Analysts are predicting that most major banks based in the Southeast will report solid second-quarter gains, largely as a result of the region's strong economic performance.
The consensus forecast for some of the area's biggest banks is an average rise of 9% from the year-earlier quarter, according to Thomson Financial's First Call.
"Geography is destiny," said Sean Ryan, a bank analyst at Bear, Stearns & Co. "The Southeast has the strongest regional economy in the country, so we would anticipate solid loan growth."
RFA/Dismal Sciences, a consulting firm based in West Chester, Pa., estimates that the Southeast's economy grew at an annual rate of 4.4% in the quarter. The national economy probably grew at a slower 3.7%, according to a recent poll of economists.
However, the two largest banks in the region-Bank of America Corp. and First Union Corp.-are expected to put in lackluster showings, primarily because of recent acquisitions.
Bank of America was formed last fall from the merger of the old BankAmerica Corp., based in San Francisco, and NationsBank Corp. of Charlotte, N.C. The new Bank of America is headquartered in Charlotte.
First Union bought CoreStates Financial Corp. of Philadelphia last year, along with Money Store Inc., of Union, N.J. The CoreStates deal has been particularly thorny for First Union, which is also having trouble with revamping its sprawling branch system.
But for most of the other large southeastern banks, times are good. Average commercial loan growth in the quarter jumped more than 10% from a year earlier, according to Lori Apppelbaum, a bank analyst at Goldman, Sachs & Co.
The surging Southeast economy-and rising stock prices-also helped fee income. Double-digit gains are likely for such income, according to Michael Granger, a bank analyst at Fox-Pitt, Kelton Inc.
The steepening of the yield curve during the quarter was a mixed blessing for banks. On the one hand, it helped net-interest margins by raising the price banks could charge long-term borrowers. But it also meant higher deposit costs.
In addition, the gradual rise in interest rates limited revenue from mortgage fees and loans. During the quarter, "mortgage activity slowed dramatically," said Nancy Bush, an analyst with Ryan, Beck & Co. in Livingston, N.J.
For Bank of America Corp., the nation's No. 2 banking company, analysts estimated the earnings report to be little changed from last year. The key issue for the $690 billion-asset company is the outcome of its merger with NationsBank.
"My impression is that the integration is going well," said Stephen Biggar, a bank analyst for S&P Equity Group.
Estimates put per-share profit for Charlotte-based First Union Corp., the nation's sixth-largest bank, at 81 cents, down 11 cents from a year earlier.
In May the banking company cut its own earnings forecast for the full year for the second time, to $3.40 to $3.50 from $4. But analysts are now skeptical that the $223 billion-asset company can meet even these more modest goals.
"That's not a slam dunk, given the challenges," said Claire Percarpio of Janney Montgomery Scott Inc.
Mergers have not meant bad news for all southeastern banking companies. Atlanta-based SunTrust Banks Inc., for example, seems to be benefiting substantially from its yearend acquisition of Crestar Financial Corp. SunTrust, the nation's No. 10 banking company, is expected to earn 96 cents a share, up from 88 cents a year earlier.
The Crestar deal is producing cost savings and back-office efficiencies, analysts said.
Mergers and increased loan demand also helped Winston-Salem, N.C.-based BB&T Corp. Analysts expect the $38 billion-asset company to post profits of 48 cents per share, up 5 cents from the a year earlier.
"The Southeast was kind of an economic backwater for 100 years," said Bear Stearns' Mr. Ryan. "Now it's continuing to experience a catchup. It's like an emerging market with a strong currency."