Magazine article American Banker

Merrill Bullish on Colonial of Alabama

Magazine article American Banker

Merrill Bullish on Colonial of Alabama

Article excerpt

Colonial BancGroup Inc. of Montgomery, Ala., is positioned for sustained long-term earnings per share growth as it continues to expand geographically, according to a Merrill Lynch & Co. analyst.

Beth A. Messmore initiated coverage of $13.2 billion-asset Colonial on Tuesday with a long-term "buy" rating. She predicted earnings will grow 5.5% this year, to $1.20 a share and 8.5% next year, to $1.30 a share.

In her research note, Ms. Messmore wrote that the "buy" rating was based on Colonial's recent expansion into high-growth markets, solid credit quality trends, and goals for increasing earnings-per-share growth.

In the last five years Colonial has bought banks in the booming markets of Atlanta, Orlando, Miami, Dallas, Tampa, and Las Vegas. During that period its assets have increased an average of 22% a year, and the company has diversified its lending across the Southeast, she wrote.

Only 32% of Colonial's loan originations last year were in Alabama, compared with 84% in 1996.

The new markets should produce "solid top-line loan and deposit growth, as well as cross-selling of trust/investment products to a growing affluent customer base," Ms. Messmore wrote.

The company's strong credit culture also plays a role in its performance, she wrote. Colonial's nonperforming assets in the fourth quarter declined 8% from the third quarter, to $66.7 million, or 0.64% of loans and other real estate.

"We think credit costs should remain relatively low at Colonial over the next few years," she wrote. …

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