NEW YORK (
) -- A separate round of bank stress tests for medium-sized banks could cause some pain for investors, according to Sterne Agee analyst Todd Hagerman.
has already been conducting annual stress tests for bank holding companies with total assets of more than $50 billion. The Fed, along with the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency, will require banks with over $10 billion in total assets to stress test themselves, "in a broad range of scenarios from an individual business-line to enterprise-wide perspective," according to Hagerman, who highlighted five banks "that are potentially more at risk" for regulatory actions, that could include dividend cuts for two of the names.
The banks will be expected to hand in their stress test results to their primary regulators by Jan. 5, 2013.
Sterne Agee confined its analysis to banks with between $8 billion and $50 billion in total assets, since the Federal Reserve's stress tests already covered bank holding companies with over $50 billion in assets.
Hagerman said that "banks closer to $50 billion with high payout ratios, low profitability levels, low capital levels, outsized concentrations (especially in commercial and construction)," high ratios of problem loans to total capital and reserves, "and high loan/deposit ratios are more at risk for regulatory action from the stress test than those closer to the $10 billion threshold."
In Sterne Agee's analysis, the firm "included equal weightings on all metrics except for capital," for which a double weighting was applied, using the ratio of tangible common equity to total assets.
Here are the five banks subject to the new regulatory round of stress tests that Hagerman considers "potentially more at risk," counting up by Sterne Agee's stress test risk ranking:
5. TCF Financial
of Wayzata, Minn., closed at $11.63 Friday, returning 14% year-to-date, following a 29% decline during 2011.
The shares trade for 1.5 times tangible book value, according to Worldscope data provided by Thomson Reuters, and for 10 times the consensus 2013 EPS estimate of $1.15, among analysts polled by Thomson Reuters. The consensus 2012 EPS estimate is a loss of $1.15 a share.
The company had $17.9 billion in total assets as of March 31.
TCF in March repositioned its balance sheet by prepaying $3.6 billion in long-term borrowings and selling $1.9 billion in in mortgage-backed securities, in order to "increase net interest margin and reduce interest rate risk." The repositioning resulted in $293 million in one-time charges, or a loss of $1.85 a share.
Sterne Agee's #5 ranking for TCF Financial's risk from the coming stress tests factors-in a tangible common equity ratio of 7.4%, ranking 39th out of 54 banks subject to the firm's analysis; a loans-to-deposits ratio of 118.9%, ranking 51st; and a Texas Ratio-- nonperforming loans divided by Tier 1 capital and loan loss reserves -- of 60.4%, for a 52nd-place ranking.
The company reported that during the first quarter, its net interest margin -- a bank's average yield on loans and investments less its average cost for deposits and wholesale borrowings -- improved to 4.14% from 3.92% the previous quarter.
Sterne Agee analyst Peyton Green Peyton Green rates TCF Financial a "Buy," with a $13.50 price target, saying in April that "the 1Q12 balance sheet restructuring, improving loan growth, and credit leverage should drive material EPS &
return on equity improvement through 2013." The analyst estimates TCF will post a loss of $1.20 a share for all of 2012, followed by 2013 EPS of $1.20.
Interested in more on TCF Financial? See TheStreet Ratings' report card for this stock.
4. Astoria Financial
of Lake Success, N.Y., closed at $9.05 Friday, returning 9% year-to-date, following a 36% decline during 2011.
The shares trade for 0.8 times tangible book value, and for 14 times the consensus 2013 EPS estimate of 66 cents The consensus 2012 EPS estimate is 54 cents.
Astoria during the first quarter cut its quarterly dividend to four cents from 13 cents, as the company suffered year-over-year declines in net interest income and margin, with weak mortgage loan demand in the prolonged low-rate environment.
The company had $17.1 billion in total assets as of March 31, and reported first-quarter net income of $10.0 million, or 11 cents a share, declining from $11.8 million, or 12 cents a share, the previous quarter, and $27.4 million, or 29 cents a share, a year earlier. Astoria said that its first-quarter results included "net charges totaling $3.4 million ($2.2 million, or $0.02 per share, after-tax), representing severance related expenses associated with cost control initiatives implemented in the 2012 first quarter."
The first-quarter net interest margin was 2.20%, unchanged from the fourth quarter, but declining from 2.40% during the first quarter of 2011.
Sterne Agee's #4 ranking for Astoria Financial's risk from the coming stress tests factors-in a tangible common equity ratio of 6.4%, ranking 39th out of 54 banks; a loans-to-deposits ratio of 118.4%, ranking 50th; and an estimated 2013 return on average assets (ROA) of 0.29%, for a 50th-place ranking.
Sterne Agee analyst Matthew Kelley rates Astoria "Underperform," with a price target of $7.00, saying on April 19 that "with the common dividend smartly reduced, the company now has the internal capital generation to start rebuilding the loan portfolio which has been shrinking since 2008." Kelly added that the shares were "overvalued on an earnings basis (14x 2013E)" and that he didn't see the company selling to a competitor "while in cost-cutting and asset rebuilding mode over the next year."
Kelley estimates that Astoria will earn 51 cents a share this year, followed by EPS of 66 cents during 2013.
Interested in more on Astoria Financial? See TheStreet Ratings' report card for this stock.
3. New York Community Bancorp
New York Community Bancorp
( NYB) of Westbury closed at $12.70 Friday, returning 7% year-to-date, following a 30% decline last year. Based on a 25-cent quarterly payout, the shares have a dividend yield of 7.87%.
The shares trade for 2.1 times tangible book value, and for 12 times the consensus 2013 EPS estimate of $1.08. The consensus 2012 EPS estimate is $1.06.
for a detailed review of New York Community Bancorp's first-quarter results.
Despite strong earnings performance and the maintenance of the company's attractive dividend payout for 33 consecutive quarters, New York Community Bank ranks #3 for regulatory risk from the coming stress tests, according to Sterne Agee, with the firm's ranking supported by an estimated 2012 dividend payout ratio -- dividends paid/EPS -- of 93%, for a last-place ranking out of 54 banks; as well as a last-place ranking for a ratio of commercial real estate, construction and development, and mortgage loans of 834% of tangible common equity.
New York Community had $43.0 billion in total assets as of March 31, with $17.8 billion -- or 58% of total loans -- in multifamily mortgage loans, which are mainly concentrated among apartment buildings in the New York City, with below-market rents, leading to a very long track record of strong asset quality.
Sterne Agee analyst Matthew Kelley rates New York Community Bancorp "Underperform," with a $12 price target, estimating the company will earn $1.04 a share this year and also in 2013.
Interested in more on New York Community Bancorp? See TheStreet Ratings' report card for this stock.
2. Synovus Financial
of Columbus, Ga., closed at $1.89 Friday, returning 35% year-to-date, following a 45% decline during 2011.
The shares trade for 0.9 tangible book value, and for 10.5 times the consensus 2013 earnings estimate of 18 cents. The consensus 2012 EPS estimate is 10 cents.
The company owes $967.9 million in federal bailout funds received during 2008 through the Troubled Assets Relief Program, or TARP.
Synovus had $27.1 billion in total assets as of March 31. The company reported first-quarter net income available to common shareholders of $21.4 million, or 2.4 cents a share, compared to earnings to common shareholders of $12.8 million, or 1.4 cents a share in the fourth quarter, and a net loss to common shareholders of $93.7 million, or 11.9 cents a share, during the first quarter of 2011.
Sterne's #2 ranking for Synovus's regulatory risk from the coming stress tests factors-in a tangible common equity ratio of 6.8%, ranking 48th out of 54; and a Texas Ratio of 72.6%, for a 53rd-place ranking.
Hagerman rates Synovus "Underperform," with a $2.00 price target, saying in April that he expects to repay TARP in "2013 at the earliest," and that "although most credit measures continued to show incremental improvement, problem asset levels remain exceedingly high."
The analyst estimates that Synovus will earn five cents a share this year, followed by 2013 EPS of 15 cents.
Interested in more on Synovus Financial? See TheStreet Ratings' report card for this stock.
1. Valley National Bancorp
Valley National Bancorp
of Wayne, N.J., closed at $11.31 Friday, down 3% year-to-date, following a 4% decline during 2011. Based on a quarterly payout of 16.25 cents, the shares have a dividend yield of 5.75%.
The shares trade for 2.4 times tangible book value, and for 14.5 times the consensus 2013 EPS estimate of 78 cents. The consensus 2012 EPS estimate is 73 cents.
Sterne Agee's #1 ranking for Valley National Bancorp's risk from the coming stress tests is supported by a 53rd-place ranking for the company's estimated dividend payout ratio of 84%; a 49th-place ranking for a ratio of commercial real estate, construction and development, and mortgage loans of 472% of tangible common equity; a 49th-place ranking for a tangible common equity ratio of 6.8%; and a 45th place ranking for a loans-to-deposits ratio of 101.9%.
Interested in more on Valley National Bancorp? See TheStreet Ratings' report card for this stock.
Written by Philip van Doorn in Jupiter, Fla.
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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.