5 Super Regional Banks on the Rise

NEW YORK ( TheStreet) -- Super regional banks are in the sweet spot.

These mid-sized banks that tend to be distinguished by their large geographical presence, are growing bigger, gaining market share as the large money-center banks, JPMorgan Chase ( JPM) and Bank of America ( BAC) scale back branch expansion plans.

And while too-big-to-fail banks are steering clear of acquisitions, banks such as BB&T ( BBT) and PNC Financial ( PNC) have been aggressive in the M&A space.

Meanwhile, unlike their smaller rivals, these banks have healthy balance sheets and fewer problem loans. They are also not significantly exposed to European debt and capital market activity, both of which are punishing the nation's biggest players.

None of these banks figure in the list of too-big-to-fail banks, which means they won't have to build additional capital buffers beyond those stipulated by Basel 3.

Shares of many of the super regionals have held up relatively well in the recent financial market carnage. According to a Deutsche Bank report, these banks saw the strongest growth in commercial and industrial loans and service charges in the third quarter.

While analysts have lowered their estimates for 2012 across the banking sector in light of the weakened macroeconomic outlook, they have reduced estimates the least for super-regionals, according to Deutsche, suggesting that the outlook remains robust.

TheStreet takes a look at five super regional banks that are on the rise, thanks to acquisitions. The banks are listed in alphabetical order.

5. BB&T

BB&T ( BBT) of Winston-Salem, N.C., has been actively seeking out takeover targets in the past year.

After losing out to PNC Financial Services ( PNC) in a bid for Royal Bank of Canada's ( RY) U.S. retail banking unit, the bank made a successful bid for BankAtlantic Bancorp's ( BBX) main thrift subsidiary, acquiring 78 branches in South Florida, but none of the bad loans.

The company paid a premium of $301 million, plus the net asset value of the thrift, including $2.1 billion in loans and $3.3 billion in deposits, representing "a 9% deposit premium based on Sept. 30 balances." BB&T said the acquisition would not include non-performing and other criticized assets identified as of Sept. 30.

BB&T CEO Kelly King called the BankAtlantic acquisition "a compelling strategic expansion into important long-term markets in Southeast Florida," which "is accretive to earnings per share and comfortably exceeds our internal rate of return objective."

According to Guggenheim Securities analyst Marty Mosby, the acquisition was "a great use of excess capital, building-out in a market that's very strategically attractive."

"We think this transaction serves to reinforce investors' view of BBT as a high-quality, stronger name that is positioned not only to grow organically, but to participate in accretive acquisitions as the industry faces an increasingly challenging operating and regulatory environment," Sandler O'Neill analyst Kevin Fitzsimmons said in a note.

Shares of BB&T are down 10% year-to-date and the stock trades at 145% of its tangible book value per share.

Analyst sentiment is not strongly bullish on the stock, however. While 10 analysts rate it a buy or outperform, 23 analysts have a hold rating on the stock and three have an underperform or sell rating.

4. Comerica

Dallas, Texas-based Comerica's ( CMA) third-quarter results were a disappointment, with a cautious outlook on loan growth for the fourth quarter further dampening sentiment.

While the uncertainty in the near-term is expected to slow loan activity, the bank remains optimistic about the outlook for 2012.

The bank expects its recent acquisition of Sterling Bancshares, which it completed in July, to triple its market share in Houston, while offering it an entry point into other markets such as San Antonio and Kerrville regions.

Management expects the Sterling Franchise to add $200 million in loan growth in 2012 and accelerate in future periods, according to Oppenheimer analyst Terry Mcevoy, who has an outperform rating on the stock.

"While trends within certain specialized areas like mortgage finance and auto floor plan could create some quarter-to-quarter volatility, with the run-off of commercial real estate slowing and new opportunities within the Sterling customer base, we see Comerica producing above-peer loan growth over the next year," McEvoy wrote in a recent note following a meeting with the management.

The analyst also expects the bank to return capital to shareholders in 2012.

Shares of Comerica are down 37% year to date. The stock trades at about 11.6 times its 2012 consensus earnings per share estimate.

Analysts are rather evenly split over Comerica, with 17 analysts rating it at buy or outperform, 16 staying on the fence and 2 rating it at sell or underperform.

3. Capital One Financial

Capital One Financial ( COF) struck two major deals that have the potential to catapult it to the position of the fifth largest U.S. bank by deposits.

The company acquired Dutch bank ING Groep's ( ING) online banking unit in the U.S. for $9 billion earlier this year and quickly followed it up with the acquisition of the $30 billion credit card portfolio of HSBC ( HBC)

But the McLean, Virginia-based bank is struggling to get regulatory approval for the deals. Consumer groups have argued that the acquisition of the ING assets will create another too-big-too-fail bank.

John Finneran, Capital One's general counsel and corporate secretary told Federal Reserve officials in a public meeting that neither Capital One nor ING Direct had "engaged in the kinds of activities that precipitated the financial crisis, including the structuring or sale of mortgage-backed securities, collateralized debt obligations, credit default swaps or other exotic instruments," and that the combined bank wouldn't have any of the complexity or interconnectivity that the Dodd-Frank Act sought to address in ending the concept of 'too big to fail.'"

Now consumer groups are raising questions about the HSBC deal as well.

"It would be a mistake for the regulators to rubber stamp Capital One's acquisition of HSBC's credit card unit, given the monoline and risky nature of their credit card business," said John Taylor, president & CEO of the National Community Reinvestment Coalition said in a statement Thursday. "This acquisition poses a threat to taxpayers, and raises serious antitrust and systemic risk concerns."

Analysts, however, do not seem to doubt that the acquisitions will be approved. 19 analysts rate the stock a buy or outperform, 10 rate it a hold, while only one analyst has an underperform rating.

KBW analyst Sanjay Sakhrani said in a note that Capital One shares "remain a compelling opportunity whether one looks at it as a bank or as a credit card company."

Shares are up 6% year-to-date.

2. First Niagara Financial

Buffalo, N.Y.-based First Niagara Financial ( FNFG) has a history of acquiring companies, snapping up at least one bank a year even through the crisis.

In 2009, it bought National City branches in Western Pennsylvania and Hayersville National . The bank's 2010 purchase of New Alliance Bancshares vaulted it to the top 25 banks in the country.

In July this year, the bank agreed 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 acquisition will increase its market share in upstate New York from 8% to 22%.

HSBC is required to dispose 26 banks prior to the merger close as part of an agreement with the Department of Justice following an anti-trust review.

The company expects to raise between $750 million and $800 million in common equity before closing on the HSBC deal, which has depressed the stock price in recent months.

Shares of First Niagara have declined 36% year to date. The stock trades at less than 8 times its 2012 consensus earnings per share and at about 119% tangible book value per share.

Five analysts rate the stock a buy, while the remaining five who cover the stock are sticking to their hold rating.

1. PNC Financial Services

Shares of Pittsburgh, Pa.-based PNC Financial have slipped 11% in 2011.

The bank is expected to complete its $3.45 billion acquisition of Royal Bank of Canada's U.S. unit in March of next year, bringing on $19 billion in deposits, $16 billion in loans, and 424 branches in North Carolina, Florida, Alabama, Georgia, Virginia and South Carolina.

The acquisition will make it the fifth largest bank in the U.S., as measured by branches.

The bank has said it won't need to raise fresh capital to fund the acquisition, though uncertainty on that front has been a cause for concern.

The bank also announced the acquisition of 27 branches of Flagstar Bancorp ( FBC) in July, which is expected to close in December and will offer it an entry point into Atlanta.

Analysts say the bank might, however, slow its pace of large acquisitions going forward and may prefer to build organically.

"We see sizable opportunities for market share gains in the Southeast next year following the RBC Bank acquisition," Oppenheimer's McEvoy said in a note. "Additional deals over the next few years will more than likely be fill-in acquisitions or the company may be content in simply opening branches in key markets."

PNC is a big favorite among regional banks in the analyst community, with as many as 24 analysts rating it a buy or outperform, while 8 analysts have a hold rating.

The stock trades at 8 times 2012 consensus earnings estimates and at 117% of its tangible book value per share.

>>To see these stocks in action, visit the 5 Super Regional Banks on the Rise portfolio on Stockpickr.

-- 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: tips@thestreet.com.

Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

More from Stocks

Video: Here Is Why Carvana Isn't Worried About Amazon

Video: Here Is Why Carvana Isn't Worried About Amazon

Video: What Oprah's Content Partnership With Apple Means for the Rest of Tech

Video: What Oprah's Content Partnership With Apple Means for the Rest of Tech

REPLAY: Jim Cramer on the Markets, Oil, Starbucks, Tesla, Okta and Red Hat

REPLAY: Jim Cramer on the Markets, Oil, Starbucks, Tesla, Okta and Red Hat

Flashback Friday: The Market Movers

Flashback Friday: The Market Movers

Dow Posts First Gain in Nine Sessions; Oil Jumps

Dow Posts First Gain in Nine Sessions; Oil Jumps