"OREO won't be written up imo. More marks will be taken"
Could be but you would think that a 48% average mark on the oreo stuff would be sufficient. We're not only talking about adc and commercial land, but adc structures, single family homes and income producing properties. The mark on land may be in the 60% range but the non-land stuff is generally far less. Also, keep in mind that the oreo stuff is now shifting towards states with lower loss severity rates - north carolina and virgina.
I've been critical of King and the hits taken in valuation allowance for last 6 qtrs or so. But on reflection, what was King supposed to do on the front-end? Write the bad land loans down 60% in the beginning down to 25% of the appraised value he based the long on couple of years ago? No one realized in the beginning that essentially only speculators would make up the adc market for the next several years.
King should have presented his mark assumptions clearly on the quarterly cc. I certainly was confused which added to my frustration.
We'll see on the timing and amount of the 1B release. Bankers don't want to release and then risk having to re-add hence any releases will be backend 2011 vs frontend is my view. Esp. as these banks are currently undergoing re-stress tests for dividend increase approvals.
~350MM in unrealized gains on the securities portfolio is King's get-out-of-jail free card if he decides he needs more EPS manufactured. With King nothing is played out.
OREO won't be written up imo. More marks will be taken - As new inflow hits OREO it needs to be brought to market pricing due to King's backend loss strategy but you would have to hope this would moderate as inflows continue to slow and assuming OREO is now at market clearing prices - which as we know it hasn't been for the last 4-6 quarters.
"But then you run the risk that King manufacturers EPS by realizing another 47MM from the MBS portfilio and 300MM from the covered securities (assuming FDIC approves sell)."
He played that card out in 2010. I thought he did a nice job especially reducing the portfolio at year end and adding a bunch of floaters to take advantage of higher rates which are likely in 2011.
Unless fasb invalidates portfolio accounting, King will start releasing the $2.7 billion ALL due to much better credit metrics. If charge-offs by the 4th qtr. 2011 drop to 100 bsp (annualized), one would think that 4 to 6 qtrs. of charge-offs would be very adequate. Equates to around $1 billion release of ALL to p&l.
Or maybe oreo mark of 48% is too high and the valuation adjustment will start to report a gain.
Risk is that fasb adopts new standards but it won't be something crazy where the bank uses portfolio accounting for interest income recognition and gain on sale accounting for loan losses. I've heard some folks talk about this possibility. Absurd.
Can't argue with GAAP EPS.
But then you run the risk that King manufacturers EPS by realizing another 47MM from the MBS portfilio and 300MM from the covered securities (assuming FDIC approves sell).
I propose we use the "normalized" or "operational" income. Kelly King presents a slide for this each earnings release. It strips away unusual items. I would be willing to accept his definitions.
Norm, I compared our Q1 estimates, and the differences boil down as follows:
your EPS - $.60 (you apparently rounded down - spreadsheet shows $.64)
My EPS - $.35
I show $.06 less in interest revenue, and $.06 more in interest cost
I show $.13 more in loss provision. (these figures are after taxes)
I hope you are right, but fear I am. Interestingly, we draw much closer together in our estimates for the second half of the year, although you are still a little more bullish than me. Your full year forecast is for EPS of $3.22, and mine is for $1.94. Good luck.
"my question was "which EPS?" ... you want to get that clear before the earnings come out."
The average estimate for the 1st qtr. 2011 is $.31 with a low of $.21 and a high of $.48
Obviously, the big driver in the greater will be credit quality. I believe that there will be a significant improvement for reasons I've already discussed. I look for eps in the $.60 range and for the bank to increase its dividend by a nickel per qtr.