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Factoids Yahoo Banks Excite Banks Banking News Bankstocks.com 2006 Updates Dec Nov Oct Sept Aug July Jun6 May April Mar Feb Jan 2005 Updates Dec Nov Oct Sept Aug July Jun May Aprl Mar Feb Jan 2004 Updates Dec Nov Oct Sept Aug July Jun May Aprl Mar Feb Jan 2003 Updates Dec Nov Oct |
Using the Forecaster Model In 2006, geography was destiny - and the metrics were misleading. It was a winning strategy to 'avoid' California and Oregon and 'buy' Texas and Oklahoma. The stocks that the analyst liked did not out-'total return' the stocks the analysts did not like. The low yielders failed to out-return the high yielders. Nor was buying the high P/E stocks or high Price/Book stocks a winning strategy. In a sector where the dividend payout ratio varies from 17% to 77%, it is not a surprise that the dividend discount model fails to be predictive. This sector sells at a fairly consistent P/E ratios despite wide variations in CAGRs. That is not logical. And the CAGRs also fail to be predictive of the stocks with high price to book ratios. That is not logical. I am not giving up hope that this sector can be forecasted. But my readers should be pessimestic about the predictions in the forecaster spreadsheet until it shows more signs of some success. This is the link to the 2006 stats for this sector, showing the projections based on 2006 begining of the year stats - along with the 2006 returns in the 'forecasting' spreadsheet which is the last of five spreadsheet posted - or roughly in the middle of the long page. BOKF EPS in Q4-06 was $0.75 vs. $0.72 in Q4-05 Businesswire 1-30 BOK Financial Corporation reported net income for 2006 of $213.0 million, a 6% increase over 2005. Earnings per diluted share were $3.16 for 2006, up from $3.01 for 2005. Earnings for Q4-06 totaled $50.6 million, up 5% over Q4-05. Earnings per diluted share were $0.75 for Q4-06 compared with $0.72 for Q4-05. ROA in Q4-06 was 1.14% compared to 1.24% in Q3-06. ROE in Q4-06 was 11.83% compared to 12.90% in Q3-06. Book value per share was $25.66 at the end of Q4-06 compared to $24.98 at the end of Q3-06. Net interest revenue totaled $124.3 million for Q4-06, up $7.9 million or 7% over Q4-05. The increase in net interest revenue was the result of earning asset growth. Loan growth increased average earning assets $1.3 billion or 10% over Q4-05. Average deposits grew $1.1 billion or 10% for the same periods. Net interest margin was 3.25% for Q4-06 compared with 3.38% for Q3-06 and 3.34% for Q4-05. Fees and commissions revenue totaled $94.9 million for Q4-06, up $6.1 million or 7% over the same period of 2005. Solid growth in brokerage and trading revenue, transaction card revenue, trust fees and other revenue was partially offset by flat deposit fees and lower mortgage banking revenue. Operating expenses totaled $134 million for Q4-06, up $10.1 million or 8% over 2005. Personnel costs grew $9.4 million or 14% while all other operating expenses were unchanged. HBHC EPS in Q4-06 was $0.65 vs. $0.58 in Q4-05 Businesswire 1-30 Hancock Holding Company announced Q4-06 earnings were $21.8 million, an increase of $2.7 million, or 14 percent, from the fourth quarter of 2005. EPS for Q4-06 were $0.65, an increase of $0.07 from Q4-05. Net income for 2006 totaled $101.8 million, compared to $54.0 million reported for 2005, an increase of $47.8 million. Diluted earnings per share for 2006 were $3.06, compared to $1.64 for 2005, resulting in an increase of $1.42 per share. ROA was 1.44% in Q4-06 compared to 2.36% in Q3-06. ROE in Q4-06 was 15.54% compared to 27.58% in q3-06. Book value per share at the end of Q4-06 was $17.09 compared to $16.64 at the end of Q3-06. Net interest income for Q4-06 decreased to $55.4 million from $59.286 million in Q3-05, but was higher than Q4-05's $54.522 million. HBHC's net interest margin was 4.06% in the fourth quarter, 38 basis points narrower than the same quarter a year ago, and 23 basis points narrower than the previous quarter. Compared to the same quarter a year ago, the primary driver of the $0.9 million increase in net interest income (te) was a $548.7 million, or 11 percent, increase in average earning assets, mainly from average deposit inflows of $461.6 million or 10%. Non-interest income in Q4-06 was $27.460 million compared to $25.627 million in Q3-06. Non-interest expense in Q4-06 was $50.042 million compared to $50.336 million in Q3-06. UMBF EPS in Q4-06 was $0.75 vs. $0.72 in Q4-05 Businesswire 1-30 UMB Financial Corporation announced earnings of $59.8 million or $1.40/share ($1.40 diluted) for 2006. This is an increase of $3.4 million, or 6.1%, compared to 2005 earnings of $56.3 million, or $1.31/share ($1.30 diluted). Earnings for Q4-06 were $15.8 million, or $0.37/share ($0.37 diluted). This was an increase of $0.8 million, or 5.7% compared to Q4-05 earnings of $15.0 million, or $0.35/share ($0.35 diluted). ROA in Q4-06 was 0.79% compared to 0.79% in Q4-05. ROE was 7.09% in Q4-06 compared to 6.79% in Q4-05. Book value per share at the end of Q4-06 was $20.08 compared to $19.39 at the end of Q4-05. Net interest income for Q4-06 increased $8.5 million, or 17.6%, compared to Q4-05 due primarily to higher average earning assets and an increase in margin. Average earning assets increased by $445.1 million, or 6.9%, to $6.9 billion for Q4-06 as compared to Q4-05. Net interest margin was 3.41% for Q4-06 compared to 3.12% for Q4-05. Noninterest income increased $4.1 million, or 6.7%, for Q4-06 compared to Q4-05. Noninterest expense increased $11.8 million, or 13.6%, for Q4-06 compared to Q4-05. CBSH Boosts Stock Buyback Bizjounals 2-05 Commerce said Friday that its board approved the additional purchase of up to 2,844,425 shares of company stock. Coupled with the remaining shares to be purchased under a prior authorization, this approval gives the company the authority to repurchase 4 million shares. BBVA To Acquire Compass Carrick Mollenkamp, WSJ 2-16 Spain's Banco Bilbao Vizcaya Argentaria SA agreed to purchase Compass Bancshares Inc. for about $9.6 billion, the banks said Friday. The deal would give the Spanish bank substantial new heft in Texas, a market it has identified as a place for major expansion because of the flow of money between the U.S. and Mexico. Bankers for Compass have in recent weeks been shopping the bank -- with total assets of $31 billion -- hoping to lure a $70-per share price from potential buyers, one person familiar with the matter said. Such a price scared away a number of would-be buyers already in the region. But BBVA, as Spain's second-largest bank by market capitalization behind Banco Santander Central Hispano SA, is known, has been pushing hard to get into the Spanish-speaking markets in and around Texas. On Friday, the bank said it will offer Compass shareholders $71.82 in cash or 2.8 American Depositary Receipts for BBVA shares, in exchange for each Compass share. That represents about a 16% premium for Compass before a sharp increase yesterday in the stock. The transaction hasn't been completed and could still fall apart. Another bidder also could emerge. BBVA said it is seeking to become one of the top 20 banks by size in the U.S., and increase its footprint in the south of the country, following its acquisitions of several smaller banks between 2004 and 2006. BBVA said it plans to issue 196 million new shares, and sell stakes in several companies, including a stake of over 5% in Spanish utility Iberdrola SA. Shares of BBVA opened trade Friday with losses. In late-morning trading, they were down 76 European cents, or 3.8%, to €19.21. Population growth in Texas and the Sunbelt regions has made banks such as Compass widely expected targets for bigger institutions. That has had a somewhat perverse effect on the market -- pushing values up so high that Compass had difficulty attracting willing buyers. Unlike its Birmingham, Ala., competitors who built a footprint across the Southeast, Compass opted to expand more widely. Besides its 164 branches in Texas, the bank has some 75 in Arizona and 44 in Florida. Compass's stock has risen nearly 36% in the past 12 months. Yesterday, the stock rose sharply on rumors of an acquisition, trading up $4.59, or 7.43%, to $66.37 after briefly hitting a 52-week high of $66.67. The sale will leave Birmingham with just one big bank, Regions Financial Corp., after years of four competing against each other. For BBVA, the transaction would be its second in Texas in nine months. BBVA has a market value of about $90 billion, ranking it on par with the United Kingdom's Barclays PLC and Switzerland's Credit Suisse Group. In Europe, the bank ranks in the top 10. Last June, BBVA agreed to buy Texas Regional Bancshares Inc. in a deal valued at about $2 billion. It also had purchased Laredo National Bancshares Inc. and State National Bancshares. All those moves are aimed at making BBVA a major provider of remittances between the U.S. and Mexico. The acquisition of Compass would give BBVA more firepower to take on the two biggest banks in Texas, Bank of America Corp. and J.P. Morgan Chase & Co. BBVA itself has been the subject of far-reaching takeover speculation with buyers ranging from Citigroup Inc. to Bank of America. But in a recent note to investors, Dresdner Kleinwort's bank analysts in London suggested that Spain's top bank, Banco Santander Central Hispano SA, would step rather than allow a U.S. giant into Spain. BBVA's stock could fall on the news that it's buying Compass. BBVA's increasing exposure to the U.S. has raised concerns because of the potential slowdown in the U.S. economy and depreciation of the dollar. In its December report, Dresdner said that 43% of BBVA's earnings are exposed to the U.S. currency. Dresdner said it defined dollar exposure as the dollar and currencies like the peso that would track the dollar. Compass Chairman and Chief Executive D. Paul Jones has no clear successor, a likely factor in the bank's decision to sell. Compass reached its scale by making 53 out-of-state acquisitions in 20 years. But it lost momentum in July 2005 when it failed in its bid for Houston's Amegy Bancorp Inc., whose 75 branches in Houston and Dallas had made it a hot property. Salt Lake City-based Zions Bancorp bought Amegy for about $1.7 billion and Compass settled for the smaller TexasBanc Holding Co., based in Fort Worth. The TexasBanc acquisition didn't meet growth expectations, though, as key employees left in the transition. Compass, like other regional banks, also has been hurt by an interest-rate squeeze that is shrinking the difference between the higher rates banks charge for loans and the lower rates they pay on deposits. Compass relied on net interest income for 61% of its revenue last quarter, compared to about 47% for larger, more-diversified competitor Bank of America. Christopher Marinac, managing principal and research director at FIG Partners LLC in Atlanta, said he expects the interest-rate headwinds for banks to get even more difficult this year. "This deal is a bit of an indictment of the operating environment for banks in general, particularly midsize banks who don't have the revenue diversity of the big players," said Mr. Marinac, who predicts more acquisitions. Bank Investing 101 John A. Howard, CFA, Motley Fool 2-23 More than 1,000 banks trade publicly in the United States, and ferreting out which ones are good investments can be a daunting process. But it's worthwhile, given some of the attractive features of banks as investments: Their regulation adds an element of safety, earnings tend to be relatively stable, they often pay attractive dividends, and people who run them are often pillars of the community. Whether it's a community bank or a money-center bank, the important thing is to keep an eye on a few basic measures: asset quality, earnings growth, reserve coverage, financial strength, market attractiveness, and relative valuation. With those things in mind, let's go over a few tips for the novice bank investor. Asset quality: Who's that banker with the OREO? When a bank fails, it is usually a result of poor asset quality, so paying attention to assets is pretty important. The buzzwords here are nonperforming assets (NPAs), which are basically loans that are no longer earning interest or are more than 90 days past due. Most analysts also include other real estate owned (OREO for short), which is essentially foreclosed real estate. The absolute level of NPAs is less important than how large NPAs are as a percentage of equity or assets. The median ratio of NPAs to assets for all publicly traded banks in the nation is currently just below 0.3%. A bank with a good NPAs-to-assets ratio is Alabama National Bancorporation (ALAB), which stood at 0.15% on Dec. 31. If a bank has a figure that's much higher than average, be careful. Earnings growth: your "get out of jail free" card About 20 years ago, the head of Equity Research told me, "If you overpay a little in terms of the P/E ratio, a good growth company's earnings will eventually bail you out." He was right. The key is to find banks with a solid outlook for earnings and to watch out for nonrecurring items (gains and losses on securities, for example) that might temporarily boost earnings. In addition to the absolute growth rate in earnings, you should consider a few crucial profitability measures. One of the better ones is core return on average equity (ROE, a metric that essentially eliminates nonrecurring items), which is about 10.8% for the typical U.S. bank. Bank of Hawaii (BOH) had a core ROE of nearly 26% in 2006. Reserves: covering your assets A bank's reserves are its financial cushion to absorb losses from bad loans. The "reserve" is actually a balance-sheet account called "allowance for loan losses." Think of this as a big pail of water whose liquid level should never get too low. When a bank charges off a loan, water drips -- and sometimes gushes -- out the bottom of the bucket. Management replenishes the water through an income-statement expense called "provision for loan losses." So when charge-offs get high, or the reserve level gets too low, the outlook for earnings can quickly deteriorate because of the prospect of much higher provisions for loan losses. The allowance for loan losses is often measured as a percentage of loans, though sometimes it is compared to the level of NPAs as well. The median ratio of the allowance for loan losses to loans is about 1.18% for all U.S. public banks. The higher the ratio, the more the protection. Horizon Financial (HRZB) had a reserves-to-loans ratio of about 1.5% at the end of 2006. Financial strength: avoiding capital punishment If the allowance for loan losses is the cushion against bad loans, a strong capital position is the cushion against everything else. Think of a bank's equity in the same way you would think of the equity in your house. Here's the rub, though. Too much equity can pull down some key performance yardsticks, such as return on equity. So a bank should have a strong capital position, but not too much of one. The median ratio of equity to assets for U.S. banks is currently about 9.5%, while the median ratio for tangible equity to tangible assets is 8.6%. The second ratio is similar to the first, but it excludes intangible assets such as goodwill, which is created in many acquisitions. Watch out if either ratio falls much below 6%, especially if the bank's asset quality is not solid. IBERIABANK (IBKC) has its capital at about the right level, with a tangible equity-to-assets ratio of 7.1%. Market attractiveness: location, location, location A rising tide carries all banks. One of the first questions I would ask you if you told me about a great bank investment would be, "Where is it?" It's a good question, because if a market is growing rapidly, just about everything else is likely to be better for the bank, from loan demand to asset quality. Market location has become all the more important given the amount of consolidation taking place in the industry. Banks in mature markets, for example, can often improve the value of their franchise by acquiring banks in high-growth markets. Erie, Pa., is an example of a mature market; Atlanta is a representative high-growth market. In analyzing market attractiveness, I tend to focus on forecasts of population growth and median household income. For the nation, population growth is expected to be 7% from 2006 to 2011, while household income is currently estimated at roughly $51,500. In terms of markets, how does Beverly Hills, Calif., sound? That's where City National (CYN) is based. Relative valuation: champagne tastes on a beer budget Most analysts tend to focus on two valuation parameters: price-to-forecast earnings, and price-to-book value. If you can't find price-to-forecast earnings, compare price-to-trailing-12-month earnings. With actual earnings, though, make sure there isn't a significant amount of nonrecurring income or expense -- such as gains and losses on the sale of securities -- or you may get a skewed number. You should also watch out for gains on the sale of mortgages, which are recurring but can vary drastically. Price-to-book value and price-to-tangible book value (remember, tangible equity excludes intangibles such as goodwill) are often used as well. The median multiple of trailing-12-month earnings, excluding nonrecurring items such as security gains, is currently about 16.8 for the nation's banks. The median price-to-book value is 1.68, and the median price-to-tangible book value is 1.83. I also like to compare dividend yields, especially now that we have preferential tax rates on dividend income. SCBT Financial (SCBT) trades at a below-average multiple of about 16.7 times trailing-12-month earnings. Conclusion Each of the banks I've mentioned above compares favorably on most, if not all, of the measures I've discussed. And many -- including Conway, S.C.-based CNB, which also meets most of the criteria -- aren't widely known, unlike the behemoths like Citigroup and Bank of America. If you are looking at investing in a different bank, you have a pretty good chance of making a sound investment if it passes most of these screens. Ratings & Dividend Changes On 2-13 Punk, Ziegel & Co Initiated coverage of UMPQ at Market Perform. On 2-22 JP Morgan Initiated coverage of ZION at Overweight. On 2-21 Compass [CBSS]announced a quarterly dividend of $0.43 per share, a 10% increase, payable on April 2nd to shareholders of 3-15-07. On 2-21 FNB announced a dividend 23.5 cents per share, payable on March 15th to shareholders of 3-04-07. On 1-04 BMO Capital Markets Downgraded BOKF from Outperform to Market Perform. On 1-23 Sterne Agee Downgraded CBSS from Buy to Hold. On 1-25 Cohen Bros Upgraded PRSP from Hold to Buy. On 1-26 Banc of America Sec Upgraded ZION from Neutral to Buy. Home Page Factoids Previous Update |