10 Profitable Banks Yielding Over 4 Percent

NEW YORK ( TheStreet) -- At a time of continued uncertainty for financial stocks, "safety in dividends" is a recurring theme. TheStreet has taken it a step further, identifying 10 banking names with attractive dividend yields that are well-supported by earnings.

With regulatory capital requirements increasing and the industry facing so many challenges, regulators are keeping an eye on banks that are returning capital to shareholders. Companies paying out a high percentage of their earnings in dividends could be forced to cut dividends if their earnings decline.

Some of the most familiar bank stocks that consistently pay attractive dividends have worried investors recently, since their quarterly payouts are nearly as high as their earnings. An example of this is New York Community Bancorp ( NYB), which pays out 25 cents per quarter, which is close to its second-quarter earnings of 27 cents a share.

Then again, the company has paid that dividend through thick and thin, through 29 consecutive quarters, through the second quarter. New York Community Bancorp's dividend yield is 8.33%, based on Friday's closing price of $12, with the shares down 33% year-to-date. We've seen this sort of action with New York Community before, and its mortgage banking revenue can be quite lumpy from quarter to quarter, so this could be an excellent entry point for the shares.

In coming up with our new bank dividend stock list, we have been quite conservative.

Beginning with a list of 130 publicly traded bank and thrift holding companies -- excluding those traded on the Pink Sheets -- with dividend yields greater than 4% as of Friday's market close, we used data provided by SNL Financial to pare down the list by removing those that posted net losses during the second quarter, those for which second-quarter earnings data wasn't yet available, and those with current dividend payouts exceeding 50% of their second-quarter earnings-per-share.

That leaves us with 52 bank and thrift stocks, many of which are thinly traded. We pared the list down further, simply by isolating the 10 names meeting the criteria that are the most actively traded.

This selection approach of "seeing what sticks to the wall," yields a diverse list of companies, although most are centered in the Northeast. A closer look shows that in a couple of cases, even with a low current payout ratio, a dividend could be threatened.

Here are the 10 most actively traded profitable bank and thrift holding companies with yields exceeding 4% that paid out less than half of their second-quarter earnings, sorted by ascending dividend yield:

10. M&T Bank

Shares of M&T Bank ( MTB) of Buffalo, N.Y., closed at $69.86 Friday, down 18% year-to-date. Based on a quarterly payout of 70 cents, the shares have a dividend yield of 4.01%.

M&T acquired Wilmington Trust on May 16 and reported second-quarter net income to common shareholders of $297.2 million, or $2.42 a share, increasing from $173.6 million, or $1.46 a share, in the second quarter of 2010. The second-quarter numbers only reflected Wilmington Trust's contribution since the acquisition date.

M&T's earnings improvement reflected $110.7 million in securities gains during the second quarter, increasing from $39.4 million a year earlier.

Credit costs declined, with a second-quarter provision for credit losses of $63 million, down from $75 million in the second quarter of 2010. The company's second-quarter operating return on average assets (ROA) was 1.78% according to SNL Financial.

With significant growth in its commercial and industrial loan portfolio from the Wilmington acquisition, M&T was included in TheStreet's 10 Banks Growing Business Loans.

During the second quarter, M&T fully repaid $330 million in federal bailout funds that Wilmington Trust had received through the Troubled Assets Relief Program, or TARP. M&T also repaid $370 million of the $600 million in TARP money it had received, leaving the company owing $230 million in TARP money, along with an additional $151.5 million in TARP money the government originally provided to Provident Bancshares, which M&T acquired in May 2009.

M&T has estimated that beginning in the fourth quarter, its earnings will be reduced by roughly $15 to $20 million, or an estimated 10 cents a quarter, from the Federal Reserve's limitations on debit card interchange fees that go into effect on October 1.

Guggenheim Securities analyst Marty Mosby rates M&T a buy, with a price target of $104, saying after the company released its second-quarter results that "the value around the Wilmington Trust acquisition had not yet been fully realized."

The shares trade for 9.6 times the consensus 2012 earnings estimate of $7.14 per share, among analysts polled by FactSet.

Out of 20 analysts covering M&T Bank, seven rate the shares a buy, while the remaining analysts all have neutral ratings.

9. OceanFirst Financial

Shares of OceanFirst Financial ( OCFC) of Toms River, N.J., closed at $11.60 Friday, down 8% year-to-date. Based on a quarterly payout of 12 cents, the shares have a dividend yield of 4.14%.

The company posted second-quarter net income of $5.1 million, or 28 cents a share, increasing from $5.0 million, or 27 cents a share, in the second quarter of 2010. The provision for loan losses was $2.2 million during the second quarter, matching the provision from a year earlier.

With its balance sheet declining slightly year-over-year, OceanFirst's slight earnings improvement mainly reflected an increase in gains on loans available for sale, and increased income from bank-owned life insurance. The company's second-quarter ROA was 0.90%.

Following the company's second-quarter earnings release, Sterne Agee analyst Matthew Kelly reiterated his buy rating for the shares, with a $15 price target, calling OceanFirst "a high quality Northeast franchise with attractive core deposits and solid profitability."

OceanFirst's shares were trading just above tangible book value according to SNL Financial. Speculating on the possibility of a takeout, Kelly said in his July 22 report that OceanFirst's shares had "very significant upside to terminal value, which we believe is in the $18-$20 per share range."

The shares trade for 9.6 times the consensus 2012 EPS estimate of $1.22, among analysts polled by FactSet.

Three out of four analysts covering OceanFirst rate the shares a buy. The remaining analyst has a neutral rating.

8. NBT Bancorp

Shares of NBT Bancorp ( NBTB) of Norwich, N.Y., closed at $18.27 Friday, down 23% year-to-date. Based on a quarterly payout of 20 cents, the shares have a dividend yield of 4.38%.

The company announced in July a deal to acquire four western Massachusetts branches from Berkshire Hills Bancorp ( BHLB), which acquired Legacy Bancorp of Pittsfield, Mass., on July 21. The branch deal is expected to be completed during the fourth quarter.

NBT repurchased $21.2 million worth of shares during the first half of 2011. On July 25, the company's board of directors authorized a new buyback plan for the company to purchase up to one million additional shares.

Second-quarter net income was $14.7 million, or 43 cents a share, increasing from $14.4 million, or 42 cents a share, in the second quarter of 2010. The second-quarter provision for loan and lease losses was $6.0 million, declining from $6.4 million a year earlier. The second-quarter ROA was 1.08% according to SNL.

Guggenheim analyst David Darst has a buy rating for NBT, although he lowered his price target for the shares to $22 from $25 on August 15, to "reflect the lower valuation environment," after the banking sectors recent pullback.

The shares trade for 10.2 times the consensus 2012 EPS estimate of $1.83, among analysts polled by FactSet.

All three analysts covering NBT Bancorp have neutral ratings on the shares.

7. Provident Financial Services

Shares of Provident Financial Services ( PFS) of Iselin, N.J., closed at $10.87 Friday, declining 26% year-to-date. Based on a quarterly payout of 12 cents, the shares have a dividend yield of 4.42%.

The company announced on August 11 that it had completed acquisitions of asset managers -- Beacon Trust Co. and Beacon Global Asset Management -- both based in Morristown., N.J., bring on $1.5 billion in assets under management.

Second-quarter net income was $14 million, or 25 cents a share, increasing from $12.9 million, or 23 cents a share, in the second quarter of 2010. The provision for loan losses declined to $15.6 million from $19.9 million a year earlier, more than offsetting a decline in interest income. The second-quarter ROA was 0.82%, according to SNL Financial.

Sterne Agee analyst Matthew Kelly has a neutral rating for Provident Financial Services, saying after the second-quarter earnings release that although his firm was "disappointed in the quarter's results," the company "has a valuable franchise that would be attractive to several regional buyers," and that "in a transaction, we believe the shares could be worth $18-$20."

That would be a pretty significant premium to Friday's close.

The shares trade for 9.4 times the consensus 2012 EPS estimate of $1.19, among analysts polled by FactSet.

Four out of seven analysts covering Provident Financial Services rate the shares a buy. The remaining analysts all have neutral ratings.

6. CVB Financial

Shares of CVB Financial ( CVBF) of Ontario, Calif., closed at $7.66 Friday, for a 10% year-to-date decline. Based on a nine-cent quarterly payout, the shares have a dividend yield of 4.44%.

CVB was among 9 buy-rated defensive plays among bank dividend stocks included in a KBW report on August 12, with Julianna Balicka saying that the company "has been profitable for over 136 consecutive quarters and has had 87 consecutive quarters of dividends." The analyst added that "in the current downturn, the bank has not cut its cash dividend nor lost money."

CVB Financial reported second-quarter earnings allocated to common stockholders of $21 million, or 20 cents a share, increasing from $19 million, or 18 cents a share, a year earlier. The company made no provision for loan losses during the second quarter, after setting aside $11 million reserves a year earlier. The second-quarter ROA was 1.31%, according to SNL Financial.

The shares trade for 10.1 times the consensus 2012 earnings estimate of 78 cents a share, among analysts polled by FactSet.

Out of 13 analysts covering CVB Financial, six rate the shares a buy, while the remaining analysts all have neutral ratings.

5. Trustmark Corp.

Shares of Trustmark ( TRMK) of Jackson, Miss., closed at $19.28 Friday, down 21% year-to-date. Based on a quarterly payout of 23 cents, the shares have a dividend yield of 4.77%.

While the company had $9.7 billion in total assets as of June 30, which was below the $10 billion threshold for banks that will be subject to the Federal Reserve's cap on debit card interchange fees, which is scheduled to go into effect on October 1, however, CEO Gerard Host said during the company's second-quarter earnings conference call that if his firm hits the $10 billion threshold this year, the Durbin rule could lower the company's earnings by roughly $7 million annually.

Second-quarter net income was $31.6 million, or 49 cents a share, increasing from $26.2 million, or 41 cents a share, during the second quarter of 2010. The provision for loan losses declined to $8.1 million during the second quarter, from $10.4 million a year earlier. The second-quarter ROA was 1.31%, according to SNL Financial.

Guggenheim analyst Jeff Davis has a neutral rating on Trustmark, and on August 15 lowered his price target for the shares to $21 from $23, to reflected the "lower valuation environment" for bank stocks. Following Trustmark's second-quarter earnings release in July, the analyst called the bank "a well-capitalized and conservatively managed company," although he also said that the prolonged low-rate environment would hurt Trustmark's net interest margin -- the difference between a bank's average yield on loans and investments and its average cost for deposits and wholesale borrowings -- over time.

The shares trade for 12 times the consensus 2012 EPS estimate of $1.65, among analysts polled by FactSet.

Out of 10 analysts covering Trustmark, four rate the shares a buy, while the remaining analysts all have neutral ratings.

4. Flushing Financial Corp.

Shares of Flushing Financial Corp. ( FFIC) of Lake Success, N.Y., closed at $10.73 Friday, down 22% year-to-date. Based on a quarterly payout of 13 cents, the shares have a dividend yield of 4.85%.

Second-quarter net income was $9.1 million, or 29 cents a share, increasing from $7.7 million, or 25 cents a share, in the second quarter of 2010. The main factor in the earnings improvement was an expansion of Flushing Financial's net interest margin to 3.61% in the second quarter, from 3.36% a year earlier.

The provision for loan losses was $5 million during the second quarter, which was the same level as a year earlier. The second-quarter ROA was 0.84%, according to SNL Financial.

Following the company's second-quarter earnings announcement, Sterne Agee analyst Matthew Kelly reiterated his neutral rating for Flushing Financial, saying he was "concerned with the high level of total problem assets," which "decreased to 2.67% of assets at June 31, from 2.84% in the prior quarter," but with the inclusion of "past dues and restructured loans," would rise to a much higher 7.2% of total loans. Kelly also said he believed the company was considering a bulk sale of problem assets.

The shares trade for 8.1 times the consensus 2012 EPS estimate of $1.35, among analysts polled by FactSet.

Four of the six analysts covering Flushing Financial Corp. rate the shares a buy, while the remaining analysts both have neutral ratings on the shares.

The possibility of a bulk sale of problem loans could make for an extraordinary loss at some point, however, this risk may already be price-in, as Flushing Financial's stock was trading for less than 0.9 times tangible book value as of Friday's market close, according to SNL.

3. Chemical Financial

Shares of Chemical Financial ( CHFC) of Midland, Mich., closed at $16.21 Friday, declining 25% year-to-date. Based on a quarterly payout of 20 cents, the shares have a dividend yield of 4.94%.

Second-quarter net income was $11 million, or 40 cents a share, increasing from $4.4 million, or 17 cents a share, a year earlier. The earnings improvement sprang mainly from a decline in the provision for loan losses to $7 million in the second quarter, from $12.7 million a year earlier. The second-quarter ROA was 0.84%, according to SNL Financial.

Christopher McGratty of KBW has a neutral rating of "Market Perform" on the shares, with a $21 price target, saying in a report following Chemical Financial's second-quarter earnings announcement that "a strong and growing capital position should provide management flexibility to enhance the franchise over time."

The shares trade for 10.1 times the consensus 2012 earnings estimate of $1.59 per share, among analysts polled by FactSet.

All three analysts covering Chemical Financial have neutral ratings on the shares.

2. Dime Community Bancshares

Dime Community Bancshares ( DCOM) of Brooklyn has seen its stock decline 26% year-to-date, closing at $10.46 Friday. Based on a quarterly payout of 14 cents, the shares have a dividend yield of 5.35%.

Second-quarter net income was $12.3 million, or 36 cents a share, increasing from $10 million, or 30 cents a share, in the second quarter of 2010. The provision for loan losses declined to $1.7 million in the second quarter, from $3.8 million a year earlier. The second-quarter ROA was 1.18% according to SNL.

The second-quarter net interest margin was 3.66%, increasing from 3.35% a year earlier, which the company said reflected "a high level of prepayment and satisfaction activity," and Dime's reluctance to "pursue loans that were either: 1) unfavorable from an interest rate repricing standpoint; or 2) required underwriting criteria in excess of management's risk tolerance."

Matthew Kelly is neutral on the shares, saying after the second-quarter results were announced that he expects Dime's net interest margin to contract with a "decline in earning asset levels as loans continue to decline through year end," adding that "the company's loan-to-deposit ratio is one of the highest in the country and remains a risk factor as the company transitions to the Office of the Comptroller of the Currency as its primary bank regulator."

The shares trade for 7.7 times the consensus 2012 EPS estimate of $1.41, among analysts polled by FactSet.

Three of the eight analysts covering Dime Community Bancshares rate the name a buy, while the remaining analysts all have neutral ratings.

1. Hudson City Bancorp

Shares of Hudson City Bancorp ( HCBK) of Paramus, N.J., closed at $5.65 Friday, down 54% year-to-date. Based on an eight-cent quarterly payout, the shares have a dividend yield of 5.66%.

During the first quarter, Hudson City was forced by the Office of Thrift Supervision to restructure its balance sheet, after its long-term leverage strategy of borrowing from the Federal Home Loan Bank of New York and investing the proceeds in securities backfired in a prolonged low-rate environment. Hudson City posted a first-quarter net loss of $555.6 million and reduced its quarterly dividend to 8 cents a share, from 15 cents a share.

While at first glance, a thrift holding company whose stock is down 51% year-to-date might not be considered a safe haven, Hudson City's reduced quarterly payout of eight cents was well-supported by its second-quarter earnings.

Second-quarter net income was $96 million, or 19 cents a share, declining from $142.6 million, or 29 cents a share, during the second quarter of 2010. Total assets were $51.8 million as of June 30, declining 15% from a year earlier, reflecting the first-quarter deleveraging.

The second-quarter net interest margin increased to 2.14% from 1.72% in the first quarter and 2.13% in the second quarter of 2010.

The second-quarter provision for loan losses was $30 million, declining from $50 million a year earlier.

The second-quarter ROA was 0.74% according to SNL, declining from 0.93% a year earlier.

Guggenheim Securities David Darst is neutral on the shares, lowering his price target for Hudson City on August 15 to $7 from $9, while lowering his 2012 earnings estimate by four cents to 76 cents a share, saying that "as rates remain low and balance sheet runoff presumably continues, the remaining higher cost fixed rate borrowings will weigh further on earnings power and increases the risk that HCBK may need to complete another balance sheet restructuring."

The shares trade for 7.2 times the consensus 2012 earnings estimate of 71 cents a share, among analysts polled by FactSet.

Out of 15 analysts covering Hudson City Bancorp, 14 have neutral ratings and one analyst recommends selling the shares.

Hudson City is clearly a work in progress, and investors are factoring in considerable risk of another balance sheet restructuring, as the shares only trade for 0.6 times tangible book value, according to SNL. So investors are faced with a quandary.

The company is under close regulatory scrutiny, so it obviously had the blessing of the Office of Thrift Supervision to pay out eight cents a share. But now that the Office of the Comptroller of the Currency has taken over from the OTS -- as mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act, which was signed into law by President Obama in July of last year -- Hudson City's regulatory situation could become even more difficult.

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-- 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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