This week Q1 earnings reporting is in full swing. And many banks continue to lead.
With all eyes on bank health, many of you have asked "Even though my local bank has not failed, do you truly believe there are strong banks out there?" The answer of course is yes. You may remember this list of banks that rejected TARP.
So Monday, while many were busy over-analyzing Bank of America's (BAC) announcement, several smaller banks of note handily beat Wall Street expectations:
1) With a market capitalization of close to $1.7B, BancorpSouth, Inc. (BXS) beat the Street by $0.06 per share. They continued to demonstrate solid profitability with net income of $29.5 million. Aubrey Patterson, Chairman and CEO said, "For the first quarter of 2009, BancorpSouth produced another strong performance in an unusually challenging environment for both the financial services industry and the national economy. This performance was highlighted by solid profitability for the quarter, which contributed to a further improvement in our already strong capital structure. We are encouraged by the steady loan growth we have experienced in a time of increased competition for high quality loans. We also continue to believe that our financial strength and stability, which differentiates us from many industry peers, have contributed to the growth in our loans and deposits."
2) Next Capital City Bank Group, Inc, (CCBG) beat the Street estimate by $0.07 per share turning a profit when the Street expected a loss. The CEO William G Smith reported that, "We grew our loan portfolio by $24 million or 1.2% and maintained our focus on prudently managing the net interest margin, despite historically low interest rates. Our margin at 5.16% was 43 basis points higher than a year ago, and better than the linked fourth quarter. Our execution of the fundamentals of profitable community banking -- basic lending, rational deposit gathering and good expense management -- continues to be both prudent and consistent."
3) And finally, First Defiance Financial Corp. (FDEF) announced a profit of $0.36 per share. Their Chairman William J. Small said, "We're encouraged by the results of our 2009 first quarter, particularly the lower provision for loan losses in this very difficult credit environment. We had very strong mortgage banking activity in the quarter, originating $160 million of residential mortgage loans, which contributed to our improved profitability from the fourth quarter of 2008."
IBM also beat estimates on Monday and more banks will announce earnings throughout the week - perhaps most notable the largely commercial BNY Mellon(BK). When we round up the week, we'll likely note that we still are finding it difficult to substantiate general Q1 earnings bedlam.
Monday, April 20, 2009
More Banks Beat the Street Monday
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Do you see any problems with loan defaults (which was a concern on Monday)? Quid pro quo, I'll give you a good news tidbit. Junk bond sales are on the rise. Bonds are necessary to any recovery. Even more so than stocks.
ReplyDeletehttp://www.cnbc.com/id/30312970
GNE,
ReplyDeleteI have very mild concern. What is consistent in all the earnings so far is the origination of new loans at a very healthy pace. It is that new loan activity that will fuel the banks stability in the future. There is plenty of TARP funding still available if the defaults get way out of hand (which I doubt), but given recent activities there is now going to be more money flowing back into the TARP fund than coming out. (And guess what... the government made money on those bailout deals that have now been paid back!)
Yes I agree bonds are also important. There has always been a raging debate about which instrument is the most necessary. IMHO balance is key.
GNE
I read an article in our local legal paper today that claims the Wells Fargo numbers are "funny" and that they've used the loosening of the mark to market rules and other vague designations in their finacials to puff up the numbers. This author claims the bank's profit numbers won't hold up under strict analysis when the loan losses have to be recognized. This is all very confusing. Is it just the negative media's desire to keep the bad news coming or this something to worry about?
ReplyDeleteAnonymous2,
ReplyDeleteYes there are others that are making the same claim that your paper's author is making. I call it spreading "FUD" (Fear Uncertainty Doubt).
Until that author can explain to you exactly what is lurking on those books, I chose not to fear it. Loosen of the mark to market rule is well understood (perhaps not by that author). Taking reserves for future losses is also well understood. (And many times the majority of those losses need not be recognized... they actually signal a return to conservative booking practice.)
I'd simply ask the article's author... Please describe the "strict analysis that will used for recognizing those losses"... and then "when will those losses actually be recognized?"
The markets got past much of that FUD mongering today.
GNE
GNE,
ReplyDeleteThere are some reports that the Govt. doesn't want the banks to pay back the TARP funds too soon. What's up with that? Does the Govt. want to have control over the banks?
Most of those reports read like "conspiracy theory" to me... what is most likely in my mind is that the gov't wants to make sure that regulators are given enough time to evaluate whether it is in depositor's best interest to have a bank pay back TARP quickly. The terms of the original agreements stipulate that the regulators need to give the thumbs up on the banks capital and asset mix before it will be allowed to pay down its government obligations.
ReplyDeleteIf Prof. Nouriel Roubini was right about the recession and doom, Economist Sidharta Chatterjee was right at predicting the worst of world recession is over and correctly outlined the current rally (March '09). In his article on US FFR Interest rate and Business cycle, he rightly anticipated the moments of the US FFR rate cycle and index movements using his famous Risk Function Curve equation.
ReplyDeleteWhat is Risk function curve equation? well.. how would measure and quantify stock movements? is that ever possible?
ReplyDelete@Harsh,
ReplyDeleteThe CBOE Volatility Index, also known as the "Fear Index," is a measure of the market's expectation of stock market volatility for the next 30-day period. Today the VIX fell by -3.26% and closed below the 32 level for the first time since September 16, 2008. Market volatility and the "fear index" are gradually subsiding and returning closer to normal levels.
GNE
If this is 1975, that's pretty scary. We had several years of high inflation until the Fed jumped in and raised the discount rate to 18% in the early 1980s to squeeze inflation out of the system. We really didn't have a return to low unemployment and stock growth until late 1983. Maybe that's where we are headed with all the government spending and increase in the money supply.
ReplyDelete@Anonymous,
ReplyDeleteCheck your stock market facts for 1975... One of the best bull markets of the century actually began on Oct 3 1974. By the end of 1976 the market was up about 60% from that October low in 74... but the bull run continued until Nov 28 1980. That 74 month bull market's total gain was over 125%.
GNE
GNE,
ReplyDeleteWhile your friend at Califia Beach Pundit agrees with your observations about an improving economy, he also writes that we're in for a lot of inflation and subpar growth down the road as a result of all the govt. spending. Do you agree?
While I sometimes point to others' predictions, I try not to look too far down the road. Scott at CBP is concerned that over-stimulus may lead to inflation. Since the Fed has many, many tools at its disposal to deal with inflation, I am not as concerned. With respect to sub-par growth... that really is anybody's guess. One could just as easily argue (and many do) that the stimulus programs are investing in just the right industries to fuel incredibly healthy growth for at least 3-5 years.
ReplyDeleteGNE