Shares of Premier Bancshares plunged 12.6%, to $17.375, on Monday after the Atlanta-based banking company reduced its earnings estimate by 27% for this year.
Premier attributed the reduced expectations to the impact of higher long-term interest rates on its mortgage banking, lower profits from its commercial banking, and expected costs from future bank acquisitions.
But the aggressive acquirer may lose some of its aggressiveness if its stock price fails to rebound.
That would make it more difficult to use its stock to acquire other banks.
Premier said its earnings might be as little as 80 cents a share this year, down from an earlier estimate of $1.10.
So far this year, the $2 billion-asset bank has agreed to buy three Georgia banks with total assets of $441 million-Farmers and Merchants Bank of Summerville, North Fulton Bancshares of Roswell, and Bank Atlanta of Decatur.
Analysts said future performance of Premier's stock will determine whether it will remain a buyer or end up on the selling block.
John B. Moore Jr., a senior vice president at Wachovia Securities Inc. in Charlotte, N.C., predicted that Premier will continue to acquire banks, but "if the stock drops off a lot then, frankly, the company becomes a target."
Premier acknowledged that cost savings from its acquisitions are going more slowly than expected, but that its efforts to integrate the purchases has been "without significant" interruption. The bank also said there have been delays in data-processing conversions of its three recent purchases.
The upswing in long-term interest rates has also hit hard, with a rise of nearly 100 basis points eating into margins in the bank's mortgage lending division.
Despite Premier's shortfall, some analysts say they still are encouraged by the company's fundamentals, and advocate the stock for the long-term holder.
"I certainly think there is a great niche for Premier," said Stephen Wing, an analyst for American Fronteer Financial Corp. in Denver. "But in the near term we would have to be cautious."
Elsewhere, bank stocks rose on Monday, after a roller-coaster ride throughout the day.
Among gainers was Chase Manhattan Corp., which rose 4.2%, to $83.50. Carla D'Arista, an analyst for Friedman Billings Ramsey & Co. of Arlington, Va., said Chase's stock jump might be due in part to early optimism on second-quarter results from divisions such as capital markets, investment advisory, and venture capital. Moreover, Chase, which unlike its major competitors avoided big losses last year in its capital markets activities, may have attracted less attention recently as other large bank stocks were on the rebound.
"People were focused on the comeback kids," Ms. D'Arista said. "People are understanding there is a very powerful business model coming into play at Chase."
The Standard & Poor's bank stock index rose 0.58%, to 694.42, and the Dow Jones industrial average fell 0.36%, to 10,815.98.