Bank Stock Roundup: Q2 Earnings Coming To An End; KeyCorp, BB&T In Focus

Over the last five trading days, we have seen the last phase earnings releases for the second quarter by U.S. banks. The overall performance of the industry so far has not been as bad as the market expected. This was reflected in the bullish price trends of the bank stocks.

The performance showed resilience with improved loans and deposits, and efficient cost control measures. Further, the rate hike by the Federal Reserve in Dec 2015 slightly supported interest income growth. However, a challenging operating backdrop hurt the fee income. Further, stressed energy and commodity prices had an adverse impact on banks’ asset quality.

As expected by the market, the Fed’s two-day policy meeting ended on Jul 27 without any change in the interest rates. However, the policymakers seem to be happy with the direction of the domestic economy’s growth.

BANKS-MAJOR REGIONAL Industry Price Index

BANKS-MAJOR REGIONAL Industry Price Index

(Read: Bank Stock Roundup for the week ending Jul 22, 2016)

Important Developments of the Week

1. Higher expenses and provisions led KeyCorp.’s (NYSE:KEY) second-quarter 2016 adjusted earnings from continuing operations of 27 cents per share to miss the Zacks Consensus Estimate by a penny. In addition to a significant rise in provision for credit losses and operating expenses, a decline in non-interest income was there to dampen the results. These negatives were partially offset by an increase in net interest income (read more: KeyCorp's Q2 Earnings Miss on High Costs, Provisions).

2. A rise in revenues drove SunTrust Banks, Inc.'s (NYSE:STI) second-quarter 2016 adjusted earnings of 89 cents per share, which outpaced the Zacks Consensus Estimate of 87 cents. Results reflected an improvement in net interest income benefiting from the Dec 2015 rate hike and a rise in non-interest income. However, a jump in provision for credit losses and marginal rise in operating expenses were the downsides (read more: SunTrust Beats on Q2 Earnings; Provision Increases).

3. Fifth Third Bancorp (NASDAQ:FITB) reported second-quarter 2016 earnings per share of 40 cents, beating the Zacks Consensus Estimate of 37 cents. Results were aided by higher revenues, partially offset by increased expenses as well as provisions (read more: Fifth Third's Q2 Earnings Beat, Expenses Increase).

4. Given the challenging operating environment, BB&T Corporation (NYSE:BBT) is shutting down its equity research division and slashing 61 jobs in Richmond, Virginia as well as in a few other offices. The company announced this in a statement.

This is part of BB&T overall restructuring plan within its equity capital markets unit. The move is in response to changing market dynamics within the equity trading operation.

In an e-mail statement, the company spokesman Brian Davis said “We recognize this is a challenging time for the affected associates and their families and we're making every effort to place them into other positions. Severance packages and outplacement services will be offered.”

The statement further added, “While this restructuring brings about significant change for the BB&T Securities team, it also offers the opportunity to refocus our business model to further grow the debt capital markets, capital markets advisory, M&A and private client advisory platforms.”

5. As part of their approved 2016 capital pans, BB&T and Comerica Incorporated (NYSE:CMA) announced new capital deployment programs. BB&T increased its quarterly dividend 7% to 30 cents per share. Along with that, its capital plan includes share buyback of up to $640 million, through the second quarter of 2017.

Comerica hiked its dividend 4.5% to 23 cents per share. Further, the company authorized $440 million in share buyback.

Price Performance

Overall, the performance of banking stocks reflected bullish sentiments. Here is how the seven major stocks performed:

In the last five trading sessions, BofA and Capital One Financial (NYSE:COF) Corporation (NYSE:C) were the major gainers, with their shares increasing 2.1% and 0.7%, respectively. However, Citigroup Inc. (NYSE:C) and Wells Fargo & Company (NYSE:WFC) shares declined marginally.

Over the last six months, JPMorgan Chase & Co. (NYSE:JPM) and Citigroup were the best performers with their shares gaining 11.9% and 9.1%, respectively. On the other hand, The PNC Financial Services Group, Inc.’s (NYSE:PNC) shares declined 2.2%.

What's Next in the Banking Space?

As Q2 earnings season is coming to an end for the banking sector, the focus will again shift to the broader macroeconomic factors and tough operating backdrop. So, the performance of banking stocks could be volatile over the coming days.