Banknorth Group Inc.'s third-quarter earnings missed Wall Street estimates because of slower demand for commercial loans, but executives said it is hiring more loan officers to increase market share.
Earnings rose 8%, to $97.8 million, Banknorth said Monday.
Executives at the $29 billion-asset Portland, Maine, company have done their best to make hay from Bank of America Corp.'s April 1 acquisition of FleetBoston Financial Corp. In January Bank-north announced a major marketing initiative to siphon off Fleet customers.
On a conference call Monday, William J. Ryan, Banknorth's chairman, president, and chief executive officer, told investors that fewer commercial customers made use of their lines of credit during the quarter.
Earnings per share fall a penny short of the average analyst estimate of 59 cents, according to Thomson First Call, Mr. Ryan said, though some analysts said Banknorth missed its target by 2 cents a share.
Mr. Ryan said the line utilization rate fell 2 percentage points from the second quarter, to 41%, and the loan pipeline fell to $900 million in the quarter, though it has since risen again to normal levels.
Commercial borrowers "were a little more pessimistic" during the quarter, but "we don't think that's a trend," he said. "It's just one quarter."
During the conference call, Banknorth's chief financial officer, Stephen Boyle, said it normally has about $1.1 billion to $1.2 billion in the pipeline.
Mr. Ryan said margins did not grow as much as Banknorth had anticipated. The net interest margin widened just 2 basis points from the second quarter and 5 basis points from a year earlier, to 3.68%, because the yield curve flattened and the securities portfolio shrank.
Banknorth also announced that it is restructuring its balance sheet this quarter. Last week it sold about $1.2 billion of securities and prepaid the same amount of borrowings. It will take a $52.5 million after-tax charge in the fourth quarter to cover the cost of the restructuring.
Banknorth plans to hire commercial loan officers to lure former Fleet customers who might not be happy doing business with Bank of America, Mr. Ryan said. Banknorth is also targeting former Fleet retail customers and will continue its marketing initiative into next year, after B of A converts Fleet's retail business in its region.
B of A is planning to discontinue passbook savings accounts, a popular item among senior citizens, and Banknorth, which continues to offer such accounts, will try to win those customers over, Mr. Ryan said.
Banknorth added 78,000 accounts in the third quarter, he said. (A B of A spokeswoman said the Charlotte company added a net total of 87,000 checking accounts in former Fleet markets in the quarter.)
Deposits at Banknorth increased 9% from a year earlier, to $19.4 billion, but were flat from the second quarter, when recent acquisitions affected the results.
Banknorth executives say that so far customers have reacted positively to its deal to sell a 51% stake to Toronto-Dominion Bank. The transaction has raised hackles among some shareholders, who say Banknorth could have gotten a better deal elsewhere.
Mr. Ryan also reiterated that the deal would not immediately change his company's acquisition activities. Banknorth would probably not announce an acquisition deal before the TD transaction closes, but then it would continue to buy small-ticket community banks and slowly make its way toward the New York metropolitan market, where it would "hit a bigger bank," he said.
The third-quarter earnings included $102.1 million of merger and consolidation costs related to recent acquisitions.
Some analysts were puzzled about how earnings per share missed Wall Street estimates.
Anthony R. Davis of BankAtlantic Bancorp's Ryan Beck & Co. Inc. said he expected less provisioning. Banknorth added $10.7 million to its loan-loss reserve in the third quarter, $1 million more than Mr. Davis expected. The provision rose 1.9% from a year earlier and from the second quarter.
James M. Ackor of Royal Bank of Canada's RBC Capital Markets said the results were solid, but that he had expected more balance-sheet growth to support earnings. Instead, the cooling mortgage boom and the maturing of securities decreased earning assets, he said.
Others said Banknorth's high marketing expenditures ($20.1 million in the third quarter) may have contributed to the shortfall.
Investors did not react much to the earnings report. Banknorth's shares rose just 0.5% Monday.
