Bank shares, as measured by the S&P 500 Regional Banks Index, have soared 142 per cent since the stock-market low in early March, leaving companies with skinny dividends. Following an earlier look at , published in November, this expanded list features more conservative measures, excluding companies whose dividend payouts exceeded their 2009 net income.
The group was pared further by leaving out current participants in the Troubled Asset Relief Program, or TARP. Thinly traded names were also avoided, as were those with a Texas ratio of more than 20 per cent. (The Texas ratio is non-performing loans/core capital and loan-loss reserves.)
OceanFirst Financial
OceanFirst Financial , based in Toms River, N.J., is yielding about 4.8 per cent after the company cut its quarterly dividend to 12 cents from 20 cents.
It completely exited TARP on Dec. 30 after paying $38.5-million to redeem preferred shares and pay accrued dividends. The company raised $58-million through a common stock offering in November.
OceanFirst has maintained decent loan quality through the crisis, with a nonperforming-asset ratio of 1.55 per cent as of Dec. 31. More importantly, loan losses have been low, as 2009 net charge-offs totaled just $2.6 million, or 0.16 per cent of total loans as of Dec. 31. Loan-loss reserves covered 0.89 per cent of total loans as of Dec. 31.
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With the capital increase and TARP repayment behind it, OceanFirst was strongly capitalized, with a ratio of total equity to total assets of 9.23 per cent as of Dec. 31, up from 6.45 per centat the end of 2008. The company looks like an excellent opportunity for investors willing to commit for a few years to double their money.
Renasant Corp.
Renasant Corp. , based in Tupelo, Miss., had assets of $3.6-billion as of Dec. 31. Based on a quarterly dividend of 17 cents, the shares yield 4.73 per cent.
While its Dec. 31 nonperforming-asset ratio of 2.98 per cent was the highest on the list, Renasant's Texas ratio was a moderate 15.15 per cent, because more than half of the nonperforming assets were repossessed real estate.
Looking deeper at asset quality, the ratio of net charge-offs to total loans for 2009 was 0.91 per cent, with the pace peaking at 1.12 per cent in the third quarter and slowing to 0.83 per cent in the fourth quarter. Loan-loss reserves covered 1.67 per cent of total loans as of Dec. 31.
Fourth-quarter net income fell to $4-million, or 19 cents a share, from $4.3-million, or 20 cents, in the third quarter but vastly improving from the fourth quarter of 2009, when the company reported a slight profit. Renasant took a "kitchen sink" approach in covering and preparing for future charge-offs by setting aside a $15-million provision for loan-loss reserves.
For 2009, net income was $18.5-million, or 87 cents a share, down from $24.1-million, or $1.14, in 2008. The company's return on average assets for 2009 was the weakest on the list, at 0.50 per cent.
But there are silver linings. The shares are selling for just 0.7 times book value. Since the company doesn't face pressure to raise capital, has remained profitable and meets our other criteria -- including earning enough to comfortably support its attractive dividend -- Renasant looks like a great way to get paid while you wait for the shares to rise.
Hudson City Bancorp
Shares of Hudson City Bancorp , based in Paramus, N.J., pays a 15-cent quarterly dividend with a yield of 4.65 per cent .
The company has prospered through the credit crisis, with its "nothing fancy" approach to mortgage lending. Earnings last year were flat, and there were minimal loan losses.
The company reported a strong fourth quarter. It earned $137-million, or 28 cents a share, up from $135-million, or 27 cents, in the third quarter and $124-million, or 25 cents, a year earlier.
Hudson City's net interest margin widened to 2.3 per cent in the fourth quarter, but there's still room for improvement, considering the aggregate margin for the thrift industry in the third quarter was 3.21 per cent , according to SNL.
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The shares have been flat since TheStreet.com featured Hudson City in our series on banks primed for growth and are selling for 1.2 times book value and 12 times 2009 earnings of $1.07 a share.
Considering that the shares were going for 16 times earnings at the end of 2008 and 24 times earnings at the end of 2007, an investment in Hudson City could easily double over the next two years, while you get paid handsomely to wait.