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Tickers in this Article: BXS, CNB, CRBC, FCNCA, PBNY
While most of the market has been obsessed with the large diversified banks during the current ongoing earning season, many small community banks have also released results for the second quarter. Investors should pay attention to these reports to get important clues about the economy and credit deterioration on both the consumer and commercial side of lending. Results have varied widely by region and lender.

Three banks that have reported widely different results are BancorpSouth (NYSE:BXS), Colonial BancGroup (NYSE:CNB) and Citizens Republic Bancorp (Nasdaq:CRBC). Let's have a look at each one in more detail to see if there are signals we can expand to the entire industry.

BancorpSouth Thriving in the Harsh Climate
BancorpSouth is a small bank headquartered in Mississippi, and it has done extraordinarily well in the current downturn. It reported earnings per diluted share last week of 49 cents, which represented growth of 14% year over year. Loan growth was a strong 5.7%, and the bank even raised its dividend.

During the conference call, Bancorp South stated that even in its construction and acquisition and development portfolio, which has been the source of many problems for banks, non-performing loans were only 0.88% of total loans outstanding.

Management did acknowledge weakness in the lending environment, and an increase in non performing loans and leases to $46.0 million, or 0.49% of total loans and leases. Management said the bank is not immune to the difficulties the banking industry has recently seen, as reflected by the slight deterioration in its assessment and measure of credit quality. (To learn how to quickly evaluate a bank's complex earnings announcement, read Analyzing A Bank's Financial Statements.)

Colonial BancGroup Delivers Nasty Surprise
Not all banks in the South have managed so well. Colonial BancGroup reported earnings the day before BancorpSouth, and surprised the market with a loss of 5 cents per share compared to the consensus expectations of a 1 cent gain. The bank had to raise $333 million in capital during the quarter, charged off $73 million in loans, and then increased foreclosed assets by $94 million, which brought total non-performing assets to 2.62% of loans and other real estate. The bulk of the non-performing assets were concentrated in Florida, an area that Colonial BancGroup, like many other banks, had focused on during the previous few years to increase growth.

There are some encouraging signs, however. Colonial BancGroup's capital ratios did improve, and management sounded an optimistic note during its conference call, when CEO Bobby Lowder said that the bank is "showing a substantial slow down in migration of loans from performing to delinquent status as 90 days passed due and still accruing fell 56% from the first quarter, and the 30 days to 89 days past dues fell 40% from the first quarter." (Find out more about a company's balance sheet Evaluating A Company's Capital Structure.)

Long Naughty List from Citizens Republic
Citizens Republic Bancorp is another regional bank that has struggled. The bank, which is located in the Midwest, reported a loss of $2.53 per share compared to analyst estimates of a loss of 38 cents per share. The bank issued $79.6 million of common stock and $120.4 million of contingent convertible perpetual non-cumulative preferred stock in order to keep its capital ratios from deteriorating. The provision for loan losses during the quarter was $74.5 million, and net charge-offs totaled $69.3 million.

While total non-performing assets of $285.9 million, declined almost $41 million from the previous quarter, Citizens Republic Bancorp has $190.2 million in loans that are 30-89 days past due, and $991.6 million of loans on a "watchlist". This watchlist represents 17.1% of all loans. The bank's CFO and executive vice president, Charles Christy, put part of the blame on the economy. He said that during the quarter it had become evident the Midwest economy and specifically Michigan presented a risk of a protracted period recession.

Future Signs
Investors should watch other small and regionally focused banks as earnings season continues. First Citizens BancShares (Nasdaq:FCNCA) and Provident New York Bancorp (Nasdaq:PBNY) both release earnings next week on July 28. These and other releases will give clues to the continued credit and housing trends in different regions of the United States.

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