Loan-Growth Sustainability Uncertain for Northeast and Mid-Atlantic Regional Banks: A Wall Street Transcript Interview with Matthew C. Schultheis, CFA, of Boenning & Scattergood, Inc.

Wall Street Transcript

67 WALL STREET, New York - January 6, 2014 - The Wall Street Transcript has just published its Northeast and Mid-Atlantic Banks Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Interest Rates and Loan-Growth Strategies - Regulatory Outlook Gains Clarity - Regulatory Obstacles and Fee Income Replacement - Rise of Commercial and Industrial Lending - Pockets of Growth in Northeastern Banking - Annualized Loan Growth Acceleration - Prolonged Interest Rate Environment Challenges - Midcap Market Share Gains

Companies include: PNC Financial Services Group I (PNC), Wells Fargo & Company (WFC), CIT Group, Inc. (CIT) and many others.

In the following excerpt from the Northeast and Mid-Atlantic Banks Report, an expert analyst discusses the outlook for the sector for investors:

TWST: Tell us about your coverage universe.

Mr. Schultheis: I follow 28 banks right now, primarily focused on the Northeast and the Mid-Atlantic, from Virginia through Connecticut. We would go farther if we found banks that we thought were worthwhile, from a time-management standpoint. We have another bank Analyst, Rick Weiss, who currently has seven names under coverage. In asset size, our coverage generally ranges from $1 billion to $20 billion. We have a few outliers, a couple of banks that are larger than that, and a couple who are outside the region. The market-cap range, generally speaking, runs from $200 million to $2 billion.

TWST: How would you broadly characterize the industry over the last year?

Mr. Schultheis: If you talk to bankers, it's been depressing, but I've never heard commercial bankers say, "It's just great. Regulatory pressures are light, and the interest rate environment is perfect." Is it challenged? Yes. Obviously there was a big slowdown in mortgage banking, and that doesn't look likely to bounce back soon. Companies that have a lot of revenue coming in from mortgage banking will not be able to replace that in the income statement anytime soon.

Loan growth was fairly strong for the banks. Fed data support that. Total loans probably aren't growing quite as fast as commercial and industrial, but there has been some loan demand at least for the banks that I follow. There has been a lot of commercial real estate loan demand in the Mid-Atlantic and Northeast, along with some C&I loan demand. The interest rate environment improved late in the second quarter with the steepening of the yield curve. Margin compression either moderated somewhat or in some cases stopped altogether. We were able to see a little bit of improvement in margins based on that combination.

The banks are still very much focused on controlling their expenses, but for a lot of them it is a scenario where they're implementing something that's designed to cut costs, but it's not going to flow through to the P&L because they're plowing those cost saves back into investments to generate revenue. They think that by hiring revenue generators while they save money by altering their branch network, it will ultimately be better for shareholders. In the long run, that makes sense.

TWST: What are the key themes you are focusing on in the Northeast and the Mid-Atlantic as you look ahead?

For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

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