Magazine article American Banker

New KBW Rating on Sky Financial Mostly Upbeat

Magazine article American Banker

New KBW Rating on Sky Financial Mostly Upbeat

Article excerpt

Sky Financial Group Inc. of Bowling Green, Ohio, has won favorable notice from a Keefe, Bruyette & Woods Inc. analyst just weeks after telling Wall Street it would miss first-quarter estimates because of credit quality issues.

On March 18 the $14.9 billion company lopped 15 cents off its first-quarter estimates because of expected losses in its loan portfolio, primarily in commercial loans.

But on Tuesday, Keefe Bruyette analyst David Konrad initiated coverage with a "market perform." Growth in Sky's loan portfolio is one reason for optimism, he wrote, and higher fee income is another.

Though known as an acquirer -- it has completed 18 bank and insurance acquisitions since 1998 -- Sky has shown its ability to increase loans and fees organically, Mr. Konrad wrote.

Its loans grew 22.5% last year, to $10.6 billion, according to the fourth-quarter earnings report, and Mr. Konrad said fee income grew 13.7%, to $203.4 million.

This year, he said, Sky's fee income should grow by 10% (excluding securities gains) as mortgage banking revenue stabilizes and brokerage and insurance commissions, service charges, and trust revenue all increase.

Despite buying many banks, Sky has historically maintained a consistent ratio of net chargeoffs to average loans, Mr. Konrad wrote. "Recent results from Sky and its peers have trended toward the high end of this range largely because of the challenging environment in its region."

He expects Sky to report that its chargeoff/loan ratio hit 1.2% in the first quarter. He also expects it to predict a more normal 0.3% to 0.45% for the second quarter.

Its fourth-quarter earnings were marred by several issues, including contraction of its net interest margin, higher securities gains (along with general concern over the flattening yield curve), and higher interest rates. Those factors contributed to the company's missing estimates by a penny, analysts said. …

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