With the quarter and year drawing to a close, several small banking companies this week made sure to report on the effect of balance-sheet adjustments and of lower credit quality.
On Thursday the $2.3 billion-asset Security Bank Corp. of Macon, Ga., disclosed the impact of weaker quality and a balance-sheet restructuring.
Also Thursday, the $992 million-asset LSB Bancshares Inc. of Lexington, N.C., said it expects its fourth-quarter profit to decline because of deteriorating credit quality.
On Wednesday the $3 billion-asset Yardville National Bancorp of Hamilton, N.J., and the $11.5 billion-asset MAF Bancorp of Clarendon Hills, Ill., both said their earnings would be affected because of balance-sheet restructurings.
Security Bank guided Wall Street estimates lower for fourth-quarter and full-year operating earnings. It said it now expects operating earnings of 31 cents to 33 cents per diluted share for the quarter and $1.38 to $1.40 for the year. It also cited lower GAAP earnings.
According to Thomson First Call, as of Thursday the average analyst estimate for full-year operating earnings was $1.45 and 37 cents for the quarter.
Security Bank said that souring credit quality is partly to blame and that it would take net chargeoffs of $1 million in the fourth quarter, most of it linked to problem loans related to the acquisition and development of real estate. It expects a 129% increase from the third quarter to the fourth in nonperforming assets, to $43 million.
Including the impact of a portfolio restructuring, nonoperating or GAAP earnings would be 27 cents to 29 cents for the quarter and $1.33 to $1.35 for the year, the company said.
It said it sold about 25% of lower-yielding debt and reinvested in higher-yielding bonds. It gave no further comment.
However, Samuel Caldwell, an analyst with KBW Inc.'s Keefe, Bruyette & Woods Inc., wrote in a research note that Security Bank's restructuring signals that its net interest margin compression "is likely worse than expected."
Mr. Caldwell lowered his profit estimates for this year, mainly because of the higher-than-expected chargeoffs, to $1.39 from $1.45 a share. He lowered his 2007 estimate by 6 cents, to $1.58.
MAF said its restructuring, announced late Wednesday, is designed to improve its net interest margin and future earnings. It is selling about $532 million of securities and $220 million of residential mortgage loans and will take a pretax charge in the fourth quarter of about $25 million, or 45 cents a share after tax.
On Thursday afternoon, Thomson said that the average analyst estimate for MAF was 62 cents for the quarter and $2.86 for the year.
Allen Koranda, MAF's chief executive, said in an interview that "the present inverted yield curve is not a favorable environment."
Moreover, Mr. Koranda said, there is "speculation as to what the Fed will do with interest rates in the coming 12 months." About half of the experts say the central bank will lower rates, while the other half says it will leave them at 5.25%, he said.
MAF is restructuring now, Mr. Koranda said, "so we can go into 2007 and our operating results will not have the drag of this negative spread."
Yardville said it sold $295 million of lower-yielding agency bonds and retired $320 million of higher fixed-rated Federal Home Loan bank advances. It said it expects to take a charge of about $12.9 million after tax in the fourth quarter, or $1.13 a share. The charge will result in a loss, but the company would not give the amount.
Analysts said Thursday that they expect Yardville to post earnings per share of 48 cents for the quarter and $1.86 for the year.
Patrick M. Ryan, Yardville's CEO, said in an interview, "We decided that taking the opportunity to restructure in today's interest rate environment was appropriate." "We're comfortable with where we're positioned."
LSB said souring credit quality would cause it to take writedowns of $1.9 million in the fourth quarter. It said it would boost its loan-loss provision by $1.05 million.
Robert Lowe, LSB's chief executive, said in a press release that the additional writedown was not necessary but was "prudent" given "pockets of economic weakness in our markets."
LSB said earnings per share for the year and quarter would be lower than anticipated, but it did not provide any numbers.
According to Thomson First Call, on Thursday the only analyst who covers LSB was expecting it to report EPS of 27 cents for the quarter and 93 cents for the year.
Security Bank's shares had the sharpest decline among the four companies, 5.77%. LSB fell 0.18%, MAF 2.25%, and Yardville 0.77%.
