The April 2015 issue of Bank Watch is available now, which features the article “Increasing The Capital Cap For Small Banks: Regulation A+” written by Madeleine Harrigan.
On March 25, 2015, the SEC issued its final ruling amending Regulation A, an existing exemption from registration requirements for smaller issuers of securities. The new rules, commonly referred to as “Regulation A+,” were first proposed in December 2013 under Title IV of the Jumpstart Our Business Startups (JOBS) Act. Regulation A+ is expected to increase access to capital markets for small companies that do not report to the SEC, including banks and bank holding companies with fewer than 1,200 equity holders, by exempting registration requirements for securities offerings of up to $50 million annually.
Also in this issue is the article “Observations from the Initial Q1’15 Bank Earnings” written by Jeff Davis.
If U.S. Bancorp CEO Richard Davis’ comments on April 15 about the corrosive impact of low loan yields on bank profitability did not get the attention of the Street, it should have. Davis made an analogy to a fitness challenge that the zero rate world is increasingly stressful the longer it lasts. I thought Comerica Inc.’s results summed up what has been occurring the past few years. The company had $48 billion of loans based upon average balances in the first quarter, up about $3 billion from the year ago quarter, but net interest income only rose $3 million to $413 million….
Without assuming the Fed is going to change the math “next year,” it is hard to ignore what the numbers are saying: earnings are at best are going to move sideways to slightly higher for most banks with high single-digit ROEs other than for the leanest of cost structures such as U.S. Bancorp and Birmingham, Ala.-based ServisFirst Bancshares Inc. ROEs will decline further whenever credit costs rise, though nothing in bank results to date indicate an upturn is anywhere near. Sustained loan growth at some point is going to require reserve building to resume, however.
Originally published April 22, 2015, at SNL Financial. Reprinted with permission.
This issue contains links to various articles of interest, as well as public market indicators, M&A market indicators, and key indices of the top financial institutions in the U.S., providing insight into financial institution valuation issues.
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