It seems Wachovia
Results for Wachovia's second quarter were solid. Revenue climbed 16% and net income grew 32%, thanks in part to the contributions of the SouthTrust bank acquisition from late last year. With more shares outstanding, though, the EPS growth was only 9% for the quarter. Readers should also note that the reported EPS figure of $1.04 includes $0.03 of merger expenses that analysts generally add back and ignore. That means the comparable number vis-a-vis estimates is $1.07.
In other banking metrics, Wachovia again improved its efficiency ratio, a measure of operating expenses to revenues, to 59.3% for the whole company. (More in a moment on that apparently high number.) While return on equity slipped from 15.5% to 14%, return on assets actually improved a bit to 1.31%. Net interest margin shrank again (from 3.37% to 3.23%), but credit quality continued to improve.
In Wachovia's General Bank arm, which includes retail and commercial banking operations, revenue grew by 24% and earnings by 34%. The business saw strong deposit and loan growth, at 24% and 32%, respectively, and the efficiency ratio improved to 48.2% from 51.5%. This is the efficiency ratio that I pay attention to, and I believe it's a much better proxy for the profitability of the company's banking operations, as opposed to the overall corporate efficiency ratio.
The other lines of business turned in a mixed performance. Wealth management experienced improvements in revenue and earnings, capital management turned in lower revenue but higher earnings, and corporate/investment banking had both lower revenue and lower earnings.
Relative to other large banks, Wachovia has an attractive P/E but a below-average return on equity and an underwhelming return on assets. On a more positive note, Wachovia consistently scores well with customer satisfaction and retention, and the company is focused on a region of the country with comparatively better growth trends. There are literally hundreds of investment options in the banking sector, and Wachovia appears to be better than average -- although maybe not the top of the heap.
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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).