10 Bank Stocks Ready for a 2012 Dividend Boost

NEW YORK ( TheStreet) -- TheStreet has identified a group of 10 actively traded bank stocks with attractive dividend yields that also have room to increase their payouts to investors over the next year.

As we have seen during this difficult year for bank stocks, an attractive dividend yield can provide plenty of support for share prices. The 10 bank dividend stocks we highlight here have all beaten the performance of the KBW Bank Index ( I:BKX), which was down 28% year-to-date through Friday.

Of course, a very high dividend yield could signal investor suspicion that a company may need to cut its dividend. This is why it's important to consider how much of its earnings a bank is paying out, and whether it is turning a steady profit.

Hudson City Bancorp ( HCBK) is one of the better-known names to bank stock investors seeking a healthy dividend return. The company during the first quarter restructured its balance sheet, as required by regulators, after its long-term leverage strategy of borrowing from the Federal Home Loan Bank and investing the proceeds in securities backfired in the prolonged low-rate environment. Hudson City posted a first-quarter net loss of $555.7 million, and was forced to cut its quarterly dividend payout to eight cents a share, from 15 cents.

Hudson City had paid out dividends of more than half its earnings for four out of five quarters, prior to its first-quarter net loss. The shares closed at $5.48 Friday, with the current lowered quarterly payout translating to a dividend yield of 5.84%.

In order to come up a very conservative list of bank stocks paying decent and safe dividend yields that have plenty of room to increase their payouts, we have used data provided by SNL Financial to isolate banks and thrifts paying quarterly dividends that posted profits for the past five quarters, while paying out 50% or less of their earnings.

We also limited the list to actively traded names with average daily trading volume of at least 50,000 shares.

This approach leaves out some of the best-known name among high dividend payers, including New York Community Bancorp ( NYB), which has a dividend yield of 8.38%, based on a 25-cent quarterly payout and Friday's closing price of $11.93. New York Community Bancorp's dividend payments have exceeded 90% of its earnings over the past two quarters. Then again, the company has managed to maintain that dividend for 31 consecutive quarters.

The forward dividend yields for tour selected group of bank dividend stocks range from 3.01% to 4.97%, and while a yield of just over 3% may seem paltry, it is quite significant when you consider that short-term rates remain near zero.

Here are the 10 Bank Dividend Stocks to Be Thankful For, in order of ascending dividend yield:

10. First Financial Bankshares

First Financial Bankshares ( FFIN) of Abilene, Texas, has seen its stock pull back 4% this year, closing Friday at $31.94. Based on a quarterly payout of 24 cents, the shares have a dividend yield of 3.01%.

The company had $3.9 billion in total assets as of Sept. 30. With its acquisition of Sam Houston Corp. on Nov 1, First Financial now has 11 separately chartered bank subsidiaries throughout Texas, with 52 branches.

Third-quarter earnings were $18.1 million, or 58 cents a share, increasing from $16.5 million, or 53 cents a share, during the second quarter, and $16.2 million, or 52 cents a share, during the third quarter of 2010. The third-quarter net interest margin was a very strong 4.62%, although it declined from 4.69% the previous quarter and 4.68% a year earlier

The third-quarter ROA was 1.88% according to SNL, which was the best earnings performance among this group of 10 bank and thrift holding companies. The ROA has been over 1.60% over the past 10 quarters, making First Financial a very steady and strong earnings performer.

First Financial's tangible common equity ratio was 11.05% as of Sept. 30, according to SNL, which was by far the strongest among this group of 10 bank and thrift holding companies.

The company announced on Oct. 26 that it would "activate its existing stock repurchase plan to repurchase up to 750,000 shares of its common stock, which represents approximately 2.4 percent of the Company's outstanding shares, through September 30, 2014."

Sterne Agee analyst Brett Rabatin has a neutral rating on the shares, saying on Oct. 25 that the company "continues to benefit from the relative strength of the Texas economy vis-à-vis the greater U.S. macro-economy, evidenced by higher profitability and better expense management than most of the industry." In support of his neutral rating, the analyst said he saw "limited upside to current premium valuation and view the probability of multiple expansion as too low to be more bullish despite another strong quarter," while adding that he viewed First Financial as "an ideal multi-year holding."

The shares are relatively expenses to forward earnings and tangible book value, especially in the current depressed environment for most bank stocks, but the valuations reflect the steady earnings, payout and buybacks. First Financial trades for 14.3 times the consensus 2012 EPS estimate of $2.19, among analysts polled by FactSet, which is the highest forward P/E among this group of 10 bank and thrift holding company stocks.

The shares trade for 2.3 times tangible book value, according to SNL.

All eight analysts covering First Financial Bankshares have neutral ratings on the stock, again reflecting the premium priced-in because of First Financial's strong and steady performance.

You get what you pay for, and for a long-term investor content to be paid while waiting, First Financial looks like an excellent play for a commitment of several years.

9. Independent Bank Corp.

Shares of Independent Bank Corp. ( INDB) of Rockland, Mass., closed at $24.86 Friday, for a year-to-date decline of 6%. Based on a quarterly payout of 19 cents, the shares have a dividend yield of 3.06%.

The company had $4.9 billion in total assets as of Sept 30, operating 67 Rockland Trust Co. offices in Eastern Massachusetts, as well as a network of loan production offices and investment management offices in Massachusetts and Rhode Island.

Third-quarter net income was $12.0 million, or 56 cents a share, increasing from $11.1 million, or 52 cents a share, in the second quarter, and $11.1 million, or 53 cents a share, in the third quarter of 2010. The earnings improvement reflected a decline in credit costs, with a third-quarter provision for loan losses of $2.0 million, down from $3.5 million both in the second quarter and in the third quarter of 2010.

The annualized third-quarter operating return on average assets, or ROA, was 1.00%, according to SNL Financial.

Total loans increased 9% year-over-year to $3.7 billion as of Sept 30, while net interest income increased 1% to $41.7 million in the third quarter. The net interest margin -- the difference between a bank's yield on loans and securities investments and its average cost for deposits and wholesale borrowings -- was a tax-adjusted 3.84% in the third quarter, declining from 3.97% the previous quarter and 3.89% a year earlier.

David Darst of Guggenheim securities reiterated his neutral rating on Independent Bank Corp. on Oct. 21, following the company's earnings announcement, saying he expected the net interest margin to "stabilize at ~3.8% as the earning asset yield declines and INDB manages funding costs modestly lower." The analyst's price target for the shares is $26 is 12 times his 2012 earnings estimate of $2.17 a share, "in line with peers" in the New England and Mid-Atlantic regions.

The shares trade for 11.3 times the consensus 2012 EPS estimate of $2.17, among analysts polled by FactSet, and 1.7 times tangible book value, according to SNL.

All five analysts covering Independent Bank Corp. have neutral ratings on the shares.

8. Huntington Bancshares

Huntington Bancshares ( HBAN) of Columbus, Ohio closed at $5.16 Friday, down 24% year-to-date. Based on a quarterly payout of four cents, the shares have a dividend yield of 3.10%.

The company had $55 billion in total assets as of Sept. 30, with roughly 600 branches in Ohio, Michigan, Pennsylvania, Indiana, West Virginia, and Kentucky.

An interesting development during the third quarter for Huntington was the resumption of securitization of auto loans, with the company booking a $15 million gain. SNL Financial reported on Nov 2 that executives of Ally Financial -- the former GMAC and the leading U.S auto financing provider --were concerned about "significant increases in competition."

Huntington CEO Stephen Steinour said in October, following the company's third-quarter earnings announcement, that the bank's Super Prime indirect auto loan portfolio was a "core business" and that the company was being rewarded for staying loyal to auto dealers by not exiting the business at the height of the financial crisis.

The company has recently expanded its auto dealer financing business into Pennsylvania, New England, Wisconsin and Minnesota.

Huntington was also included among TheStreet's 10 Banks Seeing Double-Digit Growth in Business Loans.

Third-quarter net income applicable to common shares was $135.7 million, or 16 cents a share, declining from net income to common shareholders of $138.2 million, or 16 cents a share, in the second quarter, and increasing from $71.5 million, or 10 cents a share, in the third quarter of 2010, when the company was still paying dividends on preferred shares held by the government for assistance received through the Troubled Assets Relief Program, or TARP. Huntington fully repaid TARP in December 2010.

The sequential earnings decline reflected an increase in the provision for loan losses to $43.6 million from $35.8 million in the second quarter, although the provision declined from $119.2 million in the third quarter of 2010.

The net interest margin declined slightly during the third quarter to 3.34%, from 3.40% the previous quarter and 3.45% a year earlier.

The third-quarter ROA was 1.06%, according to SNL.

FBR Capital Markets analyst Paul Miller on Oct. 21 reiterated his neutral rating on Huntington Bancorp, with a price target of $6, saying "the company continues to struggle to grow revenues with the economy still sluggish and an expense base that continues to climb." Miller added that Huntington's aggressive pursuit of deposit growth "has been successful in gaining new customers and will likely lead to new lending relationships," but also said that the company might "have difficulty growing revenue in an environment when fee revenue is being attacked and interest rates are at historic lows."

The shares trade for 8.3 times the consensus 2012 EPS estimate of 61 cents, among analysts polled by FactSet, and just over tangible book value, according to SNL.

Out of 18 analysts covering Huntington, eight rate the shares a buy, nine have neutral ratings, and one analyst recommends selling the shares.

Huntington is clearly a work in progress, but the shares are cheaply priced to forward earnings, and the company is not sitting still.

7. First Community Bancshares

First Community Bancshares ( FCBC) of Bluefield, Va., has seen its stock decline 14% year-to-date, closing Friday at $12.45. Based on a quarterly payout of 10 cents, the shares have a dividend yield of 3.21%.

The company had $2.2 billion in total assets as of Sept 30, with 56 branches in Virginia, West Virginia, North Carolina, and Tennessee

Third-quarter net income available to common shareholders was $5.0 million, or 28 cents a share, declining from $5.6 million, or 31 cents in the second quarter, and $6.6 million, or 37 cents a share, in the third quarter of 2010.

The earnings decline in part reflected gains on the sales of securities of $3.2 million in the second quarter and $2.6 million in the third quarter of 2010.

The third-quarter net interest margin was 3.77%, narrowing from 3.83% the previous quarter and 3.87% a year earlier

The provision for loan losses declined to $1.9 million in the third quarter, from $3.1 million the previous quarter and $3.8 million in the third quarter of 2010.

The third-quarter ROA was 0.97%, according to SNL Financial.

The company was strongly capitalized, with a tangible common equity ratio of 9.23% as of Sept. 30, according to SNL Financial, and repurchased 48,310 shares during the third quarter.

KBW analyst Catherine Mealor on Oct 27 reiterated her neutral rating on First Community, saying that with "slow balance sheet growth," the company "has been particularly focused on expense controls recently. The analyst said that "the lack of any top-line growth with FCBC's recent quarters keeps us on the sidelines in regards to the stock in the near term," and that her firm would "like to see an improvement in revenue & balance sheet growth, or a true catalyst (M&A) before we get more positive on the shares."

The shares trade for 11.2 times the consensus 2012 EPS estimate of $1.07, among analysts polled by FactSet, and 1.1 times tangible book value, according to SNL.

Out of five analysts covering First Community Bancshares, one rates the stock a buy, while the other four analysts have neutral ratings.

6. JPMorgan Chase

Shares of JPMorgan Chase ( JPM) closed at $30.62 Friday, down 26% year-to-date Based on a quarterly payout of 25 cents, the shares have a dividend yield of 3.27%.

Life is never boring for JPMorgan's investors, with the company having exposure to so many facets of the international economy. The shares dropped 8% last Wednesday, after Fitch Ratings said that the company's net exposure to stressed European markets was 12.6% of its Tier 1 capital.

JPMorgan Chase is also expecting and encouraging a wave of mortgage loan refinancing activity, with the Federal Housing Finance Agency's recent expansion of the Home Affordable Refinance Program, or HARP , under which qualified borrowers whose loans are held by Fannie Mae ( FNMA) or Freddie Mac ( FMCC) -- many of which were originated by and are serviced by JPMorgan -- can refinance their entire loan balances, no matter how much the values of the underlying homes have declined.

Please see TheStreet's earnings coverage for discussion of the company's somewhat disappointing third-quarter results.

The third-quarter ROA was 0.76%, according to SNL Financial.

After JPMorgan Chase announced its third-quarter results, FBR analyst Paul Miller lowered his 2012 earnings estimate for the company to $5.00 a share from $5.65, but reiterated his buy rating and $46.00 price target for the shares, saying the company was "well positioned with a 7.7% Tier 1 common ratio per Basel III requirements."

The shares trade for just 6.2 times the consensus 2012 EPS estimate of $4.89, among analysts polled by FactSet, making JPMorgan by far the cheapest to forward earnings among this group of bank and thrift holding companies. The shares trade just below tangible book value, according to SNL.

Out of 24 analysts covering JPMorgan Chase, 22 rate the shares a buy. The remaining two analysts have neutral ratings.

5. WesBanco

Shares of WesBanco ( WSBC) of Wheeling, W.Va., closed at $19.55, bucking the industry trend by rising 6% year-to-date. Based on a quarterly payout of 16 cents, the shares have a dividend yield of 3.27%. The company has increased the payout twice during the last three quarters, from 14 cents.

The company had $5.5 billion in total assets as of Sept. 30 with 112 branches in West Virginia, Ohio and western Pennsylvania.

WesBanco reported third-quarter net income of $11.0 million, or 41 cents a share, declining from $11.9 million, or 45 cents a share, in the second quarter, but increasing from $9.2 million, or 34 cents a share, in the third quarter of 2010.

The provision for credit losses was $10.8 million during the third quarter, increasing from $6.8 million the previous quarter, but declining from $11.8 million a year earlier.

The third-quarter net interest margin was 3.67%, increasing from 3.61% a year earlier.

The third-quarter ROA was0.81%, according to SNL Financial.

Sterne Agee analyst Kenneth James on Oct. 31 reiterated his neutral rating on WesBanco, saying that although "core earnings trends have been favorable due to NIM expansion and expense reductions," a repeat of "the previous year's share price performance over the next year could prove difficult given a more challenging revenue outlook."

The shares trade for 10.5 times the consensus 2012 EPS estimate of $1.86, among analysts polled by FactSet, and 1.5 times tangible book value, according to SNL.

Two out of six analysts covering WesBanco rate the shares a buy. The remaining analysts all have neutral ratings.

4. Westamerica Bancorporation

Shares of Westamerica Bancorporation ( WABC) of San Rafael, Calif., closed at $44.72 Friday, down 17% year-to-date. Based on a quarterly payout of 37 cents, the shares have a dividend yield of 3.31%. The dividend was increased by a penny, on Oct. 27.

Westamerica had $5.0 billion in total assets as of Sept, 30, with over 90 branches in Northern and Central California.

Third-quarter net income was $22.4 million, or 79 cents a share, increasing from $21.3 million, or 74 cents a share, in the second quarter, but declining from $23.7 million, or 81 cents, in the third quarter of 2010. The provision for loan losses was $2.8 million during all three periods.

Net interest income declined 3.5% year-over-year to a tax-adjusted $54.7 million, with reduced loan volumes "placing greater reliance on lower-yielding investment securities."

While Westamerica's earnings decline was mainly attributed to a narrowing interest rate spread, the company's third-quarter net interest margin was a stellar 5.32% (tax-adjusted), declining from 5.54% a year earlier.

The third-quarter ROA was 1.82%, according to SNL Financial. Over the past five quarters, the ROA has ranged between 1.73% and 1.95%.

CEO David Payne said that during the third quarter, Westamerica retired "$10 million in high-coupon trust-preferred debt, and repurchased 316 thousand shares of common stock."

KBW analyst Julianna Balicka has an "Outperform," on Westamerica, with a $55 price target, saying on Oct. 20 that "the fundamental thesis of our model is a sustainable tangible ROE between 23% and 25%."

A return on equity of 20% was long considered the threshold for strong earnings performance by a bank, at least before the real estate bubble burst.

Balicka also called Westamerica a "high-quality, low risk banking franchise that provides a compelling value proposition for investors looking for low volatility earnings, consistently increasing dividends, and active capital management in the form of share buybacks or well priced acquisitions."

The shares reflect Westamerica's strong and consistent earnings performance, trading for 13.5 times the consensus 2012 EPS estimate of $3.25, among analysts polled by FactSet, and just over three times tangible book value, according to SNL.

Out of nine analyst covering Westamerica Bancorporation, two rate the shares a buy, six have neutral ratings, and one analyst recommends investors sell the shares.

Like First Financial Bankshares, Westamerica appears fully valued, or "loved" by investors, because of its strong long-term earnings performance. While sell-side analysts -- who mainly focus on "long-term" picks with a one-year horizon -- are mostly on the fence, Westamerica looks like a keeper for truly long-term investors who can stay in for a period of many years.

3. NBT Bancorp

Shares of NBT Bancorp ( NBTB) of Norwich, N.Y., closed at $20.94, for a year-to-date decline of 11%. Based on a quarterly dividend payout of 20 cents, the shares have a dividend yield of 3.82%.

The company had $5.5 billion in total assets as of Sept 30 with 128 branches in New York, Pennsylvania, Vermont and Massachusetts.

NBT last Wednesday announced it would expand further in New England, with an agreement to acquire Hampshire First Bank of Manchester, N.H., for $45 million in cash and stock. Hampshire First had $273 million in assets as of Sept. 30, with five offices. The deal is subject to approval by Hampshire First's shareholders and is expected to be completed in the second quarter of 2012.

Third-quarter earnings were $15.2 million, or45 cents a share, increasing from $14.7 million, or 43 cents a share, in the second quarter, and $14.6 million, or 42 cents a share, in the third quarter of 2010.

The provision for loan losses declined to $5.2 million in the third quarter, from $6.0 million the previous quarter, and $7.5 million a year earlier

Third-quarter net interest income was down slightly year-over-year, to $50.4 million The net interest margin declined to a tax-adjusted 4.14% from 4.15% a year earlier.

The third-quarter ROA was 1.13%, according to SNL Financial.

Guggenheim Securities analyst David Darst on Nov. 16 lowered his rating on NBT to neutral, given the recent improvement in the share price and valuation," which was close to the analyst's price target of $22.00. The analyst added that "near-term catalysts include potential M&A activity with a common raise," and said that the company could target the branches that First Niagara Financial Group ( FNFG) will be forced to divest as part of its deal to acquire HSBC's ( HBC) Upstate New York branch network.

The shares trade for 11.6 times the consensus 2012 EPS estimate of $1.81, among analysts polled by FactSet, and 1.7 times the company's reported Sept. 30 tangible book value of $12.24.

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

2. Flushing Financial Corp.

Shares of Flushing Financial Corp. ( FFIC) of Lake Success, N.Y., closed at $12.31 Friday, declining 9% year-to-date. Based on a quarterly payout of 13 cents, the shares have a dividend yield of 4.22%.

The company had $4.3 billion in total assets as of Sept. 30, with 17 branches in New York City and in Nassau County, on Long Island.

Flushing on Sept. 28 announced a new repurchase plan, authorizing buybacks of a million common shares, after completing a previous buyback plan during the third quarter.

Third-quarter net income was $10.2 million, or 33 cents a share, increasing from $9.1 million, or 29 cents a share, during the second quarter, but declining from $14.6 million, or 48 cents a share, during the third quarter of 2010. The provision for loan losses was $5 million during all three periods.

The year-over-year earnings declined reflected a net tax benefit of $5.5 million, or 18 cents a share ,during the third quarter of 2010.

The third-quarter net interest margin was 3.60%, increasing from $3.56% a year earlier.

The third-quarter ROA was 0.94%, according to SNL Financial.

Guggenheim Securities analyst David Darst on Oct. 31 reiterated his buy rating for Flushing Financial, with a $15 price target, saying that key catalysts for the shares in 2012 include "consistent earning contribution from a stable net interest margin ," improved loan growth and declining credit costs, as problem loans "work through the foreclosure process."

The shares trade for 9.7 times the consensus 2012 EPS estimate of $1.26, among analysts polled by FactSet, and just under tangible book value, according to SNL.

Four out of six analysts covering Flushing Financial Corp. rate the shares a buy. The remaining analysts both have neutral ratings.

1. Dime Community Bancshares

Dime Community Bancshares ( DCOM) of Brooklyn has seen its stock fall 18% year-to-date, closing Friday at $11.51. Based on a quarterly payout of 14 cents, the shares have a dividend yield of 4.87%.

The company had $4.0 billion in total assets as of Sept. 30, with 26 branches in boroughs of Brooklyn, Queens and the Bronx, in New York City, and also in Nassau County, on Long Island.

Third-quarter earnings were $11.2 million, or 33 cents a share, declining from $12.3 million, or 36 cents, in the second quarter, and $11.4 million, or 34 cents, in the third quarter of 2010. The provision for loan losses increased to $2.2 million during the third quarter, from $1.7 million the previous quarter, and $667,000, a year earlier.

Dime's net interest margin was 3.58% during the third quarter, declining from 3.66% the previous quarter, and 3.60% a year earlier.

The third-quarter ROA was 1.10%, according to SNL Financial.

Sterne Agee analyst Matthew Kelly has a neutral rating on Dime, saying after the third-quarter results were announced that he expects "the net interest margin to remain under pressure due to asset yield compression continuing at a rate higher than funding cost reductions."

The shares trade for 8.7 times the consensus 2012 EPS estimate of $1.33, among analysts polled by FactSet, and 1.3 times tangible book value, according to SNL.

The eight analysts covering Dime Community Bancshares are evenly split between buy ratings and neutral ratings.

>>To see these stocks in action, visit the 10 Bank Stocks Ready for a 2012 Dividend Boost 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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