NEW YORK ( TheStreet) - Dismal trading and investment banking results, falling net interest margins and outsized accounting gains at the large, money-center banks- Bank of America ( BAC), JPMorgan Chase ( JPM), Citigroup ( C)- have grabbed the headlines in this quarter's earnings season. However, there were some bright spots in the earnings reported so far, loan growth being the most significant of them. According to FBR Capital, of the 24 banks under their coverage, the median loan growth was 1.2% in the third quarter compared to a 0.5% decline in the first quarter of 2011 and 0.7% growth in the fourth quarter of 2010. Regional banks, which do not have to suffer the volatility of capital markets, have outperformed on revenues. Some have seen double-digit growth on the back of higher loans and acquisitions. Others have been able to stave off margin pressure by still lowering costs of funding. Many of them also appear well poised to benefit from increased refinancing activity in the fourth quarter of 2011. Banks continued to experience improved credit quality, although at a lower pace, with some of the smaller banks continuing to reduce their reserves for bad loans, called "reserve release". Because reserve releases can distort the earnings picture, SNL Financial looks at a more useful indicator called pre-provision net revenue, defined as a bank's tax-adjusted net interest income plus its non-interest income, net of non-credit-related expenses. TheStreet came up with a list of five banks that posted double-digit growth in pre-provision net revenue using data from SNL Financial. Only banks that reported data through last Friday, October 21 were considered. Here are five regional banks that posted double-digit revenue growth in the third quarter.
5. SVB Financial
Shares of SVB Financial ( SVIB), of Santa Clara, CA are down 12% year-to-date. The bank reported better-than-expected results for the third quarter, reporting a profit available to common shareholders of $37.6 million or 86 cents per share. In the third quarter of 2010, the bank's profit stripped of one-time gains was $23.6 million or 55 cents per share. Pre-provision net revenue increased 23% to $51.84 million. The average loan balance increased 8% to $6 billion. The bank also managed to ward off pressure on margins by lowering its cost of deposits. Provision for loan losses increased from $0.1 million in the second quarter to $0.8 million in the third quarter on the back of increasing loans. The bank said allowance for loan losses as a percent of total loans declined to 1.25% from 1.27% in the previous quarter as credit quality improved. The bank has a bullish outlook for 2012, projecting average loan growth in the mid-teens, net interest income increase of about 10%, core fee income growth in the mid-single digits. SVB shares trade at about 13 times consensus 2012 estimates and at 1.3 times tangible book. The premium is well-deserved, according to RBC Capital, because of the "company's franchise value, superior long-term growth prospects, substantial capital base, and minimal real estate exposure." Morford has a sector perform rating on the stock with a price target of $52.
4. Umpqua Holdings
Shares of Portland, Oregon-based Umpqua Holdings ( UMPQ)have outperformed in 2011, declining by about 10%. The bank reported third-quarter net income of $21.86 million or 19 cents per share compared to $17.7 million or 15 cents per share in the second quarter of 2011 and $8.2 million or 7 cents per share in the year-ago quarter. Excluding one-off items, operating earnings rose 22% sequentially and 133% year-on-year to $22.12 million or 19 cents per share. Pre-provision net revenue gained 27% to $45.37 million. Non-covered loans and leases grew $93 million, on the strength of commercial & industrial lending. The provision for loan losses for the third quarter of 2011 was $9.1 million, a 41% decrease from the prior quarter, as the bank recorded its lowest net charge off rate since the first quarter of 2008. The stock trades at 14 times 2012 consensus estimates. "While we recognize the company has a very attractive franchise and are encouraged with some of the recent trends, we believe the shares are appropriately pricing in the fact that it could take some time to put this excess capital to work," RBC Capital analyst Joe Morford said in a report reviewing the results. He has a sector perform rating on the stock with a price target of $12. Four out of 10 analysts rate the stock a buy or outperform while 6 analysts have a hold rating on the stock.
3. Washington Federal
Shares of Washington Federal ( WFSL) are down 23% year-to-date. The Seattle-based bank, which has its fiscal year ending in September, reported a fourth- quarter net income of $30.67 million or 28 cents per share compared to $15.96 million or 14 cents per share in the year-earlier. For the year, the bank reported an income excluding one-time items of $111.14 million, down 6% from the $118.65 million in previous year. Excluding the impact of one-time items, profits jumped 347% year-on-year. Pre-provision net revenues increased 36% year-on-year to $63.27 million from $51.75 million in the year-ago quarter. The bank's loan portfolio has been declining as a result of higher prepayments. Still net interest income improved to $104.5 million from $100.3 million in the prior-period quarter on account of improving margins, as the bank lowered deposit costs. On October 17, 2011, Washington Federal completed its acquisition and integration of six branches from Charter Bank in New Mexico and $254 million of deposits, includingm $70 million of transaction accounts. The bank said that results in 2012 will be "largely consistent" with 2011, which was a downer for investors. However, Sandler O'Neill analysts say the management tends to be somewhat cautious in its guidance and the bank could deliver better than its outlook suggests. "WFSL is a well-run company that is solidly profitable and has several levers it can pull to continue to support earnings and book value growth." The stock trades at about 10 times its 2012 consensus earnings per share estimate. Seven analysts rate it a buy, while an equal number are on the fence with a hold rating.
2. First Niagara Financial
Shares of First Niagara Financial ( FNFG) have shed 36% year-to-date. The Buffalo, New York-based regional bank reported a third quarter income of $56.98 million or 19 cents per share, missing the 26-cent estimate of the consensus. The third-quarter results compared to earnings of $13.6 million, or 5 cents a share, in the second quarter, when First Niagara recorded $57.7 million in acquisition, integration and restructuring expenses, and $45.6 million, or 22 cents a share, in the third quarter of 2010. compared to $45.6 million or 22 cents in the year-ago quarter. First Niagara said that excluding non-operating items, its third-quarter net operating income was $73.6 million, or 25 cents a share, increasing from $71.2 million, or 25 cents a share, the previous quarter, and $46.9 million, or 23 cents a share, a year earler. Pre-provision net revenue rose 59% to $132.11 million versus $83 million in the year-ago-quarter. Total loans and leases averaged $16.2 billion in the third quarter of 2011, increasing by $311 million, or an annualized 8%, on a sequential basis. First Niagara's third-quarter provision for loan losses was $14.5 million, declining from $17.3 million in the second quarter, but rising from $11 million in the third quarter of 2010. The company also grew its loan loss reserves by $5.7 million to $112.7 million as of Sept. 30, bucking the earnings-padding reserve release trend for most regional banks. The bank agreed in July to purchase 195 branches in Upstate New York and Connecticut from HSBC ( HBC) for roughly $1 billion, in a deal that is expected to be completed in early 2012. The company expects to raise between $750 million and $800 million in common equity before closing on the HSBC deal, which has depressed shares in recent months. The stock trades at a dividend yield of more than 7% and a forward price-to-earnings ratio of 7.8. Seven analysts rate the stock a buy or outperform and 4 analysts have a hold rating on the stock.
1. People's United Financial
Shares of Bridgeport, Connecticut-based People's United Financial ( PBCT) are down 12% in 2011. The bank reported a third-quarter net income of $52.90 million or 15 cents per share, up from $24.1 million, or 7 cents per share, for the third quarter of 2010, and $51.2 million, or 15 cents per share, for the second quarter of 2011. The third- quarter profit included $14.4 million (post-tax) of merger-related expenses. Analysts expected a third-quarter EPS of 18 cents per share according to consensus estimates from Factset. Pre-provision net revenue jumped 82% to $115.6 million from $63.6 million in the year-ago quarter, helped by the acquisition of Danvers in July. However, the bank reported strong metrics even excluding the acquisition. Excluding Danvers, loans grew at an annualized rate of 15% and deposits increased 6%. "Our performance this quarter continues to reflect improvements in our operating metrics, including another solid quarter of organic loan and deposit growth throughout our franchise, and encouraging trends in asset quality," stated Jack Barnes, President and Chief Executive Officer. The company also announced a new 5% stock repurchase program. Sandler O'Neill cut its rating on the stock to hold from buy with a price target of $12.34 after the results, citing relatively high valuations compared to peers. The stock trades at a price to book of 1.4. Only six out of 20 analysts covering the stock rate it a buy. 13 analysts have a hold rating while one analyst ranks it an underperform. --Written by Shanthi Bharatwaj in New York >To contact the writer of this article, click here: Shanthi Bharatwaj. >To follow the writer on Twitter, go to http://twitter.com/shavenk. >To submit a news tip, send an email to: firstname.lastname@example.org.