In the southeastern states of the U.S., populations are booming. Regional bank AmSouth
Net income: Up 10.6% from the comparable quarter last year -- and all of it from organic growth.
Net interest income: Even with net interest margin falling four basis points to 3.4%, loan demand and low-cost deposits were so strong that net interest income increased a solid 4.8%. Commercial loans grew 12.8% over last year's second quarter. The 15.1% increase in low-cost deposits was even more spectacular. Americans in general may not be saving, but it seems that AmSouth's healthy operating margin is fueled by robust growth in depositor savings. (Some of that increase may be fueled by the volume of retirees residing within AmSouth's core area.)
Loan quality: Total nonperforming assets were 0.27% of loans, down from 0.34% in the previous quarter.
Quality of results: In its 2004 annual report, AmSouth provided 1999 data for comparisons -- and what a comparison it is. In 1999, average return on equity was 10.69%. This quarter, it's 20.9%. Over that period, return on average assets grew from 0.81% to 1.47% in the second quarter. To be sure this isn't a blip on the radar, let's look at annualized numbers on a trailing 12-month basis: ROE is 18.71%, while ROA came in at 1.32%.
Stock performance: Over the last six and a half years, the average number of diluted shares has fallen from 396.5 million to 358.3 million last quarter. At $27.66 a share, the stock currently trades for 15 times trailing earnings. Six years ago, the stock traded at roughly 16 times trailing earnings, based on its closing price.
Expectation last quarter: At the end of last quarter, the company predicted continued growth and improved performance. In addition to delivering on that promise, AmSouth beat analyst estimates of $0.49 by $0.03 a share.
Expectations ahead: Analysts expect AmSouth to earn $2.01 a share this year -- pricing the stock at 13.9 times 2005 earnings. That's high when compared to banking giant Bank of America's
So why should you pay a premium for AmSouth's superior operating performance? Consider its 60.5% trailing operating margins. That figure beats the industry average of 49.7%, not to mention Bank of America's 57%.
AmSouth is a Motley Fool Income Investor recommendation; in fact, it was one of two selections in the newsletter's September 2003 debut issue. It was selected because its overall performance was improving and it paid a solid dividend (which sits at 3.64% today). Since its recommendation, AmSouth's stock has beaten the S&P 500's performance by nearly 14%.
Further financial Foolishness:
Are you looking for great companies with outstanding dividends that offer both long-term earnings and dividend growth? A 30-day free trial to Motley Fool Income Investor can help narrow your search.
Fool contributor W.D. Crotty does not own shares in any of the companies mentioned -- but he is based in Florida, AmSouth's home turf.