NEW YORK ( TheStreet) - Bank stocks have remained unloved through most of 2011, but some regional bank stocks have managed to earn investors' respect. Stocks of large, regional banks such as U.S. Bancorp ( USB) and PNC Financial Services ( PNC) have been the relative winners in the year so far, declining to a lesser extent than their larger, more troubled, rivals- Bank of America ( BAC), JPMorgan Chase ( JPM), Citigroup ( C) and Wells Fargo ( WFC). Most of these banks are still "plain vanilla,"; predominantly focused on lending rather than capital markets activity that is more volatile. The universal banks have been hit hard in recent quarters by the European debt crisis, which has frozen capital markets and has investors jittery about banks' counterparty risk. Regional banks have also been able to use acquisitions to build market share, growing revenues at a time when loan demand is low. As European banks exit the U.S. market, these banks are poised to benefit. Smaller banks, such as East West Bancorp ( EWBC) have been able to benefit from a niche focus. While performances do diverge, most of these banks are reporting solid trends in loan growth, driven by commercial loans and progress on expense reductions. The caveat is that these banks are more exposed to the U.S. economy and also tend to be more sensitive to interest rate pressures on margins. And while valuations of these stocks are cheap relative to their historic levels, several trade at premiums to their large-cap peers, which means there is little room for earnings disappointments. TheStreet compiled a list of banks most loved by analysts with the help of analyst rating data from Bloomberg. We screened for banks with a market capitalization of more than $1 billion and that have at least 10 analysts covering the stock. While Citigroup, Wells Fargo and JPMorgan Chase still top the list of analyst favorites, the following five rank high as well.
5. U.S. Bancorp
Shares of U.S. Bancorp ( USB) have given up 6% in 2011. The bank saw strong lending trends in the third quarter, driving a net income growth of 40% year-over-year to $1.273 billion or 64 cents per share from $908 million or 45 cents per share in the third quarter of September 2010. Net revenues rose 4.5% on a year-on-year basis and 2.2% quarter on quarter. U.S. Bancorp saw average total loans increase 5% over the corresponding quarter of the previous year- 4.5% excluding acquisitions. Average total commercial loans jumped nearly 12%, with the quarterly average commercial and commercial real estate commitments growing 16.8% year-on-year. "For all the talk earlier this year about when will loan growth come back, we are surprised that more isn't being made about the solid growth at USB," Oppenheimer analyst Chris Kotowski wrote in a report following the results. "Not only was the growth significant (7% annualized including the covered assets and 9.5% annualized excluding the covered assets), it's coming across almost their entire portfolio." The bank is also simultaneously benefiting from improving credit quality, with the net charge-offs declining 10% in the third quarter over the previous quarter. Provision for loan losses fell 48% to $519 million. The company released reserves totaling $150 million, slightly lower than the previous quarter, as credit trends stabilized. 22 out of the 34 analysts covering the stock rate it a buy. 12 analysts maintain a hold rating and one analyst has a sell rating.
4. Webster Financial
Shares of Connecticut-based Webster Financial ( WBS) have held steady in 2011 and are up nearly 17% over the year. The bank reported a net income of $41.5 million, or 45 cents per diluted share for the quarter ended September 30, 2011, compared to $33.4 million, or 36 cents per diluted share, for second quarter and $17.77 million or 22 cents per share in the year-ago period. Commercial, agricultural and financial loans rose 13% year-on-year and 2% sequentially to $2.33 billion. Residential mortgage loans increased by $10.9 million, while consumer loans declined by $20.6 million. Provision for loan losses fell sharply to $5 million from $25 million in the year-ago quarter, even as loans grew. Analysts were impressed with its steps to improve its cost structure and expect the firm to meet its target efficiency ratio of 60%. FBR Capital analysts expect Webster to be among the banks that will benefit from higher mortgage refinancing activity in the fourth quarter as the full benefit of lower mortgage rates kicks in. Out of the 16 analysts covering the stock, 9 rate it a buy or outperform. Seven analysts have a hold rating on the stock.
3. Fifth Third Bancorp
Shares of Fifth Third Bancorp ( FITB) are down about 19% year-to-date. The bank turned in a solid third-quarter performance. Third-quarter net income available to common shareholders was $373 million, or 40 cents a share, increasing from $328 million, or 35 cents a share, in the second quarter, and $175 million, or 22 cents a share, in the third quarter of 2010. The company continued to benefit from credit quality improvements and reserve releases, but strong mortgage banking revenues and better-than-expected net interest income were also cheered by analysts. Analysts say the recent performance might be hard to repeat, but the bank is expected to be a relative outperformer in the banking sector. BMO Capital Markets analysts say the stock deserves to trade at a premium given "the strong organic revenue trends, continued credit leverage and top tier capital levels and profitability," noting the bank's strong return on assets ratio of 1.30% and return on tangible common equity ratio of 14.9%. Of the 32 analysts covering the stock, 20 rate it a buy or outperform, 11 rate it a hold and only 1 analyst has a sell rating on the stock.
2.East West Bancorp
Shares of East West Bancorp ( EWBC), which caters primarily to Chinese Americans, have slipped by all of 1% year-to-date making it among the top performers in the banking space in 2011. The bank reported third quarter net income of $62.4 million, up by 33% over the corresponding previous quarter. Earnings per share increased 52% to 41 cents per share, beating estimates by 2 cents. Total gross loans increased to a record $14.2 billion during the third quarter. Non-covered commercial and trade finance loans grew 12% to $3 billion, and non-covered single family loans grew 18% to $1.5 billion. The bank said in its earnings call that its first goal was to return the dividend to 10 cents per share, its pre-recession level and that a hike was likely early next year. Analysts at Goldman Sachs said East West Bancorp was among the banks to own post earnings because of its potential to "grow core earnings and return capital over the next year." 13 analysts rate the stock a buy or outperform. Four analysts maintain a hold rating on the stock. There are no sell calls on the stock.
1. PNC Financial