10 Banks With Rising Revenue

NEW YORK ( TheStreet) -- Coming out of a first-quarter earnings season with the largest U.S. banks all reporting significant year-over-year declines in first-quarter revenue, TheStreet has identified 10 actively traded names bucking the trend.

In order to identify the banks with the best revenue improvement, we focused on pre-provision net revenue, which SNL Financial defines as a bank's net interest income plus its noninterest income, minus noninterest expense.

This method has the advantage of excluding the release of loan loss reserves, which at this point in the credit cycle continue to pad the bottom lines of the largest banks.

The "big four" U.S. bank holding companies all saw significant releases of loan loss reserves during the first quarter, with Citigroup ( C) releasing $3.3 billion in credit reserve, while JPMorgan Chase's ( JPM) allowance for loan losses declined by $2.5 billion. Bank of America's ( BAC) loan loss reserves declined by $2 billion, and Wells Fargo ( WFC) released $1 billion in reserves.

SNL's data paints a grim picture for the big four during the first quarter. Bank of America saw a 59% year-over-year decline in pre-provision net revenue to $6 billion, as the company's mortgage repurchase risk and legal expenses increased, while weak loan demand and declines in credit card fee income and checking account overdraft fees - brought about mainly by regulatory changes springing from the CARD act of 2009 and the Dodd-Frank Wall Street Reform and Consumer Protection Act -- signed into law by President Obama last July -- took their toll.

Citigroup saw a 39% decline in pre-provision net revenue to $8.4 billion while JPMorgan Chase saw a 21% year-over-year decline to $8.5 billion. For Wells Fargo, the year-over-year decline in pre-provision net revenue was 18%, to $18 billion.

The following are the 10 bank holding companies with three-month average daily trading volume of at least 50,000 shares, with the best year-over-year improvement in pre-provision net revenue. The list is limited to banks that had reported their first-quarter results as of last Friday.

10. KeyCorp

Shares of KeyCorp ( KEY) of Cleveland closed at $8.67 Friday, down 3% from a year earlier.

The company reported first-quarter net income attributable to common shareholders of $173 million, or 21 cents a share, improving from a net loss of $96 million, or 11 cents a share, a year earlier. The first-quarter results included $53 million in discount amortization on $2.5 billion in preferred shares held by the government for bailout assistance received through the Troubled Assets Relief Program (TARP) which KeyCorp redeemed on March 30. The company announced on April 20 that it had completed its exit from TARP by repurchasing a warrant held by the Treasury for $70 million.

KeyCorp's bottom line for the first quarter was boosted by $40 million transfer from its allowance for loan losses, compared to a provision for loan losses - an addition to reserves - of $413 million in the first quarter of 2010. During the first quarter, the company released $ 236 million in credit loss reserves.

Pre-provision net revenue totaled $326 million during the first quarter, increasing 27% from a year earlier, according to SNL Financial. The main factor in the net revenue improvement was an 11% year-over-year decline in noninterest expense to $701 million, with reduced expenses on repossessed real estate and a "decline of $43 million in various miscellaneous expenses," according to the company's earnings release.

KeyCorp's shares are trading for 11 times the consensus 2012 earnings estimate of 76 cents, among analysts polled by FactSet. Out of 23 analysts covering the company, three rate the shares a buy, 18 have neutral ratings and two analysts recommend investors sell the shares.

Jeff Davis of Guggenheim Securities rates KeyCorp a buy, with an $11 price target, saying after the first-quarter earnings announcement that although the company is "revenue challenged" like most banks, it may have "more expense leverage opportunities" than some peers. The analyst added that there was "limited downside risk for the shares given our view of stout capital, some of which will be returned to shareholders via rising dividends and, perhap, share repurchases.

9. Synovus Financial

Shares of Synovus Financial ( SNV) of Columbus, Ga., closed at $2.50 Friday, down 21% from a year earlier.

The company owes $968 million in TARP money.

For the first quarter, Synovus reported net loss to common shareholders of $93.7 million, narrowing from a loss of $229.8 million, or 47 cents a share, a year earlier. The company's provision for loan losses declined 58% year-over-year, to $141.7 million.

Pre-provision net revenue for the first quarter was $86 million according to SNL, increasing 30% from a year earlier, mainly from a 15% year-over-year reduction in noninterest expense to $215 million. Reductions in headcount led to lower salary and benefits expenses, and data processing and professional services expenses also decline.

Synovus's shares are trading for 17 times the consensus 2012 earnings estimate of 15 cents a share. Out of 24 analysts covering the company, six rate the shares a buy, while 15 have neutral ratings and three recommend selling the shares.

Christopher Marinac of FIG Partners has a neutral rating on the shares, saying after the first-quarter earnings release that "the lack of profits and the limited visibility towards large loan resolutions will likely hold back the valuation of this stock for the next few quarters."

8. First Niagara Financial

Shares of First Niagara Financial Group ( FNFG) of Buffalo, N.Y. closed at $14.40 Friday, up 6% from a year earlier. Based on a quarterly payout of 16 cents, the shares have a dividend yield of 4.44%.

The company on April 15 completed its acquisition of NewAlliance Bancshares of New Haven, Conn., for roughly $1.5 billion in cash and stock, increasing First Niagara's total assets to about $30 billion

First-quarter net income was $44.9 million, or 22 cents a share, increasing from $28.9 million, or 16 cents a share in the first quarter of 2010. The provision for credit losses declined slightly from a year earlier to $12.9 million.

Pre-provision net revenue for the first quarter was $86 million, increasing 30% from a year earlier, as the company grew its balance sheet 43%, mainly from its acquisitions of Harleysville National Corp. in April, 2010.

First Niagara's shares are trading for 12.5 times the consensus 2012 earnings estimate of $1.15 a share. Five of the 11 analysts covering the company rate the shares a buy, while the remaining analysts all have neutral ratings.

Following the company's earnings release, Sterne Agee analyst Matthew Kelley reiterated his neutral rating for First Niagara, saying that "a solid first quarter driven by better loan growth than expected, a higher net interest margin and solid credit metrics," helped offset a "a significant decline in mortgage banking income, as well as commercial and consumer fee income." The analyst added that the ultimate earnings impact of First Niagara's "rather substantial expense reduction plans" was unclear.

7. FirstMerit

Shares of FirstMerit ( FMER) of Akron, Ohio, closed at $17.47 Friday, down 25% from a year earlier. Based on a quarterly payout of 16 cents, the shares have a dividend yield of 3.66%.

First-quarter net income was $27.6 million, or 25 cents a share, increasing from $15.4 million, or 18 cents a share, in the first quarter of 2010.

Pre-provision net revenue for the first quarter was $62.3 million according to SNL, increasing 32% from a year earlier. The main factor in the improvement was a 34% year-over-year increase in net interest income to a tax-adjusted $123.9, reflecting the purchase last May of the failed Midwest Bank and Trust Company from the Federal Deposit Insurance Corp., and the integration of previous Chicago-area acquisitions.

FirstMerit's shares are trading for 13 times the 2012 consensus earnings estimate of $1.36 a share. The 12 analysts covering FirstMerit are evenly split between buy and hold ratings.

After the first-quarter results were announced, Ross Demmerle of Hilliard Lyons reiterated his neutral rating on FirstMerit, saying the company's management "seems adamant about continued expansion in Chicago through acquisitions," and that "a merger would likely be dilutive to shareholders in the short run and might push the stock lower on such an announcement." Demmerle added that the company's capital base is sufficient for it to "pay an above average yield."

6. Washington Federal

Shares of Washington Federal ( WFSL) of Seattle closed at $16.09 Friday, down 22% over the previous year.

The company reported first-quarter net income of $25.8 million, or 23 cents a share, declining from $82.2 million, or 73 cents a share, in the first quarter of 2010, when Washington Federal booked an $85.6 million gain on its purchase of the failed Horizon Bank of Bellingham, Wash., from the FDIC.

The first-quarter provision for loan losses declined 52% from a year earlier to $30.8 million.

Pre-provision net revenue for the first quarter was $63 million, increasing 37% from a year earlier, reflecting a 42% decline in expenses on repossessed real estate to $9.6 million and $8.1 million in gains on the sale of investments.

Washington Federal trades for 13 times the consensus 2012 earnings estimate of $1.27 a share. Out of 14 analysts covering the company, eight rate the shares a buy, while the remaining analysts all have neutral ratings.

After the first-quarter earnings announcement, Jeff Rulis of D.A. Davidson cut his rating on Washington Federal to "neutral" from "buy," to neutral and lowered his 2012 earnings estimate to $1.10 a share from $1.25, citing "increased provision assumptions and a lower net interest margin forecast." The analyst lowered his price target for the shares to $17 from $21.

Saying that Washington Federal was "not like some thrift peers," Sterne Agee analyst Brett Rabatin reiterated his "buy" rating for Washington Federal on April 15 with a price target of $18, saying the shares had "limited downside from present levels," since they were trading at 1.1 times tangible book value. With the company missing his first-quarter earnings estimate by a nickel, and with earnings including five cents a share in securities gains, Rabatin lowered his 2012 earnings estimate for the company to $1.34 from $1.49.

The analyst said that "market sentiment is presently clearly away from the thrift group with the expectation of inflation and higher interest rates," but noted that Washington Federal had plenty of excess capital to fund more acquisitions, with a tangible common equity ratio of 12%, and that the company has "has more credit leverage, growth opportunities, and a higher profitability potential than many institutions in the thrift space."

5. Valley National Bancorp

Shares of Valley National Bancorp ( VLY) of Wayne, N.J., closed at $14.32 Friday, down 4% from a year earlier. With a quarterly payout of 18 cents, the shares have a very attractive dividend yield of 5.03%.

The company on April 29 announced a major expansion into the Long Island market with a deal to acquire State Bancorp of Jericho, N.Y., for $222 million in stock. SNL Financial valued the deal -- which includes Valley's repayment of State Bancorp's 37 million in TARP money -- at roughly two times tangible book value, which is a hefty premium in the current environment for community banks putting themselves on the block.

Valley reported first-quarter net income of $36.6 million, or 22 cents a share, increasing from $27.4 million, or 16 cents a share, a year earlier.

Pre-provision net revenue for the first quarter was $77.3 million, increasing 40% from a year earlier, mainly reflecting $16.2 million in loss-sharing reimbursements from the FDIC, covering losses on problem loans acquired from the failed LibertyPointe Bank and Park Avenue Bank, both of New York, in March 2010.

Valley National's shares trade for 15 times the consensus 2012 earnings estimate of 94 cents. Two of the nine analysts covering the company rate the shares a buy, while six have neutral ratings and one analyst recommends investors sell the shares.

Following the announcement of the State Bancorp deal, David Darst of Guggenheim Securities reiterated his neutral rating for Valley, saying the pricing of the acquisition followed "recent trends for deals in the Mid-Atlantic and Northeast," and that the transaction was significant, extending "VLY's franchise into Long Island, a market with strong demographics and population density."

4. Popular, Inc.

Shares of Popular Inc. ( BPOP) of Hato Rey, Puerto Rico, closed at $3.15 Friday, down 17% from a year earlier.

The company owes $935 million in TARP money, having converted the preferred shares held by the Treasury to trust-preferred shares in the third quarter of 2009. That move netted Popular a huge gain, lowering its accumulated deficit by $485 million because of an assumed discount rate of 16%, taking into account the much greater dividend rate the company would have paid if it had offered trust-preferred shares in the open market.

First-quarter net income to applicable to common stock was $9.2 million, or a penny a share, compared to a loss of $85.1 million, or 13 cents a share, in the first quarter of 2010. The provision for loan losses declined to $75.3 million, from $240.2 million a year earlier.

Pre-provision net revenue for the first quarter was $232.7 million according to SNL, increasing 41% from a year earlier, mainly because of the expansion from the purchase of the failed Westernbank from the FDIC last May, which cemented Popular's leading position in its home market.

Popular's shares trade for 9 times the consensus 2012 earnings estimate of 35 cents a share, making the name by far the cheapest by this measure of the 10 stocks listed here. Four of the five analysts covering the company rate the shares a buy.

On Monday, Cantor Fitzgerald analyst Michael Dana reiterate his "hold" rating for Popular, with a price target of $3.50, citing the company's challenges in building earning assets, and also saying that "repayment of TARP would trigger the reversal of the $500 million after-tax gain (about $0.50 per share)."

3. First Citizens BancShares

Shares of First Citizens BancShares ( FCNCA) of Raleigh, N.C., closed at $200.01 Friday, down 4% from a year earlier.

First-quarter net income was $62.7 million, or $6.01 a share, declining from $106.6 million, or $10.22 a share in the first quarter of 2010, mainly because the provision for loan losses more than doubled from a year earlier, to $44.4 million.

Pre-provision net revenue for the first quarter was $80.5 million according to SNL, increasing 50% from a year earlier, as net interest income increased 34% because of increased earning assets and "the accretion of fair value discounts" from the acquisition of five failed institutions from the FDIC since the beginning of 2009.

The company's most recent failed-bank acquisition was United Western Bank of Denver, which had $2.1 billion in total assets when it was shuttered by the Office of Thrift Supervision in January.

The only sell-side analyst covering First Citizens is Brett Scheiner of FBR Capital Markets, who rates the company "outperform," or a buy, with a $230 price target. The shares are trading for 14.5 times the analysts' 2011 earnings estimate of $13.84. In his most recent note on the company on January 25, Scheiner said the First Citizens' "financial metrics improved from the third quarter and credit quality in the uncovered loan book remained pristine."

2. People's United Financial

Shares of People's United Financial ( PBCT) of Bridgeport, Conn., closed at $____ Friday, down 8% from a year earlier. Based on a quarterly payout of 16 cents, the shares have a dividend yield of 4.60%.

In January, the company announced a deal to acquire Danvers Bancorp ( DNBK) of Danvers, Mass., for $493 million in cash and stock.

First-quarter net income was $51.7 million, or 15 cents a share, increasing from $13.6 million, or 4 cents a share, a year earlier, mainly reflecting an increase in interest income, as the company expanded with the acquisitions of Smithtown Bancorp in November, the failed Butler Bank of Lowell, Mass., in April 2010, and Financial Federal Corp. in February 2010.

Pre-provision net revenue for the first quarter was $96.3 million according to SNL Financial, increasing 78% from a year earlier. While interest and dividend income increased 31% year-over-year to $252.8 million in the first quarter -- partially from "interest accretion from the Financial Federal" -- interest expense actually declined slightly. First-quarter net interest income was up 38% to a tax-adjusted $221.5 million, according to SNL.

People's United is trading for 16 times the consensus 2012 earnings estimate of 84 cents a share. Out of 16 analysts covering the company, six rate the shares a buy, while the remaining analysts all have neutral ratings.

After People's United announced its first-quarter results, Matthew Kelly of Sterne Agee reiterated his neutral rating on the shares, saying his firm was "more positive on the story as profitability improvements are finally beginning to be realized." Kelly added that the company was likely to "be increasingly more focused on their expenses and efficiency ratio as a driver of earnings."

1. Capital Source

Shares of CapitalSource ( CSE) of Chevy Chase, Md., closed at $6.68, returning 11% from a year earlier.

The company had $9.3 billion in total assets as of March 31, with a national lending business focusing on small and middle market businesses, and gathering deposits through a 21-branch network in southern and central California. The company's balance sheet was reduced 20% from a year earlier, as it sold 103 long-term care facilities to Omega Healthcare Investors during the second quarter.

CapitalSource still focuses on healthcare real estate financing, as well as equipment finance, technology, multifamily lending, and a new professional practice lending group, which finances the acquisition of dental and veterinary practices.

The company expects to complete the conversion of main subsidiary CapitalSource Bank from a California industrial charter to a commercial bank charter in the second half of 2011.

First-quarter net income was $3.2 million, or a penny a share, compared to a loss of $211.7 million, or 66 cents a share in the first quarter of 2010. The bottom-line improvement was mainly from a reduction in the provision for loan losses to $44.8 million in the first quarter from $218.9 million a year earlier.

Pre-provision net revenue for the first quarter was $35.6 million, increasing 86% from a year earlier, reflecting $23.5 million in gains on investments, compared to $7.8 million a year earlier, as well as a decline in expenses on repossessed real estate of nearly 50%, to $10.2 million.

CapitalSource's shares are trading for 13 times the consensus 2012 earnings estimate of 52 cents a share. Out of 12 analysts covering the company, eight rate the shares a buy, while the remaining analysts have neutral ratings.

Jeff Davis of Guggenheim reiterated his neutral rating on CapitalSource after the first-quarter results were announced, and reduced his 2012 earnings estimate by seven cents to 35 cents a share, saying investors were likely "disappointed with commentary that implied CSE will not be able to quickly distribute $500-800 million of eventual excess parent cash/capital until the bank holding company charter is approved," and that the Federal Reserve "typically does not condone large capital distributions, especially for new" bank holding companies.

Scott Valentin of FBR Capital Markets has an "outperform" or buy rating on CapitalSource, with a $9 price target, and took note in a Tuesday report that some investors are focused on recent reports that the company has hired an advisor to consider strategic options. "Although options may include a number of outcomes (sale, balance sheet restructuring, etc.), with ample capital and a loan origination platform that appears to be gaining increasing traction," he believes that if CapitalSource were to consider a sale, "it would be from a position of strength and most likely at a price higher than current levels."

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

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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.