In Volatile Times, KBW Identifies These 16 Bank Stocks as Safe Havens

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The investment firm Keefe, Bruyette & Woods Inc. is advising investors to stop dumping their shares in Westamerica Bancorporation.

In a research note this week in which it identified 16 bank stocks as "safe havens," KBW called Westamerica, of San Rafael, Calif., one of the "gold-standard banks" on the West Coast, and said that "even the most recent negative economic sentiment should not derail the bank's consistent profitability."

Westamerica's shares have fallen by nearly 20% since July 1, even though the company reported solid second-quarter profits, pays a generous dividend and has what KBW says is "one of the strongest balance sheets" in its coverage universe.

Westamerica's stock was trading at $40.21 midday Tuesday. "Given the recent sell-off," KBW said in its research note, "we consider the current stock price to be an attractive entry point for a quality name."

The banks KBW listed as safe havens are all community and regional banks that have several things in common: they offer attractive dividends, they have the authority to buy back shares, and they have no ties to the government's Troubled Asset Relief Program.

"The stocks that we are highlighting in this note are not necessarily cheap stocks, but we believe these franchises can justify higher valuations given the returns they generate above their cost of equity," KBW analysts wrote.

Some, including Westamerica and United Bankshares Inc., were also singled out for their consistent performance throughout the economic downturn. Westamerica has posted a return on tangible equity of above 20% in 44 of the last 46 quarters, while United, with dual headquarters in West Virginia and Washington, D.C., has had an average ROE of 15.5% over the past four years.

Others, including CVB Financial in Ontario, Calif., and F.N.B. Corp. of Hermitage, Pa., made the cut largely for their growth prospects. CVB operates in a market that was devastated by the real estate crash and, according to KBW, is in an "enviable competitive position" because many of its peers have either failed or scaled back their lending.

Meanwhile, KBW believes that F.N.B. will benefit greatly from drilling at the Marcellus Shale natural gas field. "We believe that Western Pennsylvania will provide F.N.B. with above-average lending and wealth-management opportunities," KBW analysts said in their report.

The 16 banks on KBW's list range in size from the $1.7 billion-asset Bryn Mawr Trust Co. in Pennsylvania to the $41.4 billion-asset New York Community Bancorp Inc. It includes some recent active acquirers, such as First Niagara Financial Group Inc. of Buffalo, Hancock Holding Co. of Gulfport, Miss. and People's United Financial Inc. of Bridgeport, Conn., as well as banking companies that KBW believes are well positioned to make acquisitions, such as Cullen/Frost Bankers Inc. of San Antonio.

KBW predicts that Texas will undergo a wave of consolidation over the next two years and that Cullen/Frost, with its strong base of capital, "has the dry powder" to grow through acquisitions.

The other bank stocks that KBW is recommending are BancFirst Corp. in Oklahoma City; Bank of Hawaii; Chemical Financial Corp. of Midland, Mich.; Renasant Corp. of Tupelo, Miss.; First Financial Bancorp in Cincinnati;  and Trustmark Corp. of Jackson, Miss.

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