Looking For Value In Eastern Banks: Hidden Gems In Specific Regions

• On 3:38 pm EDT, Thursday October 15, 2009

67 WALL STREET, New York - October 15, 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); Citibank ©; 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); Citigroup ©; 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, a banking industry expert discusses the outlook for the 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.

Mr. Darst: Better. My companies - the Mid-Atlantic banks - overall have performed better from an asset-quality perspective, and it's been the same with the Northeast banks. A lot of the community banks in those markets have less construction and development exposure. Therefore, they've had lower losses related to construction and development, and also the housing markets in the Mid-Atlantic and New England areas have fared better.

TWST: Has the financial crisis altered the business models for these banks?

Mr. Darst: It hasn't altered their business model, but what it has altered is their risk-taking or their risk profile. A lot of them do have problems related to construction and development as they continue to reduce exposure specific to the C&D portfolio. But then a lot of the banks had exposure to pooled trust-preferred securities, which are CDOs in their securities portfolio. And as the financial crisis has heavily disrupted the liquidity in those investments - that happened first - and then the underlying credit quality of the bonds deteriorated, a lot of the banks' capital positions have been negatively impacted. So this group has not been immune to needing to raise more capital. Many of the companies thus far have been very active in raising capital. And a few within their group have had larger securities portfolio issues. One that did not survive is Provident Bank (PBKS), which was a Baltimore-based bank that sold to M&T (MTB) in the fourth quarter 2008. They basically sold because they didn't have enough capital to handle the securities portfolio problems. They also sold prior to their asset quality beginning to deteriorate, which it would have done this year in the first and second quarters. It's similar to what we saw with some of its peers with exposure in Maryland.

TWST: Do you foresee some of these problems continuing? Will more landmines go off?

Mr. Darst: The trend that we've seen with a number of the banks down in southeastern Pennsylvania, like Fulton, Susquehanna and National Penn, has had to do with the problem C&D loans. Their asset-quality problems began to deteriorate later in the cycle than it did for banks in other parts of the country and for the large banks, meaning it really kind of began to get worse for them in 2009 rather than 2008. They moved their substandard and weaker credits into non-performing in the second quarter and the 30- to 89-day delinquency category did not continue to increase. So what we think is going to happen in the third or fourth quarter of this year is that these banks are going to see problem credits begin to peak and then provisioning will peak for them, and then their charge-offs will pick up in 2010 - the NPAs and the provisioning declines in 2010. Once past the peak, we think credit costs will remain elevated and have a material impact on their earnings power because we expect C&I and commercial real estate to begin to have problems that bubble up throughout 2010.

Note: Opinions and recommendations are as of 08/13/09.

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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