Raymond James Regional Bank Analyst "Never Been More Bullish": Sees Upside For Selected North East Banks Despite Commercial Loan Losses Peaking In Six Months

• On 8:52 am EDT, Monday October 5, 2009

67 WALL STREET, New York - October 5, 2009 - The Wall Street Transcript has just published its Northeast and Mid-Atlantic Regional Banks Report offering a timely review of the sector to serious investors and industry executives. This 130 page feature contains expert industry commentary through 21 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); MandT 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 130 page report, industry experts discuss the outlook for the sector and for investors.

Anthony Polini, Senior Vice President, Financial Services, joined Raymond James & Associates Equity Research in 2007, and primarily follows banks and thrifts located in the Northeast and Mid-Atlantic states, as well as Puerto Rico. Mr. Polini began following the banking industry in 1985, when he joined Pru-Bache Securities. He has worked at several firms since then, including A.G. Edwards & Sons, Mabon Securities, Midwest Research and Advest, Inc. Throughout the years, he has received numerous professional accolades and has been frequently quoted by the press. He has appeared on CNBC, The Nightly Business Report, Bloomberg, and various TV news and business programs. He earned his B.A. in psychology and philosophy from the University of Pennsylvania and has an MBA in finance from St. John's University.

Christopher Nolan covers mid-cap banks and special-situation companies in the financial services sector as a Vice President of Equity Research at Maxim Group. Previously, Mr. Nolan worked as a Senior Analyst at Oppenheimer & Company, covering community banks. Prior to joining Oppenheimer, he worked as an Associate at UBS, covering P&C insurance underwriters, reinsurers and insurance brokers. He is a member of the top-ranked team by Institutional Investor magazine, covering regional banks and specialty finance companies. He holds the designation of Chartered Financial Analyst (CFA) and an MBA in finance from Columbia University in New York.

TWST: Tony, what stocks do you find attractive?

Mr. Polini: In this marketplace, we still think National Penn, it's been a good stock for us; it's trading at about $6. We have book value at about $9.70. I think it's an $8 or $9 stock in nine to 12 months. Certainly, that's one company that has been at a lower valuation level, but they just did an equity offering because they see opportunities to gain market share and to be more aggressive on the credit quality cleanup. New York Community I think it might be a bit sleepy over the near term, but loan growth is accelerating, the margins are expanding, the P/E is the lowest of the top 40 banks at eight times next year, and I think the dividend is safe. Although the jury is certainly out on that, and that's why you're getting a relative bargain. It's trading at 88% of book with a low P/E and nearly a 9% dividend yield. I think M&T is a best-in-class stock that could approach its 52-week high over the next 12 to 15 months, which could take it from $60 to over $100. We have some lingering issues on credit quality and capital strength, but the second-quarter results were very positive, especially when we look at the revenue side. Also I think we'll get credit quality stabilization by year end. So those three I think offer the best, let's call it, six- to 12-month upside potential in that regional space right now, National Penn, New York Community and M&T.

TWST: Do you have anything on the "sell" list?

Mr. Polini: Like I said before, I've never been more bullish. I've been following the banks since 1985 and in many ways banks are all in the same boat. I think some boats are going to rise a little more over the next three to six months. But we're still looking at the big macro picture. I'm very eager to find out what happened to consumer delinquencies this quarter to see a follow through, if you will, on early signs of positive news on the consumer credit front. The commercial loan losses and NPAs are probably at least six months away from peaking. So we still have a difficult environment. Like I tell people, you can make money walking around in Beverly Hills buying bank stocks and over the next year I think you're going to make a lot of money, but you're not walking in Beverly Hills, you're walking in my old hometown, Flushing.

TWST: Chris, do you have anything rated "buy?"

Mr. Nolan: My only "buy"-rated stock is SVB Financial (SIVB), with a price target $44. It's a bank focusing on the technology inventory capital sector and has very little commercial real estate exposure. The company is basically trading at about 1.5 tangible book. The stock has increased by 40% or so since reporting second-quarter earnings. I tend to think that because the stock is not really tied too much to commercial real estate, has a very strong liquidity position, I think credit quality is stabilizing and earnings are positioned to go to outperform peers. That's my only "buy" rating, but I'm favorably disposed to two "hold"-rated stocks. The first is Signature Bank (SBNY), which is a New York-based bank using a private banker model, targeting small and mid-size companies in the New York metropolitan area. It has been an extremely successful core deposit growth story, and it has limited commercial real estate exposure, which really dates back to 2008. So it doesn't really have too much legacy commercial real estate exposure. The other name I really like is People's United Financial (PBCT), which is also "hold" rated. The company is based in Bridgeport, Conn. It's a second-step conversion. Consequently, it has an overcapitalized balance sheet. The tangible common equity ratio is about 18.5% or so. The company has outstanding credit quality. It's keeping all its excess capital in cash. So it's poised for a large acquisition. Given that it trades at 15 P/E or so, and given it has about $2.5 billion sitting in cash waiting for a deal, we think that it can do potentially a transformative acquisition and make it immediately accretive. It currently also trades at about 1.5 times tangible book. I guess on the sell side, with all due to respect to Tony, my number one "sell" recommendation would be New York Community Bancorp. I have doubts in terms of the sustainability of the dividend, which is basically about 100% of GAAP earnings but approximately 90% of cash earnings. The credit quality is deteriorating, most particularly in terms of rising NPAs and the loan-loss reserve levels are quite low, 43 basis points. What I'm particularly concerned about is it has a heavy exposure to multifamily housing in New York. That's a fixed expense business and many of these landlords in rent-stabilized buildings are not able to raise their rents and are not getting their mandated rent increase. Rent stabilization limits how much you can raise your rent, but because of the weak economy, rising unemployment, many of these landlords have to cut their rents, but their operating expenses are going up. And about 60% of operating expenses for many of these buildings tend to be property taxes and union labor, and those costs continue to rise at a double-digit rate. So consequently, there's a growing default risk for many of these property owners. Then you also have a growing risk regarding refinancing because many banks are asking for 50% loan-to-values to refinance mortgages. Many of these properties are leveraged well beyond that. I tend to think that you're going to get a wave of distressed sales in the multifamily sector, and I think with NYB, given its low reserve ratio, its rising levels of NPAs, I don't see accelerating credit charges.

Regulatory Disclosures for Anthony Polini

For disclosure at The Wall Street Transcript on 9/30/2009.BAC Bank of America Corporation: Raymond James & Associates received non-investment bankingsecurities-related compensation from Bank of America Corporationwithin the past 12 months.NPBC National Penn Bancshares:Raymond James & Associates makes a NASDAQ market in shares of National Penn Bancshares. NYB New York Community Bancorp: Raymond James & Associates acted as a co-manager in the issuance of New York Community Bancorp, Inc. (NYB) fixed rate senior notes due June 22, 2010 on December 17, 2008. Raymond James & Associates received non-investment banking securities-related compensation from New York Community Bancorp within the past 12 months. Raymond James & Associates sole-managed a follow-on offering of New York Community Bancorp shares in May 2008. WFC Wells Fargo & Co.Raymond James & Associates co-managed a follow-on offering of 468.5 million Wells Fargo & Co. shares at $27.00 per share in November 2008 and a follow-on offering of 392.2 million WellsFargo & Co. shares at $22.00 per share in May 2009. Raymond James & Associates received non-securities-related compensation from Wells Fargo & Co. within the past 12 months.

Please see www.twst.com for disclosures for Christopher Nolan

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 130 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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