NEW YORK ( TheStreet) -- Overdraft penalties are a big source of earnings for many banks, and an important regulatory change that kicks in shortly may put those profits in jeopardy.

Beginning July 1 for new accounts and Aug. 15 for accounts opened before July 1, banks will need to get customers to agree to pay overdraft fees before they can be assessed. The regulatory change was announced by the Federal Reserve in November.

Analysts at Sandler O'Neill wrote in a recent report on the issue that banks are "optimistic" customers will agree to the fees rather than run out of cash at the ATM. But banks still need to get customers to respond to mailings asking them to opt in.

Sandler ran some data on 117 banks and thrifts to see which get the biggest boost to core operating revenues from service charges, a big chunk of which comes from overdraft fees. Although none of the four largest retail banks appeared in the top five, it is worth noting that Citigroup ( C) and Bank of America ( BAC), two banks that often get lumped together by investors, are very different in terms of how heavily they depend on service charges.

Citigroup gets just 1% of its core operating revenues from service charges, which translates to it being less reliant on service charges than every bank on the list that Sandler looked at except Oriental Financial Group ( OFG), which also comes in at 1%.

Bank of America, on the other hand, gets 12% of its core operating revenues from service charges, tying it for seventh place with a host of other banks.

Here are the five banks most reliant on the revenues they get from service charges, according to Sandler's report. The revenue and earnings figures cited are based on trailing averages for the past four quarters.

5. Capital City Bank Group ( CCBG), based in Tallahassee, Fla., also has branches in Georgia and Alabama. It had $2.7 billion in assets at the end of the first quarter.

  • Percentage of core operating revenue related to service charges: 17%
  • Potential annual revenue lost from 10% hit to service charges: $2.8 million
  • Earnings per share impact from 10% hit: $0.11
  • Potential annual revenue lost from 20% hit to service charges: $5.6 million
  • Earnings per share impact from 20% hit: $0.21
  • Comment: Capital City lost 20 cents a share last year, and Sandler analyst Joseph Fenech estimates it will lose 49 cents this year. Last month, the bank cut its dividend to 10 cents from 19 cents. Fenech. who had a hold rating on the stock with a $17 price target when the shares were at $15.38 on May 27, wrote after the dividend cut that while he didn't rule out the bank raising more capital, neither did he see the dividend cut as an indication management's thinking has changed on the subject. The stock was trading up slightly at $13.61 in midday action on Tuesday.

    The bank is slated to report its second-quarter results on July 19, and the average estimate of analysts polled by Thomson Reuters is for a loss of 17 cents a share on revenue of $39.4 million in the June quarter. Year to date, the stock was down 2% through Monday's close, and opinion on Wall Street is uniformly bland as all 10 analysts covering the company have it rated at hold.

    4. Regions Financial ( RF), based in Birmingham, Ala., is the 12th largest bank in the United States with $137 billion in assets at the end of the first quarter.

  • Percentage of core operating revenue related to service charges: 18%
  • Potential annual revenue lost from 10% hit to service charges: $117.5 million
  • Earnings per share impact from 10% hit: $0.06
  • Potential annual revenue lost from 20% hit to service charges: $235 million
  • Earnings per share impact from 20% hit: $0.13
  • Comment: Regions lost $1.27 per share last year and is expected to lose 65 cents per share in 2010, according to the average estimate of 20 analysts polled by Thomson Reuters. Second-quarter results are expected to arrive on July 19, and Wall Street's current consensus view is for a loss of 21 cents a share.

    Lower service charges and a decline in fixed income revenues from the company's Morgan Keegan investment banking unit were weak spots in a first quarter that was roughly in line with expectations, according to Sandler analyst Kevin Fitzsimmons. Fitzsimmons had a "hold" on the stock and a price target of $8.50 in a report published in April when the stock was still trading above $8. The shares were up 35% so far in 2010 through Monday's close and were changing hands at $7.19 in midday action on Tuesday.

    3. TCF Financial ( TCB), based in Minnesota, operates 441 branches in six Midwestern states and Arizona. It had $18.2 billion in assets at the end of the first quarter.

  • Percentage of core operating revenue related to service charges: 26%
  • Potential annual revenue lost from 10% hit to service charges: $30.1 million
  • Earnings per share impact from 10% hit: $0.14
  • Potential annual revenue lost from 20% hit to service charges: $60.2 million
  • Earnings per share impact from 20% hit: $0.28
  • Comment: TCF earned 54 cents per share last year, and Sandler projects it will earn 98 cents in 2010. It got into trouble with regulators over alleged money laundering, though analyst Scott Siefers, who has a "hold" on the stock and a $19 price target, argued in an April report that capital and credit issues are far more serious for the bank.

    Second-quarter results are expected on July 19, and the current average estimate of analysts polled by Thomson Reuters is for a profit of 27 cents a share in the June period on revenue of $306.7 million. Year to date, the stock was up 22% through Monday's close, and it was changing hands at $16.87 on Tuesday.

    2. City Holding ( CHCO) is the holding company of City National Bank. Based in Charleston W.Va., it has 70 locations throughout West Virginia, Kentucky and Ohio. It had $2.7 billion in assets at the end of the first quarter.

  • Percentage of core operating revenue related to service charges: 28%
  • Potential annual revenue lost from 10% hit to service charges: $4.5 million
  • Earnings per share impact from 10% hit: $0.18
  • Potential annual revenue lost from 20% hit to service charges: $9.0 million
  • Earnings per share impact from 20% hit: $0.37
  • Comment: City earned $2.68 per share in 2009, but Sandler estimates those earnings will fall to $2.35 this year. In an April 26 research note, Sandler analyst Avi Barak had a sell rating on the stock with a 12-month price target of $32, right around where the shares were trading just before noon on Tuesday. In the report, Barak cited improving asset quality but "thin" reserve coverage for his bearish view of the stock and described the Greenbrier Resort in White Sulphur Springs, W.Va., the state's eastern panhandle, the "primary area of weakness," among City's assets.

    The company is scheduled to report its second-quarter results on July 26, and the average estimate of analysts polled by Thomson Reuters is for a profit of 65 cents a share for the three months ended in June, with revenue projected at $38.3 million. Through Monday's close, the stock was down 1.4% in 2010.

    1. BankAtlantic Bancorp ( BBX) based in Fort Lauderdale, Fla., has more than 100 locations in the state, where it has been operating since 1952. It had $130 million in assets at the end of the first quarter.

  • Percentage of core operating revenue related to service charges: 29%
  • Potential annual revenue lost from 10% hit to service charges: $7.2 million
  • Earnings per share impact: $0.10
  • Potential annual revenue lost from 20% hit to service charges: $14.4 million
  • Earnings per share impact: $0.19
  • Comment: BankAtlantic lost $9.90 per share in 2009, and Sandler estimates it will lose $2.17 in 2010 and 69 cents in 2011. Sandler analyst Joseph Fenech had a "hold" on the stock and a 12-month price target of $2.75 as of May 5, when the shares were changing hands at $2.65. While Fenech was impressed by a lower provision for loan losses than he expected in the first quarter, he still had some doubts about the quality of BankAtlantic's assets.

    Despite the expected losses, BankAtlantic's shares had appreciated more than 16% through Monday's close, although the volatile stock is down considerably since late April when it traded above $3 on an intraday basis. The weakness came as the company ended up having to significantly boost an offer to repurchase trust-preferred securities and then announced plans to sell $25 million worth of common stock on June 2. The company is anticipated to report its second-quarter results on July 19, and Wall Street is expecting a loss of 55 cents a share for the period on revenue of $60.7 million. The stock was down nearly 3% to $1.47 in midday trades on Tuesday.
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    -- Written by Dan Freed in New York.

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