For many companies, this is annual report season, the time of year when we investors irritate our postal carriers by having armfuls of heavy company mailings delivered to us. The packages often look the same -- booklets in blue shrink-wrap mailers, for example -- but their contents tend to vary widely.
At bankstocks.com, Thomas Brown recently reviewed the annual reports and letters to shareholders from two prominent banks: Fifth Third Bank
Regarding Fifth Third, he noted:
- "Scant attention (was) paid to the company's broken record of growth. Fifth Third's net income declined 8% in 2004, and its EPS fell by 7%. That's a sharp comedown for a company that had famously enjoyed 25 years of consecutive earnings gains, a point (CEO George) Schaefer highlighted in numerous previous letters to shareholders.
- Schaefer blames the low-interest-rate environment for poor performance above all else. Other banks have not been so troubled by it.
- The company praises its acquisition of First National Bankshares of Florida, but Thomas questions the steep price Fifth Third paid for it and worries about an unexplained shift in company strategy.
So what's going on with this company? Well, here's one possible concern: Over at our Fifth Third Bank discussion board, a user who calls himself "proudpop" noted the following: "Looking at Yahoo Finance, FITB is carrying $29 billion in debt compared to about $2 billion in cash." Hmm.
Wells Fargo, meanwhile, is another story. Thomas observes:
- "Consistency, year in and year out." Just like those of Warren Buffett's Berkshire Hathaway
(NYSE:BRKa) (NYSE:BRKb)company, Wells Fargo annual reports have the same look and feel each year, suggesting a company culture and perspective that hasn't changed often over the years.
- A lack of glitz and gloss. Many annual reports are full of shiny, full-color photos which can be inspiring to view, but don't really convey much meaningful information.
- A high level of disclosure, enhanced by easy-to-read-and-understand language.
- An impressive letter to shareholders that's frank and takes a long-term view.
Fools on the Wells Fargo discussion board are also impressed with the firm. A user with the handle "Har1en" notes: "WFC is a large, established company with historically small stock volatility. It has a higher P/E than its major competitors, so you might think it's overpriced. I typically compare it to Bank of America
How should we investors approach letters to shareholders? Thomas says he looks for three things:
- Honesty in acknowledging problems.
- Vision. He finds it useful to review several past reports, since company vision often changes quietly but significantly.
- Hot buttons -- the highlights that the companies most want to show off.
Have you seen any annual reports or letters to shareholders that impress you? Let us know on our discussion board.
Learn more about banks here:
- How to Avoid Breaking the Bank
- Fifth Third Banks on Expansion
- Good Numbers, Bank of America
- Allied Irish's Investors' Eyes Are Smiling
Longtime Fool contributor Selena Maranjian does not own shares of any companies mentioned in this article.