10 Big Banks With Solid Revenue

NEW YORK ( TheStreet) -- With reserve releases distorting bottom-line numbers for the nation's largest banks, TheStreet has identified which large industry players have had the best year-over-year net revenue increases.

At this point in the economic cycle many of the largest banks have so much in excess loan loss reserves that it is appropriate for them to release reserves, which provides a direct boost to the bottom line but can obscure an important revenue story for investors.

The "big four" U.S. bank holding companies all appear to be value plays at this point, based on low valuations to forward earnings estimates, but -- aside from Bank of America ( BAC), which booked a large second-quarter loss -- the group's bottom-line improvement has been mainly driven by reserve releases, while revenue has declined

To gauge a bank's real revenue story -- irrespective of adjustments to loan loss reserves -- SNL Financial looks at pre-provision net revenue, which is defined as a bank's tax-adjusted net interest income plus its non-interest income, net of non-credit-related expenses.

The big four's low P/E valuations reflect investors' dismay with names seeing revenue declines.

Bank of America's forward price-to-earnings ratio was 6.4, based on Monday's closing price of $9.81 and the consensus 2012 earnings estimate of $1.52 a share, among analysts polled by FactSet. The company's $8.8 billion second-quarter loss, springing from its settlement of mortgage putback claims against Countrywide and other mortgage expenses, pretty much keep it out of this revenue discussion. The second-quarter net loss was mitigated by a $2.5 billion decline in loan loss reserves.

For JPMorgan Chase ( JPM), the forward P/E was 7.1, based on Monday's closing price of $40.44 and the consensus 2012 EPS estimate of $5.68. A second-quarter reserve release of $1.2 billion contributed to the company's $5.4 billion profit. JPMorgan's second-quarter pre-provision net revenue was $8.5 billion according to SNL, declining 16% from the second quarter of 2010.

Citigroup ( C) had a forward P/E of 7.5, based on Monday's closing price of $38.34 and a 2012 consensus earnings estimate of $5.13 cents a share. Second-quarter pre-provision net revenue declined 32% from a year-earlier, which was expected as part of CEO Vikram Pandit's "good bank/bad bank" strategy of letting non-core assets run-off. The $3.3 billion second-quarter profit reflected a $2.2 billion reserve release.

Shares of Wells Fargo ( WFC) were trading for eight times forward earnings, based on Monday's closing price of $27.93 and a consensus 2012 earnings estimate of $3.51. The company's second-quarter pre-provision net revenue declined 11% to $8 billion, according to SNL. Wells Fargo's $3.9 billion second-quarter profit was boosted by a $1.1 billion decline in loan loss reserves.

Our list of 10 large banks showing large year-over-year revenue gains was pared down from the 60 largest bank and thrift holding companies for which second-quarter data was available from SNL. With investors emphasizing revenue growth, it's no surprise that all 10 of these trade at significantly higher multiples to forward earnings estimates than any of the big four.

So as an investor, what do you want? The big four represent extraordinary value, based on the low forward P/E ratios and analysts' ratings. The following 10 are putting up the revenue numbers that investors crave, and not one of them has a single analyst with a "sell" ratings.

How about a bit of both? This is a great time to sniff for value bargains, and with all the economic doom and gloom, it's nice to pick a couple of revenue growth plays as well.

Here are the 10 large U.S. bank and thrift holding companies with the largest year-over-year increases in prove-provision net revenue:

10. Investors Bancorp

Shares of Investors Bancorp ( ISBC) of Short Hills, N.J., closed at $13.98 Monday, returning 7% year-to-date.

Investors Bancorp is part of a mutual holding company structure, with roughly 42% of common shares outstanding and the mutual holding company (the depositors in main subsidiary Investors Savings Bank) holding the other 58%. Sterne Agee analyst Matthew Kelly said in a July 29 report that he expects Investors "will announce a second step conversion over the next year," through which the company would give up the mutual holding company structure, and that "fully converted tangible book value in current terms would be roughly $15.93 - $16.78 per share." Kelly estimates that Investors Bancorp's tangible book value was $8.01 per share as of June 30.

Kelly told TheStreet that the second-step conversion would likely lead to tremendous gains for the current common shareholders, since "roughly $1 billion in new capital" would be raised, with "no dilution for the common shareholders."

Second-quarter net income was $19.6 million, or 18 cents a share, increasing from $15.3 million, or 14 cents a share, in the second quarter of 2010. Running counter to the industry trend -- especially for a holding company with increased earnings -- the second-quarter provision for loan losses was $18.5 million, increasing from $15.5 million a year earlier.

According to SNL Financial, Investors Bancorp's pre-provision net revenue for the second quarter was $49.1 million, increasing 28% year-over-year. Net interest income was up 27% from a year earlier to $82.4 million in the second quarter. The second-quarter net interest margin -- the difference between the average yield on loans and investments and the average cost of funds -- for the second quarter was 3.46%, increasing from 3.10% a year earlier.

The operating return on average assets (ROA) for the second quarter was 0.79% according to SNL.

Total loans -- including those held for sale and in the portfolio -- grew 18% year-over-year to $8.6 billion as of June 30, as the company focused on adding more multifamily and commercial real estate loans.

Chief operating officer Domenick Cama told TheStreet that "the net interest margin expansion comes from the continued transformation" of the balance sheet toward loans, "and the steep yield curve." Cama added that in addition to the multifamily lending focus and growth in commercial real estate loans, Investors Bancorp is "looking to expand our commercial and industrial lending business. "

Following Investors Bancorp's second-quarter earnings announcement, Kelly reiterated his "Buy" rating for the shares, with a $16 price target, in a report entitled "Growth Train Keeps Rolling,"

The shares trade for 16.6 times the consensus 2012 earnings estimate of 84 cents a share, among analysts polled by FactSet.

Four of the seven analysts covering Investors Bancorp rate the shares a buy, while the remaining analysts all have neutral ratings.

9. Wintrust Financial

Shares of Wintrust Financial ( WTFC) of Lake Forest, Ill., closed at $33.96 Monday, returning 3% year-to-date.

On July 26, the company announced a deal to acquire Elgin State Bancorp of Elgin, Ill., for about $13.8 million, adding three branches in Kane County, Ill. Elgin State Bank had $277 million in total assets as of June 30. The acquisition is expected to be completed in the fourth quarter.

The Elgin deal follows the July 1 purchase of Great Lakes Advisors of Chicago, by Wintrust unit Wintrust Capital Management, LLC, in an exchange of shares valued by SNL Financial at $16.7 million, with Wintrust also agreeing to pay $2.3 million over the next year, upon achieving agreed-upon performance measures for the unit.

Wintrust has purchased four failed banks from the Federal Deposit Insurance Corp. over the past year, including Ravenswood Bank of Chicago last August, Community First Bank-Chicago , in February, Bank of Commerce of Wood Dale, Ill., in March, and First Chicago Bank & Trust on July 8.

Second-quarter net income applicable to common shares was $10.7 million, or 25 cents a share, increasing from $8.1 million, or 25 cents a share, in the second quarter of 2010. The second-quarter provision for credit losses was $29.2 million, declining from $41.3 million a year earlier.

According to SNL, second-quarter pre-provision net revenue increased 30% year-over-year, to $46.7 million. Net interest income was up slightly to $108.7 million, while noninterest income increased 45% year-over-year, if we exclude the $26.5 million bargain purchase gain on two failed-bank acquisitions, booked in the second quarter of 2010.

The company said that during the second quarter, "Loans outstanding, including mortgages held for sale but excluding covered assets from FDIC-assisted transactions, grew by $408 million, or 17% on an annualized basis, since March 31, 2011." The net interest margin was 3.40% during the second quarter, down slightly from 3.43% a year earlier. The operating ROA was 0.33% according to SNL.

Following Wintrust's second-quarter earnings announcement, RBC Capital Markets analyst Jon Arfstrom reiterated his "Outperform" or buy rating for Wintrust, while increasing his price target for the shares to $40 from $38, saying his firm was "most pleased with the core loan growth trends and believe that if the company can continue to generate that kind of growth, the valuation should improve."

The shares trade for 14.2 times the 2012 consensus EPS estimate of $2.40.

Out of 11 analysts covering Wintrust, six rate the shares a buy, while the remaining analysts all have neutral ratings.

8. First Republic Bank

Shares of First Republic Bank ( FRC) of San Francisco closed at $28.51 Monday, down 2% year-to-date.

The bank closed its initial public offering in December.

Second-quarter net income was $84.8 million, or 64 cents a share, compared to $61.7 million in the second quarter of 2010, before the company was taken public. The second-quarter net interest margin was 4.67% and the operating ROA was a strong 1.44% according to SNL.

Pre-provision net revenue for the second quarter was $149.4 million according to SNL, increasing 37% from a year earlier.

The bank reported that its total loans of $20.3 billion as of June 30 were up 13% from a year earlier.

Following the earnings release, JPMorgan analyst Steven Alexopoulos maintained his "Overweight" or buy rating on First Republic, with a $38 price target, saying on July 21 that the bank's "second quarter trends continued to differentiate from peers with average loans increasing 10% annualized," and that "asset quality remained best in class." The analyst added that "on the heels of a strong quarter and the pipeline for new business looking robust, we would use recent weakness in the stock as a buying opportunity."

The shares trade for 10.4 times the 2012 consensus EPS estimate of $2.73.

Out of eight analysts covering First Republic Bank, three rate the shares a buy, while the remaining analysts all have neutral ratings.

7. Hancock Holding Company

Shares of Hancock Holding Company ( HBHC) of Gulfport, Miss., closed at $32.84 Monday, down 4% year-to-date. Based on a quarterly payout of 24 cents, the shares have a dividend yield of 2.92%.

The company had $19.8 billion in total assets as of Jun 30, more than doubling in size over the past year, mainly reflecting its acquisition of Whitney Holding Corp. in June, in a deal valued by SNL at $1.8 billion.

In the first quarter, Hancock Holding Company raised $224.4 million in common equity, in anticipation of repaying the government $300 million for bailout assistance provided to Whitney through the Troubled Assets Relief Program, or TARP, in 2008. Hancock fully repaid the U.S. Treasury when the Whitney acquisition was completed in June.

Second-quarter net income was $12.1 million, or 22 cents a share, increasing from $6.5 million, or 17 cents a share, in the second quarter of 2010. Excluding $22.2 million in merger-related expenses and $7.8 million in tax adjustments, Hancock Holding Company reported second-quarter operating earnings of $26.6 million, or 48 cents a share, increasing from $7.7 million, or 21 cents a share, a year earlier. The second-quarter provision for loan losses totaled $9.1 million.

The second-quarter net interest margin was 4.11%, expanding from 3.87% a year earlier, and the ROA was 0.42% according to the company.

Pre-provision net revenue for the second quarter totaled $49.5 million, increasing 38% from a year earlier, according to SNL, mainly reflecting a 46% increase in net interest income, to $99.1 million.

Following the second-quarter earnings announcement, Morgan Keegan analyst Ebrahim Poonawala reiterated his neutral rating on the shares while raising his price target to $36 from $34, saying the Whitney acquisition was "off to a good start," that that he expected "bumps in the road," and that "while some amount of market share loss would not be surprising following a merger of this size... this area is likely to remain a key focus for investors given the highly competitive markets that HBHC is operating in, especially WTNY's home market of Louisiana."

The shares trade for 12.4 times the 2012 consensus EPS estimate of $2.64.

Out of 14 analysts covering Hancock Holding Company, eight rate the shares a buy, while the remaining analysts all have neutral ratings.

6. State Street

Shares of State Street ( STT) of Boston closed at $41.37 Monday, down 10% year-to-date. Based on a quarterly payout of 18 cents, the shares have a dividend yield of 1.74%.

Second-quarter net income available to common shareholders was $502 million, or a dollar a share, increasing from $427 million, or 87 cents a share, in the second quarter of 2010. The net interest margin was 1.76% in the second quarter, contracting from 2.21% a year earlier. The operating ROA for the second quarter was 1.25%, according to SNL Financial.

Second-quarter Pre-provision net revenue totaled $740 million according to SNL, increasing 47% from a year earlier. Servicing fees increased 15.5% year-over-year to $1.1 billion in the second quarter, while investment management fees were up 24% to $250 million, and securities finance revenue increased 26% to $137 million. These operating improvements were partially offset by a 20% increase in total operating expenses to $1.6 billion, which the company said mainly reflected "the impact of the reduction in incentive compensation in the second quarter of 2010."

Following State Street's second-quarter announcement, Guggenheim Securities analyst Marty Mosby reiterated his buy rating for the shares with a $54 price target, saying the company's "operating expenses ramped up faster than expected as STT invested in its business operations and IT transformational program and merit increases were granted." Mosby believes that State Street's information technology initiatives will lead to "meaningful improvement by the fourth quarter as incremental expense savings from these initiatives begins to build momentum."

The shares trade for 9.7 times the 2012 consensus EPS estimate of $4.26, for, by far, the lowest forward P/E among this group of 10 bank stocks.

Analyst sentiment for State Street is very strong, with 15 out of 18 analysts rating the shares a buy, while the remaining three analysts all have neutral ratings.

5. First Niagara Financial Group

Shares of First Niagara Financial Group ( FNFG) of Buffalo, N.Y., closed at $11.92 Monday, down 13% year-to-date. Based on a quarterly payout of 16 cents, the shares have a dividend yield of 5.37%.

The company on July 31 announced a $1 billion deal to buy 195 branches and $15 billion in deposits in Upstate New York and Connecticut from HSBC ( HBC), which will be paid for with a common equity raise of "approximately $750 million to $800 million in common stock and $350 million to $400 million in debt."

First Niagara estimates that the capital raise will result in a 17% to 18% dilution in common shareholders' stake in the company.

The branch purchase is expected to be completed early next year, and First Niagara expects to divest roughly 100 of the acquired branches, with CEO John Koelmel saying that roughly one third of the acquired branches would be closed, and the rest sold.

First Niagara had $30.9 million in total assets as of June 30, with the balance sheet expanding 51% over the previous year, mainly from its acquisition of NewAlliance of New Haven, Conn., in April.

First Niagara reported second-quarter net income of $13.6 million, or 5 cents a share, compared $20 million, or 10 cents a share, a year earlier. Excluding nonrecurring expenses related to the NewAlliance acquisition, second-quarter operating earnings were $71.2 million, or 25 cents a share, increasing from $44.9 million, or 22 cents a share, a year earlier.

According to SNL, second-quarter pre-provision net revenue was $124.7 million, increasing 53% from a year earlier.

The company reported that its commercial loans grew at an annualized 17% pace during the second quarter and core deposits increased at a 22% pace, not including the NewAlliance acquisition.

The second-quarter net interest margin was a tax-adjusted 3.65% during the second quarter, declining slightly from 3.68% a year earlier. The second-quarter operating ROA was 0.19% according to SNL.

Following the HSBC branch announcement, Matthew Kelly of Sterne Agee reiterated his neutral rating on First Niagara, saying that as the company has aggressively expanded over the past three years, its "forward earnings multiple has compressed along the way and offset a good deal of the EPS benefits of the collective deals." Kelly estimates that the "HSBC branch deal will add roughly $150 million to the earnings power of the company."

The shares trade for 10.2 times the 2012 consensus EPS estimate of $1.17.

The 10 analysts covering First Niagara are evenly split between buy and hold ratings.

4. Signature Bank

Shares of Signature Bank ( SBNY) of New York closed at $59.40 Monday, returning 19% year-to-date.

The bank on July 11 completed a stock offering to raise a net $253.2 million in common equity.

Second-quarter net income was $36.6 million, or 87 cents a share, increasing from $22.3 million, or 54 cents a share, in the second quarter of 2010. The provision for loan losses increased to $12.9 million in the second quarter, from $11.1 million a year earlier.

The bank reported that portfolio loans totaled $6.1 billion as of June 30, growing 8% during the second quarter and 29% from a year earlier.

Second-quarter pre-provision net revenue totaled $75.1 million according to SNL, increasing 62% from a year earlier, as net interest income increased 39% to $113 million.

The second-quarter net interest margin was 3.64%, expanding from 3.38% a year earlier. The operating ROA was 1.15% according to SNL.

After Signature Bank announced its second-quarter results, Cantor Fitzgerald analyst Michael Diana reiterated his buy rating for the shares while raising his price target to $72 from $68, saying the bank's growth was driven by a business model of "hiring teams of bankers from competitors," which "creates powerful deposit and revenue growth," and that its "credit quality deterioration in the downturn was relatively mild."

The shares trade for 15.7 times the 2012 consensus EPS estimate of $3.78.

The 18 analysts covering Signature Bank are evenly split between buy and hold ratings.

Signature Bank is a very unusual growth story in the current environment, successfully poaching commercial lenders and their clients from other banks. Along with the loan growth, business customers bring cheap deposits and the potential for increased fee income for investment, brokerage and asset management services.

3. SVB Financial Group

Shares of SVB Financial Group ( SIVB) of Santa Clara, Calif., closed at $60.54 Monday, returning 14% year-to-date.

The company's main subsidiary is Silicon Valley Bank, and as the name would imply, the bank specializes in lending to technology companies. Reuters reported in June that SVB Financial was looking to acquire banking licenses in India and China, while waiting for regulatory approval in China for its joint venture with Shanghai Pudong Development Bank Co. Ltd.

Second-quarter net income available to common shareholders was $65.8 million, or $1.50 a share, increasing from $21.1 million, or 50 cents a share, in the second quarter of 2010. The second-quarter provision was just $134 thousand, declining from $7.4 million a year earlier. The second-quarter results also included $71.7 million in gains on securities, which were only $4.8 million in the second quarter of 2010.

The second-quarter net interest margin was 3.13%, declining from 3.20% a year earlier. The operating ROA was 1.97%, again reflecting the securities gains.

Second-quarter Pre-provision net revenue was $61.9 million according to SNL, increasing 62% from a year earlier. Net interest income increased 23% year-over-year, to $130.5 million, as total loans grew 30% to $19.4 million as of June 30.

Following the second-quarter earnings announcement Boenning & Scattergood analyst Jason O'Donnell reiterated his "Outperform" rating for SVB Financial, with a $68 price target for the shares, saying the company's "earnings power continues to impress." The analyst expects the company's net interest margin "to expand further in 2H11 and accelerate higher in 2012 as deposit growth slows."

The shares trade for 17.4 times the 2012 consensus EPS estimate of $3.51, which is the priciest forward P/E among this group of 10 banks stocks.

Out of 15 analysts covering SVB Financial, seven rate the shares a buy, while the remaining eight analysts all have neutral ratings.

2. Washington Federal

Shares of Washington Federal ( WFSL) of Seattle closed at $16.96 Monday, returning 1% year-to-date. Based on a quarterly payout of six cents, the shares have a dividend yield of 1.42%.

For its fiscal third quarter ended June 30, Washington Federal reported net income of $30.1 million, or 27 cents a share, increasing from $12.7 million, or 11 cents a share, a year earlier. While the provision for loan losses increased slightly year-over-year, to $21 million, losses on foreclosed real estate declined 74% to $8.2 million.

Fiscal third-quarter Pre-provision net revenue was $68.1 million according to SNL, increasing 68% from a year earlier. Net interest income increased 7% year-over-year to $106.1 million. The net interest margin was 3.44%, increasing from 3.14% a year earlier. The fiscal third quarter ROA was 0.90%, according to SNL.

Following the earnings announcement, Macquarie Equities Research analyst Jonathan Elmi reiterated his "Outperform" rating for Washington Federal, with a $19 price target, "given the stock's discounted valuation, excess capital and improving earnings power." The analyst said he was "surprised by the extent of Washington Federal's NIM expansion and the stability of its loan portfolio this quarter, both of which could result in upward revisions to Consensus EPS estimates."

The shares trade for 12.8 times the 2012 consensus EPS estimate of $1.32.

Eight out of 14 analysts covering Washington Federal rate the shares a buy. The remaining six analysts all have neutral ratings.

1. People's United Financial

Shares of People's United Financial ( PBCT) of Bridgeport, Conn., closed at $12.49, down 8% year-to-date. Based on a quarterly payout of 16 cents, the shares have a 5.04% dividend yield.

The company had $25.3 billion in total assets as of June 30, growing the balance sheet 15% from a year earlier, reflecting the November acquisitions of LSB Corporation of North Andover, Mass., and Smithtown Bancorp of Smithtown, N.Y.

Second-quarter net income was $51.2 million, or 15 cents a share, increasing from $16 million, or four cents a share, in the second quarter of 2010. The provision for loan losses was $14 million in the second quarter, declining from $17.8 million a year earlier.

Second-quarter pre-provision net revenue was $98.4 million according to SNL Financial, more than doubling from a year earlier, as net interest income increased 27% to $221.2 million. The second-quarter net interest margin was a healthy 4.13%, increasing from 3.69% a year earlier. The second-quarter ROA was 0.82%, according to SNL.

Following the earnings announcement, JPMorgan analyst Steven Alexopoulos reiterated his neutral rating on People's United, while raising his price target by a dollar to $15, saying that "although pre-tax, pre-provision income was flat in the quarter, underlying bank trends were decent with average loans increasing at an 8% annualized rate and average deposits increasing at a 6% annualized pace."

The shares trade for 14 times the 2012 consensus earnings estimate of 89 cents a share.

Out of 15 analysts covering People's United, six rate the shares a buy, while nine analysts have neutral ratings.

>>To see these stocks in action, visit the 10 Big Banks With Solid Revenue portfolio on Stockpickr.

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

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.

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