10 Buy Rated Regional Bank Stocks (Update 3)

Tickers in this article: BAC BOKF C CBU FFBC FFIN FNB HOMB JPM LKFN ORIT PB TRMK WFC

Updated with new comments and ratings downgrades for Trustmark, from Morgan Keegan analyst Ebrahim Poonwala and KBW analyst Brian Klock, and additional comment on F.N.N. Corp., from FBR analyst Bob Ramsey.

NEW YORK (TheStreet) -- TheStreet Ratings has identified 10 buy-rated regional bank stocks, with strong capital, consistent earnings, and competitive long-term performance.

While sell-side analysts have been pushing bargain bank stocks trading at low multiples to book value and earnings, TheStreet Ratings places its emphasis on long-term total returns, as well as revenue trends and capital strength and dividends, while also considering short-term performance, financial stability and volatility.

The list is limited to names with average daily trading volume of over 50,000 shares.

Not all of these companies have announced their fourth-quarter results, but looking back for the five most recently reported quarterly results for each, only one company has had one "bad quarter" over the past year, with a negative operating return on average assets (ROA), according to data supplied by SNL Financial.

In fact, except for that one quarter, the most recent 50 quarters reported by the group show ROA exceeding 0.70%.

The group of 10 regional banking names discussed here has also, for the most part, made money for investors over the past five years, while most of the best-known banking names have been losers, because of the credit crisis that began in 2008.

Here's a quick look at how earnings performance over the past year, and five-year total returns, stack up among the "big four" U.S. bank holding companies:
  • Shares of Bank of America closed at $7.25 Monday, rising 30% year-to-date, but with a negative five-year total return of 84%. As the company has struggled to digest its disastrous purchase of Countrywide Financial in 2008, Bank of America has posted net losses for two of the past five quarters, and its highest ROA over the past year was 1.08% in the third quarter, when the bottom line reflected numerous one-time pre-tax items, including $4.5 billion in positive fair value adjustments on structured liabilities, Debit valuation adjustments (DVA) of $1.7 billion, a $3.6 billion gain from the sale of shares in China Construction Bank, and on the negative side, $2.2 billion in investment write-downs.
  • JPMorgan's shares were up 14% year-to-date to close Monday at $37.66. The stock's five-year total return was a negative 16%. Over the past five quarters, JPMorgan's ROA has ranged from 0.66% to 1.06%.
  • Citigroup's shares closed Monday at $29.85, rising 13% year-to-date, but with a very painful negative five-year total return of 94%. The company's ROA has ranged from 0.25% to 0.76% over the past five quarters.
  • Wells Fargo has been the gold standard among the "big four," with an ROA ranging between 1.13% and 1.30% over the past five quarters. The shares closed at $30.92 Monday, rising 12% year-to-date, but the five-year total return was a negative 3%.

Of course, the regional bank holding companies listed here trade much higher against forward earnings estimates and book value than the "big four" and most of the better known large regional banks do.

You're paying for quality. It's a different approach than most of the analysis out there follow, providing investors with food for thought.

Here are the 10 actively traded bank stocks rated highest by TheStreet Ratings:

10. First Financial Bancorp

Shares of First Financial Bancorp of Cincinnati closed Monday at $17.71, rising 6% year-to-date, with a five-year total return of 38%.

The stock is rated an "A-minus" by TheStreet Ratings.

The company currently has a policy of paying out 100% of its earnings, through a fixed quarterly dividend of 12 cents a share, and a variable dividend, which is currently 19 cents a share. Based on that combined 27-cent quarterly payout, the shares have a dividend yield of 6.10%, which is, by far, the highest among the 10 regional bank holding companies featured here.

During the fourth quarter the company purchased 22 Indiana branches from Flagstar Bank, FSB, including $465 million in deposits. This followed the third-quarter purchase of 16 Ohio branches from Liberty Savings FSB, with $342 million in deposits.

The company had total assets of $6.7 billion as of Dec. 31, with 138 branches.

First Financial on Wednesday reported fourth-quarter earnings of $17.9 million, or 31 cents a share, increasing from $15.6 million, or 27 cents a share, in the third quarter, and $14.3 million, or 24 cents a share, in the fourth quarter of 2010.

The fourth-quarter net interest margin declined to 4.32% from 4.55% the previous quarter and 4.65% a year earlier, as First Financial Bancorp's interest spread was "negatively impacted by an increase in interest-earning assets from acquisitions and the continued amortization and paydowns in the covered loan portfolio" of loans acquired through the purchase of three failed institutions from the Federal Deposit Insurance Corp. in 2009.

Excluding acquired loans covered by FDIC loss-sharing agreements, First Financial Bancorp's average loans increased 7% during the fourth quarter and 6% year-over-year, to $2.98 billion as of Dec. 31.

The fourth-quarter ROA was 1.09%, and the ROA has ranged between 0.90% and 1.11% over the past five quarters, according to the company.

The shares trade for 1.6 times tangible book value, according to SNL Financial, and for 15 times the consensus 2012 EPS estimate of $1.22, among analysts polled by FactSet.

Interested in more on First Financial Bancorp? See TheStreet Ratings' report card for this stock.

9. First Financial Bankshares

First Financial Bankshares of Abilene, Texas, as seen its stock rise 4% year-to-date, closing Monday at $34.88. The five-year total return is 49%. Based on a 24-cent quarterly payout, the shares have a dividend yield of 2.75%.

The stock is rated an "A-minus" by TheStreet Ratings.

The company had $3.9 billion in total assets as of Sept. 30, with 11 separately chartered bank subsidiaries operating 52 branches in Texas.

First Financial Bankshares hasn't scheduled its fourth-quarter earnings announcement. The consensus among analysts polled by FactSet is for the company to post fourth-quarter EPS of 56 cents a share, down a penny from EPS of 57 cents during the third quarter, but increasing from 49 cents a share during the fourth quarter of 2010.

The company was featured in November among TheStreet's 10 Bank Stocks Bringing Home the Bacon, with ROA of over 1.60% over the previous 10 quarters.

The company announced in October 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 in his Texas/Oklahoma earnings previous on Jan. 13 said that his fourth-quarter earnings estimate for First Financial Bankshares matched the consensus, adding that "historically, above average returns, consistent, high-quality earnings, and a strong balance with a TX deposit franchise have supported a premium valuation; however, upside to current profitability levels appears limited and we view the probability of multiple expansion as too low to be bullish despite what will probably be another solid quarter from one of the most consistent performers in the banking industry."

The shares trade for 2.5 times tangible book value, according to SNL Financial, and for 16 times the consensus 2012 EPS estimate of $2.19, among analysts polled by FactSet.

It's clear that First Financial Bankshares isn't a bargain bank stock, but you get what you pay for, which in this case, includes stellar long-term management and a very solid track record for earnings performance.

Interested in more on First Financial Bankshares? See TheStreet Ratings' report card for this stock.

8. Trustmark Corp.

Shares of Trustmark Corp. of Jackson, Miss., closed at $25.65 Monday, returning 6% year-to-date ,with a five-year total return of 7%. Based on a quarterly payout of 23 cents, the shares have a dividend yield of 3.59%.

The stock is rated an "A-minus" by TheStreet Ratings.

The company had $9.7 billion in total assets as of Dec. 31, with branch operations in Florida, Mississippi, Tennessee and Texas.

Trustmark on Tuesday reported fourth-quarter net income to common shareholders of $24.3 million, or 38 cents a share, declining from $27.0 million, or 42 cents a share, in the third quarter, and $25.2 million, or 39 cents a share, in the fourth quarter of 2010.

The fourth-quarter earnings decline mainly resulted from a $4.2 million write-down on loans that were covered by FDIC loss-sharing agreements, "as a result of loan payoffs and improved cash flow projections and lower loss expectations for loan pools." The loans were acquired when the company purchased the failed Heritage Banking Group of Carthage, Miss., in April of last year.

Trustmark's fourth-quarter ROA was 1.01% according to SNL, and the ROA has ranged as high as 1.31% over the past five quarters.

Morgan Keegan analyst Ebrahim Poonwala on Thursday downgraded Trustmark to a "Market Perform" rating from "Outperform," saying the stock's "near term upside is likely to be limited given the macro challenges that TRMK and the banking industry face."

Poonwala lowered his 2012 EPS estimate to $1.57 from $1.60 and his 2013 estimate to $1.66 from $1.70, "with the downward revisions driven by lower fee revenues and higher overhead costs." The analyst left his price target for Trustmark at $25, and said that although the company is "well positioned to benefit from an ongoing US economic recovery," revenue and earnings growth would be challenging, "absent a material pick-up in industry-wide loan growth and a higher interest rate environment."

KBW analyst Brian Klock on Thursday also downgraded Trustmark -- to "Underperform" from "Market Perform" -- because "the core earnings power has weakened and could remain pressured this year, which should lead to price multiple contraction," and also because the company's "shares are already fully valued trading at a 13% 2013 P/E premium to peers and 21% premium to all US regionals."

Klock added that "the company's excess capital is trapped" by a high dividend payout ratio and a high price multiple to tangible book value, "which makes share buybacks inefficient/dilutive."

The shares trade for 1.8 times tangible book value, according to SNL Financial, and for 16 times the consensus 2012 EPS estimate of $1.60, among analysts polled by FactSet.

Interested in more on Trustmark? See TheStreet Ratings' report card for this stock.

7. F.N.B. Corporation

Shares of F.N.B. Corporation of Hermitage, Pa., closed at $12.33 Monday, rising 9% year-to-date, although the shares had a negative five-year return of 5%. Based on a quarterly payout of 12 cents, the shares have a dividend yield of 2.89%.

The stock is rated an "A-minus" by TheStreet Ratings.

The company had $9.8 billion in total assets as of Dec. 31, with 297 branches across Pennsylvania, and also in Northeast Ohio.

F.N.B. on Monday reported fourth-quarter earnings of $23.7 million, or 19 cents a share, compared to $23.8 million, or 19 cents, in the third quarter, and $23.5 million, or 21 cents, in the fourth quarter of 2010.

During the fourth-quarter, sequential declines in fee income were largely offset by $3.5 million in securities gains.

The fourth-quarter ROA was 0.95% according to SNL Financial, and the ROA has ranged from 0.71% to 1.04% over the past five quarters.

KBW analyst Damon DelMonte on Tuesday lowered his rating on F.N.B. Corporation from "Outperform," to "Market Perform," saying that although he remains "positive on the FNB story," the stock's "valuation is fair at these levels." DelMonte said the company had "posted another favorable quarter," with results "marked by continued loan growth, improving asset quality and controlled expenses."

FBR analyst Bob Ramsey stuck with his "Market Perform" rating for F.N.B., while raising his price target for the shares to $13 from $11, following "another solid quarter," with results "characterized by continued loan growth, a stable NIM, and credit quality improvement." Ramsey added that "since June 30, 2009, FNB has grown its loan portfolio $1.0 billion, while other banks de-risked their balance sheets and pulled out of the market."

Then again, Ramsey said that "valuation keeps us on the sidelines."

The shares trade for 2.6 times the company's reported Dec. 31 tangible book value of $4.80, and 15 times the consensus 2012 EPS estimate of 84 cents, among analysts polled by FactSet.

Interested in more on F.N.B. Corporation? See TheStreet Ratings' report card for this stock.

6. Lakeland Financial

Shares of Lakeland Financial of Warsaw, Ind., on Monday closed at $26.94, rising 5% year-to-date, with a five-year total return of 26%. Based on a quarterly payout of 15.5 cents, the shares have a dividend yield of 2.30%.

The stock is rated an "A" by TheStreet Ratings.

The company had $2.9 billion in total assets as of Dec. 31, with 47 branches.

Lakeland Financial on Wednesday reported fourth-quarter earnings of $8.3 million, or 51 cents a share, declining slightly from $8.4 million, or 52 cents a share, in the third quarter, but increasing from $5.8 million, or 36 cents a share, in the fourth quarter of 2010.

Total loans grew 2% during the fourth quarter and 6% year-over-year, to $2.2 billion as of Dec 31. CFO David Findlay said that total loans had grown by $880 million or 65% over the past five years, and that the growth was not "the result of acquisition or entry into new markets," but had "resulted from targeted growth in our core Indiana markets by great client relationship teams."

Noninterest-bearing deposits were up 10% sequentially and 17% year-over-year, to $357 million as of Dec. 31. Still, the net interest margin -- the difference between a bank's average yield on loans and investments and its average cost for deposits and wholesale borrowings -- narrowed to 3.38% in the fourth quarter, from 3.48% the previous quarter and 3.62% a year earlier, "primarily from reduced yields in the investment portfolio and slightly lower commercial loan yields as interest rates continue to be at historic lows."

Lakeland's fourth-quarter ROA was 1.13%, and the ROA has ranged between 0.93% and 1.20% over the past five quarters, according to the company.

The shares trade for 1.6 times tangible book value, according to SNL Financial, and for 13 times the consensus 2012 EPS estimate of $1.60, among analysts polled by FactSet.

Interested in more on Lakeland Financial? See TheStreet Ratings' report card for this stock.

5. Prosperity Bancshares

Prosperity Bancshares of Houston closed Monday at $42.40, rising 5% year-to-date, with a five-year total return of 43%. With a quarterly payout of 17.5 cents, the shares have a dividend yield of 1.65%.

The stock is rated an "A" by TheStreet Ratings.

Earlier this month, the company was featured among TheStreet's 10 Well-Run, Profitable Banks, based on third-quarter efficiency ratios.

The company has been expanding with small deals, including an agreement announced on Jan, 19 to buy The Bank Arlington, which has one office in Arlington, Texas, with assets of $37 million, which follows the completed purchase earlier this month of Texas Bankers of Austin, which included three branches and roughly $71 million in assets, and a deal announced on Dec. 9, to acquire East Texas Financial Services of Tyler, for about $20 million.

Prosperity reported fourth-quarter net income of $36.4 million, or 77 cents a share, which was flat from the third quarter, but up from $32.8 million, or 70 cents a share, a year earlier.

The company bucked the industry trend, with income from debit card and ATM fees increasing to $4.2 million in the fourth quarter from $3.9 million the previous quarter and $3.3 million a year earlier, despite the Federal Reserve's implementation of the Durbin Rule's limits on debit card interchange fees, on Oct. 1.

Total loans increased slightly during the fourth quarter and 8% year-over-year, to $3.8 billion as of Dec. 31.

Noninterest-bearing deposit balances grew 6% sequentially and 18% year-over-year, to $1.98 billion as of Dec. 31.

The fourth-quarter net interest margin was 3.82%, narrowing from 4.02% the previous quarter and 3.99% a year earlier, with the fourth-quarter margin "impacted by increased amortization expense from the securities portfolio."

Sterne Agee analyst Brett Rabatin on Monday reiterated his neutral rating for Prosperity Bancshares, saying that while his "longer-term thesis on PB remains positive, in the near-term, we remain conservative on the name following results that included modest loan growth due to prepays, greater than expected NIM pressure, and limited visibility on levers to meaningfully increase earning power (apart from a larger acquisition with favorable pricing)."

The shares trade for 3.1 times tangible book value, according to SNL Financial, and for 14 times the consensus 2012 EPS estimate of $3.03, among analysts polled by FactSet.

Interested in more on Prosperity Bancshares? See TheStreet Ratings' report card for this stock.

4. Home BancShares

Home BancShares of Conway, Ark., has seen its stock pull back slightly year-to-date, to close at $25.83 on Monday. The five-year total return was 33%. Based on a quarterly payout of eight cents, the shares have a dividend yield of 1.24%.

The stock is rated an "A" by TheStreet Ratings.

The company on Nov. 17 announced an agreement to purchase Vision Bank of Panama City, Fla., from Park National Corp. , for $27.9 million. Home BancShares will take on 17 branches with about $535 million in deposits, along with roughly $379 million in performing loans, with Park National keeping the dregs. The deal is expected to be completed during the first quarter.

Home BancShares had $3.6 billion in total assets as of Dec. 31, with 90 branches in Arkansas and Florida.

The company reported fourth-quarter net income available to common shareholders of $14.2 million, or 50 cents a share, increasing from $13.8 million, or 48 cents a share, the previous quarter and a net loss of $14.5 million, or 51 cents a share, a year earlier, when the company booked a $63 million provision for loan losses, resulting in part from a $53.4 million loan impairment charge.

The fourth-quarter loss in 2010, was the only loss over the past five quarters for any of the 10 regional bank holding companies featured here.

During the fourth quarter, Home BancShares made a $2.3 million provision for loan losses, after making no provision the previous quarter. This hit to earnings was offset by $2.2 million in securities gains. The fourth-quarter improvement also reflected gains in fee income and a $394,000 in gains on repossessed real estate.

The fourth-quarter net interest margin was a very strong 4.73%, declining slightly from 4.75% the previous quarter, but improving from 4.19% a year earlier. The fourth-quarter ROA was 1.57%.

FIG Partners analyst Brian Martin on Monday reiterated his "Outperform" rating on Home BancShares, with a $29 price target, citing the strong net interest margin and ROA, and saying that "looking forward, the game plan heading into 2012 is M&A--either live bank or FDIC," with "all eyes on Florida, with Orlando a priority, given HOMB is a small player in a big market."

The shares trade for 1.8 times tangible book value, according to SNL Financial, and for 13 times the consensus 2012 EPS estimate of $2.02, among analysts polled by FactSet.

Interested in more on Home BancShares? See TheStreet Ratings' report card for this stock.

3. Oritani Financial

Shares of Oritani Financial of the Township of Washington, N.J., closed at $12.52 Monday, down 2% year-to-date. The shares have returned 27% since the company's initial public offering at $10 a share, on Jan. 24, 2007.

The stock is rated an "A" by TheStreet Ratings.

The company was also included among TheStreet's 10 Well-Run, Profitable Banks, based on third-quarter efficiency ratios.

Oritani Financial is part of a mutual holding company structure, with 74.4% of common shares held by Oritani Financial Corp., MHC, according to the company's third-quarter 10-Q filing. Oritani Financial and the mutual holding company adopted a conversion plan in February 2010, to convert the holding company to a fully public stock structure.

While the company has not said when it plans to complete its second-step conversion to full stock ownership, Oritani in November announced its third share buyback program in November, authorizing the repurchase of 2,278,776 shares, or 5% of outstanding shares.

The company had $2.6 billion in total assets as of Dec.31 ,with 26 branch offices.

The company is set to announce its fourth-quarter results on Friday, with analysts expecting EPS of 13 cents a share, declining from 15 cents in the third quarter, and matching the results in the fourth quarter of 2010.

Oritani's earnings have been quite steady, with an ROA ranging from 1.11% to 1.15% over the five quarters ended Sept. 30.

The shares trade for 1.1 times tangible book value, according to SNL Financial, and for 21 times the consensus 2012 EPS estimate of 60 cents, among analysts polled by FactSet.

Interested in more on Oritani Financial? See TheStreet Ratings' report card for this stock.

2. BOK Financial

Shares of BOK Financial of Tulsa, Okla., closed at $58.10 Monday, returning 6% year-to-date, with a five year total return of 22%. Based on a quarterly payout of 33 cents, the shares have a dividend yield of 2.27%.

The stock is rated an "A" by TheStreet Ratings.

The company had $25.1 billion in total assets as of Sep. 30, with branch operations in Oklahoma, Texas, New Mexico, Colorado, Arkansas, Arizona, Kansas, Missouri and Utah.

BOK Financial is strongly capitalized, with a Tier 1 common equity ratio of 12.93% as of Sept. 30. The company repurchased 492,444 shares for $23 million during the third quarter, and was authorized to buy back another 1.2 million shares under its current program, as of Sept. 30.

Bok Financial is scheduled to announce its fourth-quarter results next Wednesday, and the consensus among analysts polled by FactSet is for the company to report earnings of $1.10 a share, declining from $1.24 a share in the third quarter, but increasing from 86 cents a share, in the fourth quarter of 2010.

The lower earnings forecast reflects the "decline of $20 million to $25 million in our transaction card revenue annually" that BOK expects from the Federal Reserve's final rule to implement the Durbin Amendment's limit on debit card interchange fees.

While the Durbin decline will be a bit painful, the company has been a steady earner, with ROA ranging from 0.97% to 1.39%, over the five most recent reported quarters.

Sterne Agee analyst Brett Rabatin said in an earnings preview report on Jan. 13 that he was "not expecting fee income to decline significantly due to another solid mortgage banking quarter," but was expecting a decline in profitability (to fourth-quarter EPS of $1.13), from pressure on the company's net interest margin, and slower loan growth.

The analyst has a neutral rating on BOK Financial, but is "optimistic management's strategies of balance sheet growth and focus on fee income lines of business will result in modest revenue growth in FY12."

The shares trade for 1.7 times tangible book value, according to SNL Financial, and 13.5 the consensus 2012 EPS estimate of $4.33, among analysts polled by FactSet.

Interested in more on Bok Financial? See TheStreet Ratings' report card for this stock.

1. Community Bank System

Shares of Community Bank System of DeWitt, N.Y., closed at $28.36 Monday, returning 2% year-to-date, with a five-year total return of 56%. Based on a 26-cent quarterly payout, the shares have a dividend yield of 3.67%.

Community Bank System is the only bank stock with average daily trading volume exceeding 50,000 shares, that is currently assigned the coveted "A+" rating by TheStreet.com Ratings.

The company had total assets of $6.5 billion as of Dec. 31, with operations across Upstate New York and in Northeastern Pennsylvania.

Community Bank System last Friday announced that it would purchase 19 Upstate New York branches from First Niagara Financial Group, after that company completes its purchase of roughly 200 branches from HSBC. Fist Niagara is divesting about have of the HSBC branches to alleviate Justice Department concerns over market concentration, and also to trim overlapping offices.

Community Bank System will pay a 3.22% premium for $955 million in deposits. On Monday the company priced a $50 million offering of common shares at $27 a share, expecting to net $47.4 million after expenses, to fund the branch purchase.

The company on Monday reported fourth-quarter earnings of $19 million, or 51 cents a share, declining from $20 million, or 54 cents a share in the third quarter, but increasing from $15.9 million, or 47 cents a share, in the fourth quarter of 2010.

Total fourth-quarter revenue increased 14% year-over-year, to $77.6 million mainly from the acquisition of Wilber corp.

The company's noninterest income totaled $22.4 million, declining 4% sequentially, during the first quarter of the Durbin Rule's cap on debit card interchange fees.

Community Bank System's ROA has ranged between 1.14% and 1.17% over the past five quarters.

Guggenheim Securities analyst David Darst on Friday said that tangible book value dilution from the capital raise would be "minimal," because of the price being commanded for the new shares. The analyst -- who has a neutral rating on Community Bank system -- said the branch purchase "should create significant synergies in CBU's current and contiguous markets, which would allow for continued franchise growth."

Investors obviously have faith in the company's ability to continue to grow its earnings, as the shares trade for 2.5 times tangible book value, according to SNL, and for 13 times the consensus 2012 EPS estimate of $2.12.

Interested in more on Community Bank System? See TheStreet Ratings' report card for this stock.

>>To see these stocks in action, visit the 10 Buy Rated Regional Bank Stocks 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.

Tickers in this article: BAC BOKF C CBU FFBC FFIN FNB HOMB JPM LKFN ORIT PB TRMK WFC