Wells Fargo (WFC), for example, saw its third-quarter net interest margin narrow by 25 basis points from the second quarter, to 3.66%, leading its net interest income to decline to $10.7 billion from $11.0 billion the previous quarter.
Meanwhile, Wells Fargo's earnings rose to 27% sequentially to $4.9 billion in the fourth quarter, as it released $935 million in loan loss reserves. The company also saw an increase in gains from trading activities, while its third-quarter mortgage banking revenue totaled $2.8 billion, declining slightly from $2.9 billion the previous quarter, but increasing 53% from a year earlier.
Challenges to banks large and small include an increasing compliance reporting burden, with the Consumer Financial Protection Bureau expected to issue rules requiring more detailed sets of data, without taking away any of the existing, often arduous rules.
Examples of costly ongoing compliance headaches for community banks include the Community Reinvestment Act (CRA) and the Home Mortgage Disclosure Act (HMDA). CRA is meant to keep banks from "redlining" geographic areas for lending, in order to prevent discrimination, as well as encourage banks to reach out to all communities in their geographic footprint. Donations in a "predominantly minority neighborhood" or "to any minority depository institution or women's depository institution," can help an institution meet its CRA requirement.
HMDA requires banks to report to regulators a large set of data for every residential mortgage loan applicant, including gender, income level, race, ethnicity, interest rates and spreads to prevailing industry rates, and location, along with information on the credit decision, especially if the loan application was denied. Sounds simple, right? It's not. There's a reason that the Federal Financial Institutions Examination Council calls its 120-page HMDA reporting guide "Getting It Right!" The exclamation point is theirs.CRA and HMDA were passed with some good intentions, but it can be quite difficult for banks to report the data correctly, requiring extensive staff training each year. Dodd-Frank modified HMDA to increase the scope of data that banks are required to report, and the Consumer Financial Protection Bureau not only "will require banks to compile and report additional HMDA data and HMDA-like small business loan data," it "has broad authority to require reports or 'other information' from any bank at any time," according to the American Bankers Association. ABA senior vice president Richard Riese says that the CFPB's new HMDA and CRA reporting requirements "will not get ahead" of the Bureau's current focus on mortgage rules and disclosures, and that "there is better than a 50/50 chance that the additional data won't be collected until 2016 [for the year 2015], because the amount of additional requirements is so extensive, especially on the small business side." Riese expects the CFPB to propose regulations for HMDA and CRA reporting in 2013, but finalizing the rules will take additional time, following public comment periods, because "you never really understand all the consequences until you see final language and begin to implement."
Buy-rated Bank Takeout Targets
KBW maintains a "consolidation list" of publicly trade banks that they think might be selling for various reasons. Five of the names on last Monday's list are buy-rated, and none of these are threatened by high Texas ratios. Here they are, in ascending order by upside potential, based on KBW's price targets:
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