Even though we're only maybe one-quarter of the way through fourth-quarter earnings season, I'm already feeling like a spoiled kid in a candy store. See, I've long harbored the hunch that banks and semiconductors were going to be good places to invest in 2006, so it's hard to review bank stock earnings now and not find a lot of worthwhile candidates.
For the fourth quarter, revenue was up 7% -- an OK result. While net income was reported as up 18%, that's not exactly the whole truth, because it includes a gain from discontinued operations (the corporate trust/custody business that it sold to U.S. Bancorp
There was certainly plenty of good news this quarter. While the net interest margin was down from last year's level, it was actually up from the third quarter, and not many banks are likely to duplicate that feat this quarter. Likewise, return on assets and return on equity were both higher than the year-ago levels (although both were down slightly after adjusting for non-recurring items).
Wachovia's average loan growth clocked in at 21% and average core deposits grew 10% -- the discrepancy between the two highlighting, perhaps, the tough competition for deposits these days. Last but not least, credit quality remains very good, and the company may be hard-pressed to improve it much.
Some folks might grouse about the higher non-interest expenses in this quarter, and that's certainly relevant. A bigger risk, though, seems to be the market's worry that Wachovia will do another big deal -- perhaps one that would overstretch and hurt its performance.
I frankly do expect more deals from Wachovia, but I think they'll be selected deals in states like California and Texas. Contrary to what some people seem to think, I don't see it expanding into the Midwest by buying something like KeyCorp
In the meantime, these shares might hold some appeal for value-oriented folks who like to collect a nice little dividend while they wait for capital gains.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).