Which U.S. Banks Are Growing Revenues?

Some investors are completely avoiding stocks in the U.S. banking sector due to the recent credit crisis and the continuing failure of banks on a weekly basis. While there are many known unknowns with this industry such as further writedowns of real-estate loan losses, plenty of opportunities abound for astute investors. With thousands of banks operating in the country and hundreds of them publicly-traded, the universe for finding suitable candidates for investment is large. In general, for most of the banks the worst is behind them.

One way of evaluating banks in the current environment is to look for banks that are growing their revenues. Well-capitalized local and regional banks are attracting customers in droves from the other banks especially from the Too-Big-To-Fail banks such as Bank of America(BAC), Citibank (C), Wells Fargo(WFC), JPMorgan Chase (JPM), etc. where customer service is poor and aggressive business practices are the norm.

A recent article in the Bank Director magazine discussed about banks that are growing revenues. The article notes that the secret to growing revenues is that there is no secret. All it takes is hard work and a little bit of creativity. Most of the major banks lack this trait and instead depend on trading, reckless lending and other easy ways to earn quick profits. The unquestionable faith of Uncle Sam in propping up these giant banks even in the event of failure is an additional incentive for these banks to not perform hard work.

From the article titled “Who Says Banks Can’t Grow Revenues?“:

Banks with a strong revenue-growth story are indeed rare. Only 87 out of 504 publicly-traded banks were able to grow operating revenues by 20 percent or more over four linked quarters ending June 30, 2010, according to a list compiled by Sandler O’Neill + Partners in New York, based on data provided by SNL Financial in Charlottesville, Virginia.

Sandler looked at a universe of roughly 500 publicly traded banks. The firm defines revenue as net interest income plus noninterest income, less gains from sales of securities and nonrecurring events. Using this definition, revenues for the industry as a whole were $166 billion in the second quarter, down from $172 billion a year earlier, according data from the Federal Deposit Insurance Corp. in Washington DC.

The top 100 revenue growers were primarily banks with $10 billion in assets or less. Only one bank with more than $100 billion in assets made the top 100: McLean, Virginia-based Capital One Corp., which placed 32nd with revenue growth for the period of 37 percent. The company benefited from the high spreads it gets from its $62-billion-asset credit card portfolio, and also from low-cost deposits in its retail branches.

Large banks with a big retail presence have had a tough time of it, with few generating any meaningful growth. Retail banking is facing a strong headwind, caused in part by recent developments such as higher FDIC premium assessments, new government restrictions on debit card charges for overdrafts and limits on how banks can charge fees for credit card customers.

Some of the revenue-growing banks mentioned in the article are:

1.Bank: Umpqua Holdings Corporation (UMPQ)
Current Dividend Yield: 1.82%
Operating Locations: Based in Portland,Oregon with operations throughout Oregon, northern California, and Washington.

2.Bank: Texas Capital Bancshares (TCBI)
Current Dividend Yield: N/A
Operating Locations: Based in Dallas, Texas with operations in Dallas, Houston, Fort Worth, Austin, and San Antonio.

3.Bank: First Niagara Financial Group Inc. (FNFG)
Current Dividend Yield: 4.58%
Operating Locations: Based in Buffalo,NY with operations in Upstate New York and western Pennsylvania.

4.Bank: Herald National Bank (HNB)
Current Dividend Yield: N/A
Operating Locations: New York City-based with operations in Brooklyn and Melville, New York.

5.Bank: U.S. Bancorp (USB)
Current Dividend Yield: 0.74%
Operating Locations: Based in Minneapolis, MN with 3,013 branches in the mid-west.

6.Bank: M&T Bank Corp. (MTB)
Current Dividend Yield: 3.19%
Operating Locations: Based in Buffalo, New York with operations in New York State, Pennsylvania, Maryland, Delaware, New Jersey, Virginia, West Virginia, and the District of Columbia, as well as a branch in George Town, Cayman Islands.

7.Bank: Beneficial Mutual Bancorp Inc. (BNCL)
Current Dividend Yield: N/A
Operating Locations: Based in Philadelphia, Pennsylvania with operations in greater Philadelphia and South Jersey regions.

Some of these strong banks mentioned above are already buying weaker banks on the cheap in order to expand their footprint.In August, 2010 First Niagara announced the acquisition of NewAlliance Bancshares of New Haven, Connecticut. And in November Buffalo,NY-based M&T Bancorp. announced the acquisition of beleaguered Delaware-based Wilmington Trust Corp.and the purchase of Randallstown, Maryland-based K Bank from the FDIC.

Note: Dividend yields noted above are as of March 11, 2011.

Disclosure: Long USB

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