NEW YORK (
) -- Analysts covering the regional bank stocks are mostly sitting on the fence these days with hold ratings.
That may be understandable with the ink barely dry on the Dodd-Frank financial reform legislation and the economy sputtering, but there are names among
list of regional bank and thrift holding companies -- those with significant analyst coverage and high trading volume -- that are getting the thumbs up from Wall Street.
The list that follows features the five regional banks with the largest percentage of buy ratings vs. the total number of analysts who cover the stock, using
data as of August 4.
To compile the list, we screened publicly traded domestic bank and thrift holding companies with between $10 billion and $100 billion in total assets, coverage by at least five analysts, and three-month average trading volume of at least 100,000 shares.
Of the 44 bank holding companies that met the above criteria, the only two that lacked any buy ratings from analysts were
of Tupelo, Miss. and
Whitney Holding Corp.
( WTNY) of New Orleans. For both of these banks, the great majority of analysts had hold recommendations.
The bank with the highest percentage of sell ratings was
( WL) of Wilmington, Del., with three out of 11 analysts recommending investors part with the shares. Next was
Valley National Bancorp
of Wayne, N.J., with sell ratings from three out of 12 analysts.
Among the regional banks with the highest percentage of buy recommendations only two had any sell ratings -- one apiece. Here's the list going from the smallest percentage of buy ratings to the largest, with additional information provided by
5. Washington Federal, Inc.
Washington Federal has had the worst stock performance during 2010 among the five regional holding companies with the highest percentage of buy ratings, with shares down 11% year-to-date. Out of 11 analysts covering the company, six have buy ratings, four recommend investors hold the shares and one has a sell recommendation, according to
Sterne Agee analyst Brett Rabatin reiterated his buy rating for the shares following the release of Washington Federal's second-quarter results, saying his firm expects continued improvements in loan quality and core profitability will result in "ROA potentially exceeding 1%." Washington Federal's return on average assets for the second quarter was 0.37% and hasn't exceeded 1% since the second quarter of 2008, according to
Washington Federal is strongly capitalized, reporting a total risk-based capital ratio of 21.90% as of June 30, more than double the 10% required for most banks and thrifts to be considered
Rabatin said he expected the company to "find ways to deploy capital over the next year," adding that Washington Federal was poised to gather additional assets from the
Federal Deposit Insurance Corp.
The company acquired the failed
of Bellingham, Wash., in January.
Another number that stands out for Washington Federal is the thrift's efficiency ratio, which was 31.48 for the second quarter. This was the fourth-best according to the most-recent available quarterly data for all 1,000 publicly-traded U.S. banks and thrifts (excluding those traded on the Pink Sheets), according to
. The efficiency ratio is essentially the number of pennies of expenses for every dollar of revenue. Lower is better.
Hudson City Bancorp
had the lowest efficiency ratio among the group of 1,000, at 20.13%
Rabatin's 12-month target for the shares is $22.
4. East West Bancorp
, nine of 15 analysts covering East West Bancorp have a buy rating. Five have hold ratings and one recommends selling the shares.
Shares of East West Bancorp have the highest 52-week return out of the group of five, with shares returning 75%, although they are up only 3% during 2010. Most of the gain took place following the company's key strategic acquisition in November of
, its San Francisco competitor. The transaction, completed with assistance from the FDIC, greatly expanded East West's businesses in both the U.S. and China.
East West went on to acquire
of Seattle, which failed in June.
East West is another strongly capitalized holding company, with a total risk-based capital ratio of ratio of 20.80% as of June 30. The company owes the government $306.5 million for bailout funds received via the Troubled Assets Relief Program, or TARP. CEO Dominic Ng said during the company's second-quarter conference call that since the company had achieved its goal of three consecutive quarters of positive core earnings, East West was going to "start working with our primary regulators in terms of paying off TARP," according to a published transcript.
Howe Barnes Hoefer & Arnett analyst Don Worthington has a buy rating on the shares with a 12-month target of $21, saying the "Two FDIC assisted acquisitions have been accretive to earnings and the company is well positioned for future growth in multiple domestic markets as well as China."
CapitalSource's shares have returned 35% this year and 19% for the 52-week period. Eight of 13 analysts covering the company have buy recommendations on the shares, with five saying "hold" and none recommending investors sell, according to
The company reported a surprise profit for the second quarter, with $18.3 million in net income, or 6 cents a share, as it greatly reduced its quarterly provision for loan losses to $25.3 million from $219 million the previous quarter and $204 million a year earlier.
With net charge-offs -- loan losses less recoveries -- totaling $133 million during the quarter, loan losses exceeded the reserve provision by $108 million. This
mirrors what's been happening at the biggest holding companies, including
which had a second-quarter earnings boost of $1.4 billion from a decline in loan loss reserves and
Bank of America
which released $1.5 billion in reserves.
Through the the credit crisis, CapitalSource has been transitioning its business away from specialty financing at the holding company level and investments in healthcare facilities. The company completed its sale of 103 long-term care facilities to Omega Healthcare Investors during the second quarter. While reducing the holding company's balance sheet, the company has focused on increasing small business and commercial lending at its
CapitalSource had $1.3 billion in nonaccrual loans as of June 30, or 12% of total assets. While that's a significant amount of problem loans to work through, the company was strongly capitalized as of June 30, with a total risk-based capital ratio of 17.69% as of June 30.
Keefe, Bruyette & Woods analyst Sameer Gokhale maintained his "outperform" or buy rating on the shares, with a 12-month target of $6, although that would be only an 8% gain from Wednesday's closing price of $5.58.
Jeff Davis of Guggenheim Securities is among five analysts with neutral ratings on the shares, terming them "reasonably valued" and saying the company's balance sheet will probably continue to shrink for another year.
2. Popular, Inc.
Shares of Popular, Inc. are up 21% this year and have risen 94% over the past year. Five of seven analysts covering the company have buy ratings on the shares, with the other two recommending investors hold, according to
B. Reilly analyst Joe Gladue reiterated his buy rating and increased his 12-month target for the shares to $4.75 following Popular's earnings release, basing the target in part on a 2012 earnings per share estimate of 45 cents. "While we still see another few quarters of losses, we now see a more emphatic return to profitability in 2011 and beyond, he said."
1. IberiaBank Corp
Out of 44 regional banks meeting our criteria, IberiaBank Corp had the strongest analyst sentiment, with 10 buy recommendations out of 13. Three analysts say investors should hold, according to
. The shares have returned just 2% this year, but are up 19% for the 52-week period.
IberiaBank Corp has doubled in size since the end of 2007, acquiring failed banks in Arkansas, Alabama and three in Florida, with 80% loss-sharing agreements with the FDIC covering the riskiest acquired assets.
FIG Partners analyst Christopher Marinac has an "outperform" rating on the shares, saying his firm expects "IBKC to support far higher values as Normalized EPS expand from the $2.20 actual pace in 2Q-2010 to over $4.60 by late 2012."
IberiaBank's most recent FDIC-assisted acquisition was
of Lantana, Fla., which was shuttered by state regulators on July 23.
Marinac said recent weakness in IberiaBank's shares reflected "concerns and apathy towards any financial institution located in the Gulf Coast region" because of the oil spill, but the transaction was possibly "just what the doctor ordered to cause an inflection in IBKC shares."
It appears he was correct: IberiaBank's shares are up 8% since July 23.
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.