NEW YORK (
) -- While there are dozens of publicly traded bank stocks, only six actively traded names get a "Buy" rating of A (Excellent) or higher from TheStreet Ratings.
TheStreet Ratings takes a very conservative, long-term approach to stock ratings, placing its emphasis on long-term total returns as well as revenue trends, capital strength and dividends. The ratings also consider short-term performance, financial stability and volatility.
With the banking industry still in recovery mode, many of the best-known industry players are still trading at relatively low multiples to book value and earnings:
- Shares of JPMorgan Chase (JPM) - Get Free Report closed at $41.25 Friday, returning 26% year-to-date, following a 20% loss last year. The shares trade for 1.2 times tangible book value, and for eight times the consensus 2013 EPS estimate of $5.20. The consensus 2012 EPS estimate is $4.71. JPMorgan's operating return on average assets (ROA) for the 12-months ended June 30 was 0.79%, according to Thomson Reuters Bank Insight, while its return on average equity (ROE) was 9.55%. The big story for JPMorgan Chase this year has been second-quarter losses of $4.4 billion for the company's Chief Investment Office. Then again, the company still managed to earn a $5.0 billion profit during the second quarter. JPMorgan's stock is rated a B-minus (Good) by TheStreet ratings. A rating of B-minus or higher is a "Buy" rating.
- Bank of America (BAC) - Get Free Report has seen its shares return 64% year-to-date, through Friday's close at $9.19. The shares trade for 0.7 times tangible book value, and for 10 times the consensus 2013 EPS estimate of 91 cents. The consensus 2012 EPS estimate is 0.55%. Over the past four quarters through June, Bank of America's ROA was 0.52%, while the company's ROE was 4.84%. The low valuation to book reflects the uncertainty over the company's ultimate risk from mortgage repurchase demands, which increased 41% during the second quarter alone, to $22.7 billion as of June 30. Bank of America's stock has a "Hold" rating of C (Fair) from TheStreet Ratings.
- Citigroup (C) - Get Free Report closed at $33.81 Friday, returning 28% year-to-date, following a 44% decline during 2011. The shares trade for 0.7 times tangible book value, and for 7.5 times the consensus 2013 EPS estimate of $4.53. The consensus 2012 EPS estimate is $4.09. Citi's ROA over the 12-month period ended June 30 was 0.55%, and its ROE was 5.78%. The company continues to follow CEO Vikram Pandit's long-term strategy of winding down the noncore assets placed within Citi Holdings, and investors hope eventually to be rewarded through a major return of capital, as the balance sheet continues to shrink and the company reverses some or all of its deferred tax valuation allowance. Citi is rated a B-minus (Good) by TheStreet ratings.
- Shares of Wells Fargo (WFC) - Get Free Report closed at $35.30 Friday, returning 29% year-to-date, following a 10% decline during 2011. The shares trade for two times tangible book value, according to Thomson Reuters Bank Insight, and for 10 times the consensus 2013 earnings estimate of $3.66 a share, among analysts polled by Thomson Reuters. The consensus 2012 EPS estimate is $3.31. The company's ROA for the 12-month period ended June 30 was a relatively strong 1.30%, while its ROE was 11.57%. The stock is rated a B+ (Good) by TheStreet Ratings.
The following are the six actively traded banking names with average daily trading volume of over 50,000 shares, there are six stocks rated "A" or A+" by TheStreet ratings:
Short Hills, N.J., closed at $18.04 Friday, returning 34% year-to-date, following a 3% return during 2011.
The shares trade for 2.1 times tangible book value, according to Thomson Reuters Bank insight, and for 18 times the consensus 2013 earnings estimate of 99 cents a share, among analysts polled by Thomson Reuters. The consensus 2012 EPS estimate is 87 cents.
For the 12-month period ended June 30, the company's operating return on average assets (ROA) was 0.75%, while its return on average equity (ROE) was 8.42%, according to Thomson Reuters Bank insight.
Sterne Agee analyst Matthew Kelley rates Investors Bancorp a "Buy," and on Thursday raised his price target for the shares by a dollar to $19, saying that "after recently meeting with management, we are incrementally more positive on the fundamental outlook for the company," and "now expect a second step conversion will be announced in Q1 of 2013."
Investors Bancorp is part of a mutual holding company structure, with
Investors Bancorp MHC
holding 58.4% of outstanding common shares as of Aug. 1.
During the second quarter, Investors Bancorp repurchased 2,000 shares, and as of June 30 was authorized by its board of directors to buy back 2,194,239 additional shares.
Kelley said that "the company is expected to continue to report high-single digit loan growth, strong mortgage banking gains and steadily improving credit trends in Q3 and Q4 of 2012," which the analyst expects "to be partially offset by ongoing pressure on the net interest margin (NIM)." He said that his firm is "looking for 9% and 7% loan growth in 2013 and 2014," and that "the NIM is expected to contract by 13 and 7 bp in 2013 and 2014."
Investors Bancorp's second-quarter net interest margin -- the difference between the average yield on loans and investments and the average cost for loans and deposits -- was 3.40% during the second quarter, expanding from 3.33% the previous quarter, but narrowing from 3.46% a year earlier.
The year-over-year decline in the net interest margin is in line with the industry trend, with the
target federal funds rate in a range of zero to 0.25% since late 2008, while the central bank recently increased its purchases of long-term mortgage-backed securities, in an effort to push long-term rates down from their already historically low levels.
Kelley also said he expects Investors Bancorp to announce a dividend on common shares before the end of the year. "We have updated our model to include a $0.20 per share annual dividend," he said, "which would represent a 19% payout on our 2013
earnings estimate," of $1.04 a share.
Interested in more on Investors Bancorp? See TheStreet Ratings' report card for this stock.
of Rockville, Conn., closed at $11.70, returning 15.5% year-to-date, following a 32% decline during 2011.
The shares trade for just over tangible book value, and for 19 times the consensus 2013 EPS estimate of 62 cents. The consensus 2012 EPS estimate is 52 cents.
Based on a quarterly payout of nine cents, the shares have a dividend yield of 3.08%.
For the 12-month period ended June 30, the company's ROA was 0.81%, while its ROE was 4.51%, according to Thomson Reuters Bank insight. The low ROE reflects a very high level of capital, with a June 30 Tier 1 leverage ratio of 17.40%, as of June 30.
The company completed a second-step conversion to full stock ownership in March 2011. Rockville Financial's board of directors in March authorized a program to buy back up to 2,951,250 shares, or 10% of the company's total common shares. As of June 30, there were 1,328,379 shares authorized to be repurchased under the program.
KBW analyst Damon DelMonte rates Rockville Financial "Market Perform," with a $12.50 price target, and said on July 31 that since completing its conversion to full stock ownership "the bank has been in transition deepening its management team and transforming its balance sheet. Over the last twelve months, the entire management team has been changed, starting with a new CEO and down to new risk and commercial teams."
The analyst said that "success for the RCKB story will be heavily dependent on financially sound deployment of excess capital. The bank currently has roughly $178mm of excess capital, which empowers the bank to focus solely on growth, without having to worry about how to fund the growth."
Interested in more on Rockville Financial? See TheStreet Ratings' report card for this stock.
of Buffalo, N.Y., closed at $94.34 Friday, returning 28% year-to-date, following last year's 9% decline.
The shares trade for 2.4 times tangible book value, and for 12 times the consensus 2013 EPS estimate of $7.75. The consensus 2012 EPS estimate is $6.89.
based on a quarterly payout of 97 cents, the shares have a dividend yield of 4.11%.
M&T's ROA for the 12-month period ended June 30 was 0.97%, while the company's ROE was 8.16%, according to Thomson Reuters Bank insight.
The company on Aug. 27 agreed to acquire
Hudson City Bancorp
of Paramus, N.J., for about $3.7 billion in stock and cash. The deal valued Hudson City at $7.22 a share, or 80% of its reported June 30 tangible book value of $9.08.
M&T Bank of Buffalo, N.Y., has $80.8 billion in total assets, and Hudson City has $43.6 billion in assets, with 135 branches, with 97 branches in New Jersey, 29 in New York, and nine in Fairfield County, Conn.
M&T will acquire $25 billion in deposits and $28 billion in loans through the Hudson City deal, after which M&T plans to "repay approximately $13 billion of Hudson City's long-term borrowings by liquidating its comparably sized investment portfolio."
M&T also said that the merger with Hudson City will be "accretive to the combined company's capital ratios, capital generation and tangible book value per share, as well as its GAAP and operating earnings per share."
The deal is expected to be completed during the second quarter of 2013.
M&T owes $230 million in bailout money provided through the Troubled Assets Relief Program, or TARP, in December 2008, in addition to $151.5 million for TARP assistance provided to Provident Bancshares before that company was acquired by M&T in May 2009.
The U.S. Treasury on Aug. 17 completed a public offering of the $381.5 million in M&T TARP preferred shares held by the government. The preferred shares have a 5.00% coupon, which was originally scheduled to rise to 9.00% in February 2014 for the remaining $230 of the bank's original TARP bailout, with the coupon on the $151.5 million in assistance originally provided to Provident Bancshares rising to 9.00% in November 2013.
M&T on Aug. 20 made proposed an innovative amendment -- which was later approved -- under which the dividend rate on all of the former TARP preferred shares will rise to 6.375% on November 15, 2013, with the company agreeing not to redeem the shares until Nov. 15, 2018. While this is significantly lower than the original reset rate of 9.00%, it was a good deal for all parties, because it enabled M&T to avoid repaying TARP over the next year, while providing the preferred shareholders an above-market dividend.
Credit Suisse analyst Craig Siegenthaler has a neutral rating on M&T, with a $102 price target, and on Aug. 28 raised his 2013 EPS estimate for M&T to $8.32 from $7.90 and his 2014 estimate to $9.35 from $8.80, saying that "our accretion forecast is driven by MTB's restructuring of HCBK's long-term borrowings as well as expense synergies resulting from the elimination of redundant outsourced operations."
Interested in more on M&T Bank? See TheStreet Ratings' report card for this stock.
Community Bank System
Community Bank System
of DeWitt, N.Y., closed at $28.76, returning 6.5% year-to-date, after returning 4% during 2011.
The shares trade for 2.2 times tangible book value, and for 13 times the consensus 2013 EPS estimate of $2.15. The consensus 2012 EPS estimate is $2.07.
Based on a 27-cent quarter payout, the shares have a dividend yield of 3.76%. The company on Aug. 23 raised the quarterly dividend by a penny from 26 cents, saying "this increase marks the twentieth (20th) consecutive year of dividend increases for the Company."
For the 12-month period ended June 30, the company's ROA was 1.15%, while its ROE was 9.37%, according to Thomson Reuters Bank insight.
Community Bank System in July completed its purchase of 16 former
First Niagara Financial Group
as part of that company's divestiture of roughly 100 branches, after it bought about 200 branches from HSBC.
With the branch Purchase, Community Bank System brought on about $697 million in deposits and $107 million in performing loans, paying a premium of $23 million.
Guggenheim analyst David Darst has a neutral rating on Community Bank System, with a price target of $28, saying on July 26 when the shares were trading below $27 that they were "in line with the historical earnings multiple," and that "a premium valuation versus peers is warranted given the company's clean asset quality, favorable market demographics with growth opportunities, and our expectations for CBU to generate ~17%
return on tangible equity in 2012."
Darst estimates that Community Bank System will earn $2.12 a share during 2013.
Interested in more on Community Bank System? See TheStreet Ratings' report card for this stock.
of the Township of Washington, NJ., closed at $14.87 Friday, returning 20% year-to-date, following an 8% return last year.
The shares trade for 1.3 times tangible book value, and for 19 times the consensus 2013 EPS estimate of 80 cents. The consensus 2012 EPS estimate is 70 cents.
Based on a quarterly payout of 15 cents, the shares have a dividend yield of 4.03%.
For the 12-month period ended June 30, the company's ROA was 1.21%, while its ROE was 5.95%, according to Thomson Reuters Bank insight. The low ROE reflects a very high level of capital, the company reporting a Tier 1 leverage ratio of 19.02%, as of June 30.
Oritani Financial was included among
5 Most Lean and Mean Bank Stocks last week, as the company's efficiency ratio for the 12-month period ended June 30 was just 37.78%, according to Thomson Reuters Bank Insight. The efficiency ratio is, essentially, the number of pennies of expenses incurred for each dollar of revenue. An efficiency ratio below 50% is generally considered very good, with a ratio below 40% considered excellent for a community bank.
Please see the
for details on Oritani's second-quarter performance and additional comment.
Interested in more on Oritani Financial? See TheStreet Ratings' report card for this stock.
of Conway, Ark., closed at $34.35 Friday, returning 34% year-to-date, following a 19% return last year.
The shares trade for 2.4 times tangible book value, and for 15 times the consensus 2013 EPS estimate of $2.34. The consensus 2012 EPS estimate is $2.20.
With a quarterly payout of 10 cents, the shares have a dividend yield of 1.16%.
For the 12-month period ended June 30, the company's ROA was 1.48%, while its ROE was 12.13%, according to Thomson Reuters Bank insight.
The company had $4.1 billion in total assets as of June 30, and has expanded rapidly through several opportunistic acquisitions over the past few years, including the $27.9 million purchase in February of Vision Bank of Panama City, Fla., from
Park National Corp.
of Newark, Ohio.
Q&A with Home Bancshares founder and Chairman John W. Allison for more on the company's strategy.
Home Bancshares on Aug. 15 announced a deal to acquire
of Tallahassee, Fla., for $1.4 million, in connection with a bankruptcy filing by the target bank's parent,
Premier Bank Holding Company
. Premier Bank had $282 million in assets as of June 30, with six branches.
KBW analyst Derek Hewitt said on Aug. 15 that "HOMB is the stalking horse and there could be other bidders once the bankruptcy process begins," but that "HOMB could receive up to $550k if Premier Bank is acquired by another bidder."
The analyst has a neutral rating on Home Bancshares, with a $32 price target, and said that if the deal were completed, as expected, by the end of this year, it would leverage "a small portion of excess capital" for the acquirer.
Premier Bank was undercapitalized as of June 30, with a Tier 1 leverage ratio of just 3.43%, and its nonperforming assets -- including loans past due 90 days or more, or in nonaccrual status, plus repossessed real estate -- made up 12.29% of total assets, according to Thomson Reuters Bank Insight.
According to Hewitt, "HOMB could have been outbid by other institutions in a worst case receivership scenario," if Premier Bank were to fail and be auctioned by the Federal Deposit Insurance Corp. The analyst said that "Premier Bank fits nicely into HOMB's existing FL panhandle footprint and there is the potential for substantial cost savings," adding that the target bank "has a valuable deposit franchise as lower-cost transaction accounts represent about two-thirds of deposits."
Interested in more on Home Bancshares? See TheStreet Ratings' report card for this stock.
Written by Philip van Doorn in Jupiter, Fla.
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.