Sandler O'Neill & Partners analyst Kevin Fitzsimmons on Friday lowered his 2012 earnings estimates for 11 regional and community banks amid concern about weak loan demand and mounting pressure on net interest margins.
Fitzsimmons, who covers Southeast banks for Sandler O'Neill, said in research notes to investors that he was reducing estimates to reflect "a less accommodating operating environment." In an interview, Fitzsimmons said bankers have told him that recent actions by the Federal Reserve to keep interest rates low until at least 2013, combined with weak organic loan demand in their markets, will make it difficult for banks to grow net interest margins in 2012. Weak economic news in recent weeks has also stoked fears of a double-dip recession, he said.
"The world has changed for banks in the last two months," Fitzsimmons said.
Fitzsimmons has lowered on estimates on City Holding Co., United Community Banks Inc., Regions Financial Corp., Trustmark Corp., United Bankshares Inc., Synovus Financial Corp., Renasant Corp., Pinnacle Financial Partners Inc., Hancock Holding Co., Community Trust Bancorp Inc. and Bancorp South Inc. (Fitzsimmons also recently lowered estimates on three regional banks he covers — SunTrust Banks Inc., BB&T Corp. and First Horizon National Corp.)
Fitzsimmons is maintaining his ratings on most of the banks' stocks, though he did upgrade his rating on Gulfport, Miss.-based Hancock from "hold" to "buy" because he believes that, after a recent sell-off of bank stocks, its shares are now undervalued. Hancock's shares have lost 18% of their value since July 1 and were trading at $26.96 Friday morning. Fitzsimmons' price target for the $20 billion-asset Hancock is $31.
"While new organic loan demand is scarce for all banks these days, we note that [Hancock's] footprint includes exposure to energy [sectors] in Louisiana and Houston, as well as the ports of the Gulf Coast, which are starting to see a return to drilling activity and should benefit from the long-term project to widen the Panama Canal," Fitzsimmons wrote.
Fitzsimmons said that stocks of two other banks he covers, BancorpSouth Inc. in Tupelo, Miss., and Pinnacle Financial Partners Inc. in Nashville, could be bolstered by a pickup in merger-and-acquisition activity because investors would likely see both companies as potential sellers.
Pinnacle's shares were trading $10.66 Friday, down 37% from their 52-week high, and BancorpSouth was trading at $8.92, nearly 47% below its 52-week high.
