5 'Under the Radar' Banks Increasing Dividends

NEW YORK ( TheStreet) -- Starting with a list of banks that increased their dividends during the fourth quarter, TheStreet has isolated the ones paying the most to investors, along with discussing three well-known bank dividend stocks.

Most of the five banks we're focusing on earned enough in the fourth quarter to comfortably support additional dividend increases and none of the banks owed bailout funds to the government, but only one - the thinly-traded Norwood Financial ( NWFL)appears to be a bargain at current prices.

SNL Financial provided a list of all the banks increasing their payouts during the fourth quarter, and dividend yields for the group range up to 5.33%, based on Tuesday's market close.

Many of the names we'll discuss are more thinly traded than the bank stocks we usually cover.

For an investor seeking a steady dividend, it's important to consider the direction of a bank's earnings performance at this point in the credit cycle, and whether they currently earn enough to comfortably support the dividend, or can reasonably be expected to do so in the near future.

Three of the most familiar names to dividend-seeking in bank stock investors didn't raise dividends recently, but feature yields that are competitive with the highest yield among the group that raised dividends in Q4:

Valley National Bancorp ( VLY) of Wayne, N.J. has been paying a quarterly dividend of 18 cents since the second quarter of 2006, for a yield of 5.26%, based on Tuesday's closing price of $13.69 a share. Valley National's dividend payout ratio - cash dividend as a percentage of diluted earnings-per-share after extraordinary items - was 75% for the fourth quarter according to SNL Financial and 89% for all of 2010. After the company's fourth-quarter results were announced, David Darst of Guggenheim Securities reiterated his neutral rating on the shares, but said "the current yield appears safe and should reduce downside risk."

New York Community Bancorp ( NYB) of Westbury has been paying a quarterly dividend of 25 cents a share since the second quarter of 2002. Now that's a steady dividend. The yield is 5.32% based on Tuesday's closing price of $18.81 a share. With the purchase of most of the assets of the failed AmTrust Bank late in 2009, New York Community has sufficiently lowered its funding costs and improved its noninterest revenue to comfortably support the dividend, with a payout ratio of 74% in the fourth quarter and 81% for all of 2010, according to SNL. Please see TheStreet's 4 Banks with Growing Revenue for a detailed look at New York Community's revenue improvements.

Hudson City Bancorp ( HCBK) of Paramus, N.J. has been paying a quarterly dividend of 15 cents a share since the second quarter of 2009, when it was increased from 14 cents. The yield is 5.34%, based on Tuesday's closing price of $11.24. The company's dividend payout ratio was 60% for the fourth quarter and 55% for all of 2010. Several analysts have negative opinions on Hudson City because of a narrow net interest margin, however, the company's high efficiency enables it to comfortably support its dividend.

Here are the five banks that raised dividends during the fourth quarter with the highest dividend yields according to SNL Financial, sorted by ascending yield:

Content on this page requires a newer version of Adobe Flash Player.

Get Adobe Flash player

5. Norwood Financial

Shares of Norwood Financial of Honesdale, Pa. closed at $27.85 Tuesday, returning 14% over the past year, assuming dividends were reinvested. The company increased its quarterly payout by a penny to 29 cents, for a dividend yield of 4.17%.

Norwood's main subsidiary is Wayne Bank, which was organized in 1870 and operates 11 full service offices. The holding company had $537 million in total assets as of December 31. On December 15, Norwood announced an agreement to acquire North Penn Bancorp ( NPBP) of Scranton, Pa. for about $27.1 million in cash and stock. The two companies said the deal would expand Norwood's "existing footprint in Monroe County, Pennsylvania and extend its footprint into Lackawanna County, and that the "combined company will have approximately $700 million in assets, 16 branches.

While North Penn Bancorp's fourth-quarter results aren't yet available, the company was profitable during previous quarters.

During the fourth quarter, Norwood earned $1.8 million, or 65 cents a share, the same as in the fourth quarter of 2009. The company's annualized return on average assets (ROA) was 1.35%, for the strongest fourth-quarter earnings performance for the five banks listed here. Norwood's dividend payout ratio was 45% for the fourth quarter and 43% for 2010. These were the lowest payout ratios among this group of five.

The company has good asset quality, with a ratio of nonperforming assets - including nonaccrual loans and repossessed real estate - of 0.90% as of December 31, and had a tangible common equity ratio of 12.60%, which was the highest among this group of holding companies.

The shares trade for 10.7 times trailing earnings, which is the lowest price-to-earnings ratio among any of the companies listed here. That valuation, strong earnings performance, potential for further dividend increases and deployment of excess capital hopefully leading to meaningful earnings growth from the North Penn deal, make Norwood an attractive pick.

Content on this page requires a newer version of Adobe Flash Player.

Get Adobe Flash player

4. Arrow Financial

Shares of Arrow Financial ( AROW) of Glens Falls, N.Y. closed at $23.67 Tuesday and returned 6% over the previous year. The company increased its quarterly payout to 25 cents from 24.3 cents, for a dividend yield of 4.22%.

Through main subsidiaries Glens Falls National Bank and Trust and Saratoga National Bank and Trust, the company operates 24 branches in the northeast of New York state.

Arrow's fourth-quarter net income was $5.2 million, or 46 cents a share, up slightly from $5.1 million, or 45 cents a share a year earlier. The dividend payout ratio was 54% for the fourth quarter and 50% for all of 2010. The fourth-quarter ROA was 1.19%.

Total assets were $1.9 billion as of December 31,and credit quality was strong, with minimal loan losses and a nonperforming assets ratio of just 0.26%.

Following the company's fourth-quarter earnings release, Matthew Kelly of Sterne Agee reiterated his neutral rating on the shares, saying that the company's net interest margin - essentially a bank's average yield on loans and deposits less its average cost of funds - would continue to be pressured. The fourth-quarter margin was 3.30%, declining from 3.71% a year earlier.

The shares trade for 13 times trailing earnings.

Content on this page requires a newer version of Adobe Flash Player.

Get Adobe Flash player

3. Citizens Holding Company

Shares of Citizens Holding Company ( CIZN) of Philadelphia, Miss. closed at $20.32 Tuesday, for a negative return of 6% over the preceding year. The company increased its quarterly dividend to 22 cents from 21 cents, for a yield of 4.33%.

Through main subsidiary The Citizens Bank of Philadelphia, the company operates 23 branches in east central Mississippi and a lending office in Biloxi.

Citizens Holding Company is another steady earner, reporting fourth-quarter net income of $1.7 million, or 35 cents a share, which was the same as in the fourth quarter of 2009. The dividend payout ratio was 63% for the fourth quarter and 57% for all of 2010. The net interest margin for the fourth quarter was 4.06%, declining from 4.22% a year earlier, "because the decrease in yields on earning assets was greater than the decline in rates paid on interest bearing deposits," according to the company's earnings release.

The return on average assets for the fourth quarter was 0.85%, down only slightly from a year earlier.

Total assets were $818 million as of December 31, and the nonperforming assets ratio - again including nonaccrual loans and repossessed real estate - was 1.71%.

The shares trade for 14 times trailing earnings.

Content on this page requires a newer version of Adobe Flash Player.

Get Adobe Flash player

2. First Niagara Financial

Shares of First Niagara Financial ( FNFG) of Buffalo, N.Y. closed at $14.50 Tuesday, with a one-year total return of 13.98%. The company increased its quarterly dividend by a penny to 15%, for a yield of 4.42%.

First Niagara has a pending deal in place to acquire NewAlliance Bancshares ( NAL) of New Haven, Conn for about $1.5 billion. NewAlliance has $9 billion in total assets and 87 branches.

The merger is expected to be complete in April, and the combined holding company will have total assets of about $29 billion and 340 branches in Upstate New York, Pennsylvania, Connecticut and Massachusetts.

The NewAlliance deal will continue First Niagara's significant expansion, which has included the acquisition of Harleysville National of Harleysville, Penn. last April and the purchase of 57 National City Bank branches in western Pennsylvania in September 2009.

First Niagara reported fourth-quarter net income of $45.9 million, or 22 cents a share, increasing from $28.9 million, or 16 cents a share, a year earlier, as the company grew its balance sheet 45% over the year. The dividend payout ratio was 68% for the fourth quarter and 81% for all of 2009.

First Niagara's fourth-quarter ROA was 0.89%. After the company's earnings release, Damon DelMonte of KBW reiterated his "outperform" or buy rating for First Niagara and increased his target price for the shares to $16, saying he expected the company to "keep rolling in 2011."

Content on this page requires a newer version of Adobe Flash Player.

Get Adobe Flash player

1. NB&T Financial Group

The highest yielding stock among the bank holding companies that increased dividends during the fourth quarter is NB&T Financial Group ( NBTF) of Wilmington, Ohio. The shares closed at $22.50 Tuesday, for a one-year total return of 45%. The company increased its quarterly dividend by a penny to 30 cents, for a yield of 5.33%.

Fourth quarter net income was $718 thousand, or 20 cents a share, declining from $1.6 million, or 49 cents a share, in the fourth quarter of 2009, when the company booked $1.8 million in gains on bargain acquisitions, including the failed American National Bank of Parma, Ohio, which NB&T purchased from the Federal Deposit Insurance Corporation in March 2009. Fourth-quarter 2010 results were affected by a $416 thousand fee on the prepayment of a $12.5 million Federal Home Loan Bank advance with "a relatively high interest rate," and "compensation expense of $213,000 related to the early allocation of the remaining shares in NBTF's employee stock ownership plan."

The fourth-quarter net interest margin was 3.83%, increasing from 3.70% a year earlier. With the expansion from acquisitions and improved margin, net interest income increased to $6 million in the fourth quarter, from $4.6 million a year earlier.

While NB&T obviously didn't cover its dividend with earnings during the fourth quarter, the company's dividend payout ratio for all of 2010 was 45%.

Total assets were $691 million as of December 31, and the nonperforming assets ratio was 1.99%.

Based on third-quarter earnings of 36 cents a share, for a quarter that didn't include significant extraordinary items, NB&T's stock is trading for 16 times trailing earnings.

RELATED STORIES:



-- Written by Philip van Doorn in Jupiter, Fla.

>To see these stocks in action, visit the 5 'Under the Radar' Bank Stocks Increasing Dividends portfolio on Stockpickr.

To contact the writer, click here: Philip van Doorn.

To follow the writer on Twitter, go to http://twitter.com/PhilipvanDoorn.

To submit a news tip, send an email to: tips@thestreet.com.

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.

More from Stocks

Dow Rises as Index Looks to End Losing Streak; GE Slumps

Dow Rises as Index Looks to End Losing Streak; GE Slumps

3 Ways to Fix Starbucks Biggest Challenges

3 Ways to Fix Starbucks Biggest Challenges

General Electric's Boot From the Dow: Is This as Bad as It Can Get?

General Electric's Boot From the Dow: Is This as Bad as It Can Get?

News From Starbucks and General Electric Leaves Their Investors Up in Arms

News From Starbucks and General Electric Leaves Their Investors Up in Arms

Facebook Messenger Could Bring in Billions of Dollars -- Here's How

Facebook Messenger Could Bring in Billions of Dollars -- Here's How