10 Banks Poised to Profit From Rising Interest Rates

NEW YORK ( TheStreet) -- If interest rates were to rise in 2011 it could benefit several financial institutions.

Although the analysts at Stifel Nicolaus say they do not expect interest rates to change until 2012 due to economic growth, unemployment, low consumer confidence and a difficult housing market, there is a possibility that the Federal Reserve could increase rates.

"With the Fed Funds target remaining in the 0-25 basis point range, we expect investors to build concession into the short end of the curve (2yr) during the latter half of 2011 to prepare for the possibility of rate hikes in 2012," said a research note by the analysts at Stifel Nicolaus.

If the Fed does raise rates it could positively impact bank earnings. Higher short-term rates would impact credit cards, home equity lines and increase net- interest margin expansion.

Stifel Nicolaus analysts have determined which banks' balance sheets would benefit the most from a rise in rates. Here are the top ten banks on their list.

1. Zions Bancorp

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Zions Bancorp ( ZION) was ranked as the bank that would benefit the most from an interest rate hike due to the number of loans that would be re-priced. The percentage of earnings assets that would be re-priced in three months or more was 41 percent. This means that that excess liquidity could be reinvested in interest rates rise.

In addition, about 50 percent of the loans on Zions' balance sheet would have to be re-priced, according to Stifel Nicolaus analyst Brian Zabora. That is above the median for the Stifel Nicolaus Universe of 27 percent.

"Also the company's cash balances are 12 percent of total earning assets, which is one of the highest in our universe and, in our view, provides the company the opportunity to take advantage of an increase in securities yields," wrote Zabora in the analyst note.

Non-interest bearing accounts as a percentage of total deposits was 32 percent. That funding would become more valuable as rates rise.

Mortgage-backed securities as a percentage of earnings assets was only one percent. Banks such as Zions with a low level of MBS will not be locked into investments as rates rise.

Also, certificates of deposits will not likely experience as great an increase in deposit cost as those banks with larger CD concentrations. Zions CDs re-pricing in over three months as a percentage of total deposits was three percent.

Zion shares are trading at about $24.28 per share with a market cap of $4.33 billion.

2. Comerica

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Comerica ( CMA) is the most asset-sensitive of the large cap banks, according to Stifel Nicolaus analyst Chris Mutascio.

The bank has a 58 percent of earning assets re-pricing in over three months and non-interest bearing as a percentage of total deposits of 32 percent. The bank's mortgage-backed securities as a percentage of earnings assets is 12 percent and CDs re-pricing in three months as a percentage of total deposits would be five percent.

"Comerica is indeed significantly asset-sensitive given its predominantly commercial and industrial-concentrated loan-book," said Mutascio in the report.

Comerica recently announced the acquisition of Sterling Bancshares ( SBIB) of Houston in a $1-billion all-stock deal. Sterling Bancshares was ranked number 10 on Stiefel Nicolaus' list of banks that would benefit most from an interest rate hike. Logically, an increase in interest rates would benefit these assets that Comerica is taking on once the acquisition in complete.

Sterling would have 37 percent of its earning assets re-pricing in over three months. Non-interest bearing as a percentage of total deposits was 33 percent, MBS as a percentage of earnings assets was eight percent and CDs repricing in over three months as a percentage of total deposits was 14 percent.

Currently, Comerica's stock is trading at $38.51 per share and the company has a market cap of $6.8 billion.

3. First Horizon National Corp.

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First Horizon National Corp. ( FHN) is in a position to gain if interest rates rise this year.

The Memphis-based bank's percentage of earning assets re-pricing in over three months is 53 percent. Non-interest bearing as a percentage of total deposits is 29 percent. Mortgage-backed securities as a percentage of earnings assets was about ten percent and CDs re-pricing over three months as a percentage of total deposits came in at four percent, according to the report.

"With nearly 70 percent of the loan portfolio priced off Prime or LIBOR, nearly 30 percent of deposits in interest-free DDA and a 12 percent Tier 1 Common ratio, First Horizon is ideally positioned for a firmer interest rate scenario," said Stifel Nicolas analyst Tony Davis in the note.

Over the past two years First Horizon National has restructured its business, refocusing its banking operations from national to regional. The bank currently has 180 locations and it has decreased its non-performing assets by 25 percent since the third quarter of 2009.

Analysts believe that now that First Horizon has paid back TARP, the company could possibly make acquisitions, participate in a share repurchase or raise their dividend. First Horizon CEO Bryon Jordan, who was featured as one of TheStreet's "Most Loved Bank CEOs in 2010" has been working on improving the bank's balance sheet.

First Horizon stock is trading at $12.11 and has a market cap of $2.87 billion.

4. Texas Capital Bancshares

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Texas Capital Bancshares ( TCBI), commercial bank with over $5 million in annual revenue, came in for the number four spot on Stifel Nicolaus' list of financial institutions likely to take advantage of rising interest rates.

The bank's percentage of earning assets re-pricing over three months is 82 percent and the non-interest bearing as a percentage of deposits is 22 percent. Mortgage-backed securities as a percentage of earning assets is two percent. CDs re-pricing over three months as a percentage of total deposits is 11 percent.

The company's total deposits have been steadily growing for the third quarter of 2010 deposits increased by $1.2 billion up from $427.6 million in 2009. In addition, direct writedowns related to other real estate owned totaled $17.2 million in third quarter of 2010.

Shares of Texas Capital Bancshares are trading at $23.15 and has a market cap of $851.85 million.

5. Wells Fargo & Co.

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Wells Fargo ( WFC) is fifth on Stifel Nicolaus' list of banks to see a boost from interest rates.

"Wells Fargo appears to be in a very good position (from a net interest martin perspective) to take advantage of any increase in short-term interest rates," said Stifel Nicolaus analyst Chris Mutascio in the note.

Wells' earnings are up 21 percent from a year ago with earnings during the fourth quarter coming in at $3.4 billion. In addition the bank's average core deposits are also up from last year, totaling $794.8 billion.

Wells Fargo's percentage of earning assets re-pricing over three months is 42 percent. Non-interest bearing as a percent of total deposits is 23 percent. Mortgage-backed securities as a percentage of earnings assets is two percent. Lastly, CDs repricing over three months as a percentage of total deposits is 11 percent.

6. SY Bancorp

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SY Bancorp ( SYBT), a Louisville, Kentucky-based bank with assets of around $2 billion is poised to take advantage if interest rates are increased.

The percentage of earning assets re-pricing over three months at SY is 39 percent. Excess liquidity would be generated if interest rates rose and could be reinvested.

Non-interest bearing as a percentage of total deposits is 17 percent, which is a bit on the lower side. Still these funds will become more valuable as rates rise.

Mortgage-backed securities as a percentage of earning assets is 3 percent. This is a low enough level that these securities will not be locked into investments as the rates rise. SY Bancorp also does not have a lot of certificates of deposits on its books. CDs repricing over three months as a percentage of total deposits is 5 percent so it should not suffer a great increase in deposit costs.

SY Bancorp is currently trading at $24 and has a market cap of $329.08 million.

7. BancorpSouth, Inc.

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BancorpSouth ( BXS), with $13.4 billion in assets, is also primed to take advantage of the market if interest rates rise.

The bank's percentage of earning assets re-pricing over three months is 40 percent, so there would be a substantial amount of gains assets that could be reinvested.

Also non-interest bearing as a percentage of total deposits is 18 percent. While this is on the lower side, those funds would become more valuable as rates rose.

BancorpSouth has a low level of mortgage-backed securities as a percentage of earning assets, totaling about three percent. The bank would likely not be locked into those investments as rates rise. Lastly, CDs repricing over three months as a percentage of total deposits is seven percent so it is likely that the bank won't have an increase in deposit cost due to CDs.

BancorpSouth is trading at $15.20 and has a market cap of $1.27 billion.

8. Regions Financial

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Regions Financial ( RF) came in as the eight bank to take advantage of the climate if interest rates rose.

The bank's percentage of earning assets re-pricing over three months is 44 percent, so a good amount of earnings from re-priced assets due to interest rates could be reinvested.

Region's non-interest bearing as a percentage of total deposits is 27 percent, indicating that a good source of funding would become more valuable to the bank as rates rose.

In addition mortgage-backed securities as a percentage of earnings assets is 19 percent. Finally, the amount of certificates of deposits repricing over three months on the banks books as a percentage of total deposits is slim, totaling only five percent.

Regions Financial was trading at around $7.07 per share with a market cap of $8.88 billion.

PNC Financial Services

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PNC Financial Services ( PNC) also topped the charts as a bank that would benefit from an environment with higher interest rates.

The Pittsburgh, Pennsylvania-based bank with $290 billion in assets, had a one year GAP ratio of 26.6 percent, indicating that its assets are pretty sensitive to re-pricing.

The percentage of earning assets repricing over three months 47 percent, which is on the higher side. The bank would be able to reinvest earnings assets that would reprice under a higher interest rates.

The bank's non-interest bearing as a percentage of total deposits is 26 percent, indicating the banks source of funding would become more valuable as rates rose.

Mortgage-backed securities as a percentage of earnings assets is 21 percent, which is on the higher side. This means that more of PNC's MBS could be locked into investments as rates rise since it has a larger amount than competitors such as Wells Fargo.

CDs repricing over three months as a percentage of total deposits is 5 percent, which is a plus for the bank. The low level indicates that the CD's repricing from increasing rates will not increase in deposit cost.

PNC Financial is trading at $60.94 with a market cap of $32 billion.

The bank recently reported its fourth quarter and annual earnings. The net income for 2010 was $3.4 billion, or $5.74 per diluted common share, compared with 2009 net income of $2.4 billion. Fourth quarter 2010 net income was $820 million, or $1.50 per diluted common share.

10. Huntington Bancshares

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Huntington Bancshares ( HBAN) is the last bank that could have an advantage if interest rates rise.

The Columbus, Ohio-based bank with $53 billion in assets, has a one year GAP ratio of 28.9 percent. This indicates that its assets are slightly sensitive to repricing if rates do rise.

The percentage of earning assets re-pricing is 40 percent, so a significant amount of liquidity raised from repricing assets after an interest rate rise could be reinvested.

The bank's non-interest bearing as a percentage of total deposits is 17 percent. This funding would be come more valuable as rates rose.

Huntington would also benefit from having only 10 percent of mortgage backed securities as a percentage of earning assets because it wouldn't be locked into these investments as the rates increase.

Lastly, the bank has five percent of certificates of deposits that would re-pricing over three months as a percentage of total deposits. So deposit costs would not substantially increase.

Huntington Bancshares is currently trading at $6.88 with a market cap of $4.9 billion.

Note: Marshall & IIsley ( MI)ranked number 8 on their list, but was omitted because it was recently acquired by Bank of Montreal ( BMO) for $4.1 billion.

>To see these stocks in action, visit the 10 Banks Poised to Profit portfolio on Stockpickr.

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