In spite of the tough industry backdrop and rising provisions arising from weakness in the energy sector, most of the banks that reported first-quarter 2016 results this week managed to beat estimates. This has also led to a positive price movement for most stocks.
Further, the results demonstrated an upswing in loans driven by a rise in commercial loan demand, which has ultimately boosted net interest income. Additionally, the rise in deposit balances helped drive organic growth at the banks.
However, overall rise in non-interest expenses owing to high spending on technology and other market development initiatives was an undermining factor. Nevertheless, the absence of exceptionally high legal expenses helped bring some respite.
(Read: Bank Stock Roundup for the week ending Apr 15, 2016)
Important Releases This Week
1. Citigroup Inc. (NYSE:C) posted a positive earnings surprise of more than 6% in first-quarter 2016 on lower expenses. The company’s earnings from continuing operations per share of $1.11 in the quarter outpaced the Zacks Consensus Estimate of $1.04. However, earnings declined 26% on a year-over-year basis.
Income from continuing operations stood at $3.51 billion, down 27% from the prior-year quarter. The decline, though significant, reflected the tough environment faced by banks during the quarter amid a number of issues including concerns over the Chinese economic slowdown, continued stress in energy sector and the low, interest rate environment (read more: Citi Beats Q1 Earnings, Results Show Industry Challenges).
2. Fifth Third Bancorp (NASDAQ:FITB) reported adjusted earnings of 37 cents per share, beating the Zacks Consensus Estimate of 34 cents. Including certain one-time items, the company reported earnings per share of 40 cents, compared with 42 cents in the prior-year quarter. Results were aided by higher revenues, partially offset by increased expenses as well as provisions. Notably, the quarter exhibited consistent growth in loan and deposit balances as well as a strong capital position (read more: Fifth Third Q1 Earnings Beat on Revenue Growth).
3. U.S. Bancorp (NYSE:USB) reported a positive surprise of 1.3% in the first quarter of 2016. The company reported earnings per share of 76 cents, beating the Zacks Consensus Estimate by a penny. Results were in line with the prior-year quarter earnings. Organic growth was driven by higher revenues along with elevated average loans and deposits. Steady capital deployment activities reflected a strong capital position. However, increase in expenses and provisions were a major drag (read more: U.S. Bancorp Posts Q1 Earnings Beat; Provisions High).
4. A substantial rise in interest income drove BB&T Corporation’s (NYSE:BBT) first-quarter 2016 adjusted earnings of 69 cents per share. This outpaced the Zacks Consensus Estimate of 64 cents. An improvement in net interest income and non-interest income led to the better-than-expected results. Further, loans and deposits witnessed strong growth. However, higher operating expenses and a drastic rise in provision for loan losses due to a stressed energy sector were the headwinds (read more: BB&T Earnings Tops on Higher Revenues, Provisions Up).
5. Higher provisions led KeyCorp.’s (NYSE:KEY) first-quarter 2016 adjusted earnings from continuing operations of 24 cents per share to miss the Zacks Consensus Estimate by a penny. Also, the figure compared unfavorably with the year-ago figure of 26 cents. Results were adversely impacted by a significant rise in provision for loan losses, higher operating expenses and a decline in non-interest income, partially offset by an increase in net interest income. Nonetheless, a steady rise in loans and deposit balances as well as strong capital ratios acted as tailwinds (read more: KeyCorp Earnings Lag on Higher Provisions & Costs).
6. Comerica Incorporated’s (NYSE:CMA) first-quarter 2016 results recorded a 19% negative earnings surprise on higher provisions and expenses. The company reported earnings per share of 34 cents, missing the Zacks Consensus Estimate of 42 cents. Moreover, the reported figure compared unfavorably with the prior-year quarter earnings of 73 cents per share. Higher expenses, lower non-interest income and increased provision for credit losses were the downsides. However, elevated net interest income and loans balances acted as tailwinds (read more: Comerica Q1 Earnings Lag on High Costs & Provisions).
Price Performance
The performance of banking stocks remained skewed toward the positive side with impressive earnings aided by top-line growth.
Here is how the seven major stocks performed:
Company | Last Week | 6 months |
JPM | 2.8% | 3.9% |
BAC | 6.4% | -5.7% |
WFC | 3.7% | -4.4% |
C | 3.7% | -9.9% |
COF | 4.8% | 2.6% |
USB | 3.6% | 4.8% |
PNC | 4.0% | 1.1% |
In the last five trading sessions, Bank of America Corp (NYSE:BAC). (NYSE:C) and Capital One Financial Corp (NYSE:COF). (NYSE:C) were the major gainers, with their shares increasing 6.4% and 4.8%, respectively. Moreover, The PNC Financial Services Group, Inc. (NYSE:PNC) shares spiked 4.0%.
Over the last six months, U.S. Bancorp and JPMorgan Chase & Co. (NYSE:JPM) were the top performers with their shares rising 4.8% and 3.9%, respectively. However, Citigroup shares fell 9.9%.
What's Next in the Banking Space?
In the coming five days, earnings releases will continue to remain in focus. Some banks that are scheduled to announce results are Capital One Financial Corp. (NYSE:C) on Apr 26, and Cullen/Frost Bankers, Inc. (NYSE:C) and BOK Financial Corp. (NASDAQ:BOKF) on Apr 27.
The stock price performance of the banks will depend on the outcome of the Federal Open Market Committee (FOMC) meeting next week (Apr 26-27). As per the minutes released of the March meeting, the FOMC apprehends a near-term interest rate hike after the Federal Reserve stated that "a cautious approach to raising rates would be prudent" last month.
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JPMORGAN CHASE (JPM): Free Stock Analysis Report
BB&T CORP (BBT): Free Stock Analysis Report
PNC FINL SVC CP (PNC): Free Stock Analysis Report
COMERICA INC (CMA): Free Stock Analysis Report
US BANCORP (USB): Free Stock Analysis Report
KEYCORP NEW (KEY): Free Stock Analysis Report
FIFTH THIRD BK (FITB): Free Stock Analysis Report
CITIGROUP INC (C): Free Stock Analysis Report
BANK OF AMER CP (BAC): Free Stock Analysis Report
BOK FINL CORP (BOKF): Free Stock Analysis Report
CULLEN FROST BK (CFR): Free Stock Analysis Report
CAPITAL ONE FIN (COF): Free Stock Analysis Report
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