M And T Bank (MTB) A Top Banking Stock Pick For Starmine Ranked Senior Analyst; An Exclusive Interview With Ms. Collyn Gilbert; Stifel, Nicolaus And Co., Inc.
April 12, 2012 - The Wall Street Transcript has just published S&Ls, Investment Banks and Asset Management Report offering a timely review of the sector. This Special Report contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. Please find an excerpt below.
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Collyn Gilbert, Managing Director, joined the Stifel, Nicolaus & Co., Inc., research team in March 2007 in connection with Stifel's acquisition of Ryan Beck & Co., Inc. She has been following the small- and mid-cap bank and thrift sector on the buy and sell side for 17 years. Ms. Gilbert was awarded number one stock picker for thrifts and mortgage finance companies by StarMine in 2010, 2009 and 2006. She also was awarded number two earnings estimator for thrifts and mortgage finance companies in 2008 by StarMine. Ms. Gilbert also has been named to Zacks All Star Analyst lists. Before joining Ryan, Beck & Co. in April, 2002, she was a Senior Equity Analyst with Ferris, Baker Watts in Baltimore, where she covered banks and thrifts in the Mid-Atlantic region. t
TWST: You mentioned the trend of smaller banks picking up customers from the larger banks. Which of the banks in your group seem to be benefiting the most from that trend?
Ms. Gilbert: On the multifamily side, I think, you're seeing New York Community (NYB) pick away at some multifamily loans and commercial real estate loans that are on the larger side. Some of these loans are coming out of the conduit market, so not directly from a large bank, but from that large bank source. I think you're also seeing People's United (PBCT)and Valley National (VLY) pick away at that upper-middle-market commercial borrower. They are seeing some success from taking share from some of the large banks. Another bank that's been very aggressive in growing and taking teams of lenders and building their lending group is Provident New York (PBNY). So I would say the share game is being played across the board. Any bank that's getting loan growth is getting it through taking share, because line usages have not been increasing. That's one consistent message we're hearing among our banks is that it's not that their current borrowers are borrowing more, it's just that they're bringing in new customers. So any bank that's seeing any kind of loan growth is generally doing it from bringing in new customers.
TWST: What are the most significant risks you're monitoring for your group that investors should keep an eye on this year?
Ms. Gilbert: That's the interesting thing when you ask about risks this year. I don't see many, which is why I think some investors should start thinking about this space more, because on a risk-adjusted return basis, like I said, if we're seeing growth in tangible book of 8% to 10% in some of these banks, and you overlay that with a 4% to 5% dividend yield, you're getting a 12% to 15% total return on a fairly derisked balance sheet. So in the near term, I don't see a lot of risk. Longer term, it's certainly on the interest rate side. I think one of the things that I'm wrestling with, and just challenged by, is the fact that all the - I mean any loan growth that these banks are putting on right now tends to be long-duration assets. It's residential mortgages. It's commercial real estate. I mean this is stuff that's in excess of five-, 10-, 30-year paper that's being put on at historically low rates. So my definite concern for the industry is the implication about what this low rate environment does and the interest rate risk imbedded in certain of these banks' balance sheets. But I think if you're sitting here with a bank, where you are primarily a fixed-rate lender or recently has been adding more longer-term fixed-rate assets, and you don't have a lot of capital or liquidity behind you, that's going to be a big challenge, I think, to the business model. That's probably where I think the risks lie, to the bank's business, and then, ultimately, to investors.
TWST: Would you single out three stocks you see as best bets and tell us what sets each of them apart?
Ms. Gilbert: So keeping in mind my comment about the kind of low returns, I mean we're not looking at 25% upside to some of these names. It's kind of like 10%, 12% upsides. But the names that we like - again, they kind of fit that model of growing tangible book and paying a decent dividend - would be M&T Bank (MTB), Dime Community (DCOM), Fulton Financial (FULT). Those three screen the best. And then we also like Oritani (ORIT) and People's United. The last two - Oritani, it's a little bit more of an interesting company. It's a recently converted thrift with quite a bit of excess capital. They're a niche multifamily/commercial real estate lender in New Jersey. They're growing nicely, they're very profitable. They've got capital that they can put to work, either through increased dividends, buying back their stock, and they're building a franchise. I think that's going to be desirable into what I think will be a consolidating market - all of this for a reasonable valuation in its shares. And then, People's United, I think the driver behind that is when we look at the banking landscape, there may be some stocks that we could buy, where I think - maybe are more attractive.
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