Eastern Banks Retain Greater Value Than Other Regions: An Industry Expert Picks Out The Winners

• On 3:42 pm EDT, Wednesday October 14, 2009

67 WALL STREET, New York - October 14, 2009 - The Wall Street Transcript has just published its Northeast & Mid-Atlantic Regional Banks Report offering a timely review of the sector to serious investors and industry executives. This 121 page feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Residential Mortgage Situation -- Regional Banks Mergers and Acquisitions Timing Strategy -- Commercial Mortgage Portfolio Decay -- Timing Of Commercial Mortgage Portfolio Bad Debt Write Offs-- FDIC Hit List For Bank Closings -- Mutual Holding Company Structure -- Interest Rate Scenarios -- Banking Pricing Power -- Expensive Bank Valuations -- Tangible Book As Guide For Bank Stock Pricing -- Distressed Sales Of Community and Regional Banks -- TARP Program -- Attitude Of Institutional Investors Towards Resurgence in Community Banking -- Unique Business Models -- Regional Bank Boards Looking For Exit

Companies include: BB and T (BBT); Colonial (CNB); First Niagara (FNFG); PNC (PNC); National City (NCC-PA); Harleysville National (HNBC); Citizens First Bancorp (CTZN); Regions Financial (RF); Bank of America (BAC); SunTrust Banks (STI); Pinnacle Financial (PNFP); Northwest Bancorp Inc. (NWSB); Beneficial (BNCL); Investor Savings Bancorp (ISBC); Territorial Bancorp (TBNK); FNB Bancorp (FNBG.OB); National Penn (NPBC); Trustco Bank (TRST); KeyBank (KEY); M and T Bank (MTB); New York Community Bancorp (NYB); Bank of New York Mellon (BK); Wells Fargo and Company (WFC); JPMorgan Chase and Co. (JPM); Wachovia (WB); Harleysville Savings Bank (HARL); SVB Financial (SIVB); Signature Bank (SBNY); Provident Bank (PBKS); Valley National Bank (VLY); Community Bank System (CBU); NBT Bankcorp (NBTB); Fulton (FULT); Allied Irish (AIB); Bank of Hawaii (BOH); First Horizon Bank (FHN); Comerica (CMA); Synovus (SNV); Zions (ZION); South Financial Group (TSFG); Bancorp (TBBK); Legg Mason (LM); IBERIABANK Corp. (IBKC); Wilmington Trust (WL); S and T Bancorp (STBA); PHH (PHH); Goldman Sachs (GS); U.S. Bancorp (USB); Fifth Third Bancorp (FITB); KeyCorp (KEY); Lehman Brothers; Colonial; Washington Mutual; TD Banknorth (TD), Lakeland (LBAI), Westfield Financial, Inc. (WFD), United Financial Bancorp, Inc. (UBNK), Chicopee Bancorp, Inc. (CBNK)

In the following brief excerpt from just one of the 21 interviews in the 121 page report, small and mid cap banking expert David Darst discusses the outlook for the banking sector and for investors.

David W. Darst, CFA, is a Senior Research Analyst with FTN Equity Capital Markets Corp. in Nashville, Tenn., where he covers small- and mid-cap banks. He joined the firm in 2004 after working as a portfolio manager for Trusco Capital Management, a subsidiary of SunTrust Banks.

TWST: Do you foresee M&A activity hitting this sector, or is everybody too weak for that?

Mr. Darst: It's going to be different in the Mid-Atlantic and Northeast because you're not going to see the number of failures like you're seeing in the Southeast or the Southwest, or the West Coast or even in Illinois, where we have seen a lot more failures. And that's due to their not having as much C&D exposure. Also there wasn't much of an increase in real estate values. So what's going to happen is that there are going to be companies that kind of run out of gas. Their management team won't be prepared for this type of operating environment and they need additional capital. These will be banks that have good market share but lack operating strengths and have some lingering credit issues. There may be banks that just decide to drop out and would rather trade their currency for a stronger currency by partnering with a bank that they think has more upside and more opportunity to grow over the next three to five years. And those are the transactions that I think you will see in the Mid-Atlantic and the Northeast. There are a number of buyers in the Mid-Atlantic and Northeast that would be willing to buy some of these banks. What makes it hard today, compared to several years ago, is that it used to be easier to spot the M&A candidate relative to the valuation that they were trading at. In this environment, it is unlikely a buyer is willing to pay a premium. So it could be that a stock is trading for tangible book and that might be what a buyer pays for. You should not expect to see premiums in the current environment relative to what you would have seen a number of years ago.

TWST: Am I correct in assuming that investors are still on the sidelines when it comes to regional banks?

Mr. Darst: I think you've got more people in this area and they are watching the space, paying more attention to it. But some are still on the sidelines. We have seen a number of institutional investors increase exposure to the sector recently. Others are waiting for an inflection point and improved fundamentals before they are ready to invest in this space.

TWST: Do you have an opinion as to when that inflection point will be?

Mr. Darst: I think given some of the recent economic news - that, along with a couple more months of positive economic data points, which show that the recession could be easing off and that the economy is stabilizing, or that negative growth is slowing - will bring us closer to a positive inflection point. Sometime over the next three or six months, people are going to be more comfortable investing in this space. What that doesn't say, what the catch could be is that we don't know how fast the pace of recovery is going to be. And from that perspective, it could make 2010-2011 still a very difficult operating environment for banks. If there is not much of a recovery because unemployment remains high and consumers remain strained, then businesses will be strained in other parts of the economy. Small- and mid-cap banks have incurred mostly residential C&D losses thus far.

TWST: Are there any other stocks worth mentioning, that you think could do well in this environment?

Mr. Darst: There is one small bank, another one that we have buy-rated, Bryn Mawr (BMTC), it's in Philadelphia. They have very favorable demographics with a relatively low-risk balance sheet. They've had very few asset-quality problems, and they have a large wealth management business relative to the size of their bank. As the economy improves and the equity values improve with the stock market, they should see their wealth management business improve. That provides another earnings catalyst for Bryn Mawr. Because of that, we upgraded the stock to a buy in August.

The Wall Street Transcript is a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs and research analysts. This 121 page special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online .

The Wall Street Transcript does not endorse the views of any interviewees nor does it make stock recommendations.

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