little, if any, resources to securitizing mortgage loans or hedging with derivatives, as the big banks do. Most regional banks also aren't exposed to risky eurozone debt or faced with the massive mortgage lawsuits of their bigger brethren.

With little exposure to subprime mortgages, regional banks largely dodged the debt crisis of 2008. These banks, as represented by the SPDR S&P Regional Banking ETF (KRE), lost 18% in 2008. By contrast, their big-cap brethren, represented by the SPDR S&P Bank ETF (KBE) suffered a loss of more than 47%.

Regional banks didn't fare as well as their large-cap counterparts in 2009, however, amid concerns that the weak real estate market would affect their residential and commercial real-estate loans. As of March 2010, 54% of the assets of smaller banks were related to real estate, compared with 43% of the 25 largest U.S. banks, according to Bruce Tuckman, author of Fixed Income Securities.

But now they are back on the radar screen and starting to attract investor attention. Regional banks gained close to 15% in the past three months, compared with less than 5% for large-cap bank stocks.



What's driving their recent outperformance? With fewer issues on their plate than the larger money centers, regional banks are benefiting from stronger industry fundamentals. While revenue is being pressured by near record-low interest rates on their loans, loan volume is picking up. U.S. Federal Reserve data for the third quarter of this 2011 showed that business loans rose 2.4% from the second quarter to just over $1 trillion. Consumer credit-card loans also rose slightly (0.7%) from the second quarter.

Credit quality is also improving. Careful credit checks are resulting in fewer delinquent loans, and banks don't need to set aside as much money to cover bad loans, so costs are lower and earnings are higher.

Consider Huntington Bancshares, one of the nation's largest regional banks. A 5.3% increase in consumer loans in the third quarter helped increase total loans and leases by 4%. The quality of the loan book also improved, as problem loans accounted for only 0.92% of average loans, down from 1.98% a year ago. As a result, loan-loss provisions dropped from $119 million to $44 million, and net income rose 42%.

1 of 2

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!

Markets

DOW 17,959.44 +154.64 0.87%
S&P 500 2,078.54 +7.89 0.38%
NASDAQ 4,781.4240 +16.0440 0.34%

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