AmSouth Bancorp rose above some of its fellow Southeast banking companies on Tuesday with an earnings report that beat Wall Street expectations and included signs of a rebound in commercial loan growth.
Higher revenues from deposit account service charges and card fees helped the Birmingham, Ala., company boost profits 10% from the fourth quarter of 2001, to $155 million. Earnings per share rose 6 cents, to 44 cents, which was a penny better than analysts expected.
But the picture was not un-blemished. AmSouth's EPS gain was helped by speeded-up share buybacks during the three months; its lending profits fell because of low interest rates; and it reported a slight decline in credit quality.
Analysts were loath to call the quarter a resounding success but said they were heartened by indications that commercial loan demand might be improving at AmSouth, whose loan portfolio has been shrinking for two years.
The $40 billion-asset company was one of the top performers among bank stocks on Tuesday, gaining as much as 4.3% at midday before closing at $20.98, up 4.4%.
Its loan portfolio averaged $26.8 billion, up 7.5% from a year earlier - and a healthy 3.6% from the third quarter. The portfolio grew in almost all categories.
This stood in stark contrast to BB&T Corp., which announced its fourth-quarter results Monday.
Executives at the Winston-Salem, N.C., company cited commercial loan growth as "a challenge for us" and warned that earnings growth in 2003 depends on an economic recovery and interest rate hikes in the second half.
AmSouth chairman C. Dowd Ritter said Tuesday that its loan growth reflected both stepped-up sales as well as an end to AmSouth's deliberate shrinking of its syndicated loan portfolio. Other loan categories have grown in recent quarters, but that growth has been overshadowed by the decline in syndicated loans to $564 million at yearend, from a high of $1.4 billion two years ago.
"We're almost at the end of getting that portfolio down now, to what we would call house accounts in our footprint," Mr. Ritter, who is also the president and CEO, said in an interview. "Without the decreases, you've seen new business that was booked during the quarter showing up as growth."
Though AmSouth has all but stopped writing syndicated loans, it is actively lending to small and midsize businesses, commercial real estate developers, and consumers, among other categories. Low interest rates are spurring demand, but so is a sales campaign that included 7,500 calls to prospective business customers in 2002 and brought 500 new commercial relationships, which could mean $27 million in new revenues a year, Mr. Ritter said. "It's not by accident that we see this happening," he said.
Sloan D. Gibson, AmSouth's chief financial officer, said the "lower end" of the middle market is growing fastest, and that trend is evident in all its Southeast markets, from Florida - where it plans to add 30 branches this year - to Tennessee.
Among consumers, first mortgages (up 68% from Dec. 31, 2001) and home equity lines (up 18%) have been major contributors.
Mr. Ritter said the fourth-quarter growth "bodes extremely well as we go into the first quarter of 2003." In a conference call with analysts Tuesday afternoon, Mr. Gibson said 2003 earnings will be $1.78 to $1.83 per share; the current Wall Street consensus estimate is $1.77.
"Our forecast is predicated on gradual improvement in the economy as the year progresses," he said. He also said AmSouth expects to keep posting "moderate" growth in loans and deposits, though the net interest margin is expected to dip.
Tuesday's report prompted Christopher Marinac, an analyst with SunTrust Robinson Humphrey in Atlanta, to raise his rating on AmSouth's stock to "overweight" from "equal weight."
"It was actually a pretty decent quarter. They're actually in OK shape heading into a slow growth year," Mr. Marinac said in an interview.
He said he was especially encouraged by AmSouth's commercial lending. "For the first time in a long while, you have real commercial loan growth," he said. "This is a company that has not been growing commercial at all for the past two years." Until now, "they really haven't put the car in drive and begun to press the gas."
AmSouth per-share earnings on the year were $1.68, a penny better than the Wall Street consensus.
Nonperforming assets for the quarter rose 4%, to $197 million, and chargeoffs of bad loans rose 20.5%, to $52 million, from the third quarter.
