Seeking Alpha
Profile| Send Message|
( followers)  

As the earnings season winds down for the banking industry, there are still some quality companies that report some three weeks after the first banks report. I am focusing today on substantial sized regional banks that have managed to grow their profits in the past year. There are many ways to grow a bank's balance sheet, be it internal, "organic" growth, or growth through acquisition, or some combination of the two. Of course, a third way to grow a bank is to start from a distressed state. We will find elements of all three of these scenarios in today's group of regional banks that have recently reported earnings.

Susquehanna Bancshares, Inc. (NASDAQ:SUSQ)

Susquehanna is a mid sized regional bank with about 240 branches across the mid Atlantic states, and about $15 billion in assets. Susquehanna stock was trading recently at a little over $9 per share. Its 52 week range is from $10.15 to $5.20, and it is trading at a 12 month trailing price to earnings ratio of 22. It has a market capitalization of $1.46 billion, and pays a quarterly dividend of three cents per share, for an annual yield of 1.3%.

In its fourth quarter of 2011, Susquehanna reported earnings of $19.1 million, or $0.12 per share. This was 47% higher than the year ago quarter, when Susquehanna earned $12.9 million, or $0.08 per share. For the full 2011, Susquehanna reported earnings of $54.9 million, or $0.40 per share. This represented a 72% increase over 2010 earnings.

Despite the obvious earnings momentum, Susquehanna is far from a productive money making bank. In full year 2011, its return on assets was a paltry 0.38%, and its efficiency ratio was 0.67. Like many banks, Susquehanna is finding it difficult to achieve loan growth "organically", so has chosen to pursue growth through acquisitions. In mid 2011, it purchased Abington Bank, and those results were included in the earnings reported above. Susquehanna also has agreed to purchase Tower Bancorp, Inc. (NASDAQ:TOBC), with the purchase scheduled to close this quarter. It is expected to be immediately accretive to earnings, and will push Susquehanna's assets up to nearly $18 billion.

Analysts are pegging Susquehanna's earnings at $0.72 per share in 2012, and $0.90 in 2013. If true that would give Susquehanna a two year (2011 to 2013) average PEG ratio of 0.44, suggestive of an undervalued stock. Yet I suggest this issue only to speculative investors, as Susquehanna has no solid history on which to base these rapid earnings projections.

BOK Financial Corporation (NASDAQ:BOKF)

BOK is a holding company with banks across much of the Southwest. It has an aggregate $25.5 billion in assets, making it the country's 40th largest bank by assets. BOK was trading recently at about $54 per share. Its 52 week range is from $59.59 to $43.77, and it is trading at a price to earnings ratio of 12.9. It has a market capitalization of $3.67 billion, and pays a quarterly dividend of $0.33 per share, for an annual yield of 2.40%.

In the 4th quarter of 2011, BOK posted earnings of $67.9 million, or $0.98 per share. This represented a 14% advancement from the same period of 2010. For all of 2011, BOK reported earnings of $289.6 million, or $4.17 per share. This was 16% better than the 2010 totals of $248 million, or $3.61 per share. For all of 2011, BOK had a return on average assets of 1.18%, and an efficiency ratio of 0.64.

BOK's earnings really stand out to me, because they did not rely on one time credits or acquisitions to improve as they did. Loans at year end 2011 grew by $600 million, or 5.5% versus 2010, and non interest income rose some $35 million or 6.6% year to year. That, along with strongly improving credit metrics, accounts for the earnings success in the fourth quarter and full year 2011.

Looking forward, analysts see slowing earnings growth of $4.28 per share in 2012, and $4.32 in 2013. That level of growth gives BOK a sky high PEG, but still, this is a top tier bank selling now at a fair valuation. I recommend it highly to conservative investors.

First Republic Bank (NYSE:FRC)

First Republic is a large, California based, regional combination commercial and trust bank. It has 57 branches, and with about $28 billion in assets, it ranks as the country's 38th largest bank. Its stock was trading recently at a little over $30 per share. Its 52 week range is from $34.75 to $21.88, and it trades at a price to earnings ratio of 11.5. First Republic has a market capitalization of $3.95 billion, and does not pay a dividend.

First Republic has an interesting history. It is only 26 years old, and was bought by Merrill Lynch in 2007. Ownership transferred to Bank of America Corporation (NYSE:BAC) when it acquired Merrill Lynch in 2008. Bank of America in its effort to raise capital sold First Republic into private hands in 2009, and then, it went public again in December, 2010, in a $280 million stock offering.

In the fourth quarter of 2011, First Republic reported earnings of $90.7 million, or $0.68 per share. Taking out one time items, profits from continuing operations were $59.1 million, or $0.44 per share. This adjusted total was up 30% and 26% from the year ago amounts. The net interest margin improved 14 basis points in the quarter on a sequential basis, to 3.55%, and the bank's efficiency ratio was 59.9%. Maybe most importantly, loans outstanding grew from year end 2010 to year end 2011 by $3.5 billion, up about 20%. The largest source of the loan growth was first mortgages on single family homes. For all of 2011, First Republic reported profits of a record $352 million, or $2.65 per share. However, take out one time and accounting credits, and operating earnings were $223 million, or $1.68 per share.

Again, this is a bank that analysts believe has little growth opportunity beyond 2011. I am not as pessimistic on the near term future of First Republic, but still adding limited growth plus the absence of a dividend, and there is absolutely no appeal to buying into First Republic.

Source: After Earnings: 2 Banks To Consider, 1 To Avoid