Last five trading days were earnings-heavy for banks. The results show that banks have lost significant ground during the quarter, but endured the tough industry backdrop with the help of effective cost-control measures and streamlining activities. These ultimately led to positive share price movement.
Though legal costs dragged down profitability to some extent, banks’ operational efficiencies have reaped benefits. Moreover, improvement in credit trends countered the negatives to some extent.
(Read last to last week’s Bank Stock Roundup for Jan 16, 2015)
Recap of the Week’s Most Important Earnings:
1. U.S. Bancorp’s (USB) fourth-quarter 2014 earnings per share of 78 cents beat the Zacks Consensus Estimate by a penny. Moreover, results were above the prior-year quarter earnings of 76 cents. Including certain one-time items, net income attributable to U.S. Bancorp was $1.5 billion or 79 cents per share in the quarter. Higher revenues, a strong capital position, lower nonperforming assets and growth in average loans and deposits were the positives for the quarter. However, increase in expenses was recorded. (Read more: U.S. Bancorp Reports Solid Q4 Earnings on High Revenues)
2. Lower expenses drove KeyCorp.’s (KEY) fourth-quarter 2014 adjusted earnings from continuing operations of 29 cents per share, which outpaced the Zacks Consensus Estimate of 26 cents. Moreover, the figure was up 3.6% from the year-ago adjusted figure of 28 cents. Better-than-expected results were attributable to a rise in non-interest income and lower expenses, partly offset by an increase in provision for loan and lease losses, and a slight fall in net interest income. Continued improvement in asset quality, growth in loan and deposit balances as well as strong capital ratios were the other highlights.
After considering costs related to efficiency initiatives and a pension settlement charge, net income from continuing operations attributable to common shareholders in the reported quarter came in at $246 million or 28 cents per share, up from $229 million or 26 cents per share in the year-ago quarter. (Read more: KeyCorp Tops Q4 Earnings on Higher Revenues, Costs Fall)
3. Fifth Third Bancorp's (FITB) fourth-quarter 2014 earnings per share came in at 43 cents, marginally beating the Zacks Consensus Estimate of 42 cents. The reported figure came in line with the prior-year quarter earnings. Fourth-quarter results include the impact of positive valuation adjustment of $53 million on the Vantiv warrant, annual payment of $23 million received from Vantiv, charge of $19 million pertaining to the valuation of the total return swap entered into as part of the 2009 sale of Visa, Inc. Class B shares. Also, it included the impact of severance expense of $6 million, charges of $3 million in litigation reserve and $23 million as provision expense related to the transfer of residential mortgage loans classified as troubled debt restructurings to held-for-sale. The prior-year quarter also included certain non-recurring items.
Results were aided by lower expenses, partially offset by decreased revenues and higher provisions for loan and lease losses. Improved loan and deposit balances and a strong capital position were among the other positives. (Read more: Fifth Third Bancorp Q4 Earnings Beat on Lower Expenses)
4. Driven by lower expenses, BB&T Corporation (BBT) delivered a positive earnings surprise in fourth-quarter 2014. Earnings per share of 76 cents surpassed the Zacks Consensus Estimate of 73 cents. Moreover, earnings came in a penny higher than the year-ago quarter figure. Reduction in expenses along with a rise in non-interest income contributed to the better-than-expected results. Improvement in credit quality as well as growth in average loans and deposits continued to be the company’s strengths. However, a decline in net interest income weighed on the results. (Read more: BB&T Beats Q4 Earnings on Lower Costs, Revenues Strained)
5. Capital One Financial Corp. (COF) reported fourth-quarter 2014 earnings of $1.73 per share, up 21% from the prior-year quarter. However, earnings from continuing operations of $1.68 per share missed the Zacks Consensus Estimate of $1.74, though it surpassed the prior-year quarter figure by 15%. Results were hurt by higher provision for credit losses and a rise in expenses, which were, however, partly offset by higher revenues. Nevertheless, both profitability ratios and capital ratios witnessed improvement in the quarter, whereas credit quality was a mixed bag.
Price Performance
Overall, the performance of banking stocks remained skewed toward the optimistic side with impressive earnings aided by effective cost control. Most of the banking stocks showed a positive price movement.
|
Company |
Last Week |
Last 6 months |
|
JPM |
3.0% |
-0.5% |
|
BAC |
4.6% |
4.3% |
|
WFC |
4.1% |
6.1% |
|
C |
4.1% |
0.0% |
|
COF |
-0.6% |
-6.5% |
|
USB |
4.6% |
3.9% |
|
PNC |
3.1% |
5.2% |
In the last five trading sessions, Bank of America Corporation (BAC) and U.S. Bancorp were the major gainers, with both witnessing 4.6% price increase.
Over the last six months, Wells Fargo & Company (WFC) and The PNC Financial Services Group, Inc. (PNC) were the top performers, with their shares advancing 6.1% and 5.2%, respectively. Moreover, BofA witnessed a 4.3% price increase over the same time frame.
What Next in the Banking Universe?
In the coming five days, earnings releases will continue to remain in focus. Some banks that are scheduled to announce results are Zions Bancorporation (ZION) on Jan 26, Hudson City Bancorp, Inc. (HCBK) and Cullen/Frost Bankers, Inc. (CFR) on Jan 28 and TCF Financial Corporation (TCB) on Jan 29.
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