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Regional Banks May Do Better than the Big Banks

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Results from the big banks largely came in line with expectations, though Bank of America (BAC - Free Report) did a little better and Wells Fargo (WFC) was a tad below expectations. We knew that improved net interest margins will help the profitability of the core lending business even though growth in loan portfolios was expected to decelerate further. Management teams blamed policy uncertainty out of Washington as a contributing factor to weakening loan demand, though loan growth at PNC Financial (PNC) likely offers favorable read-throughs for other regional operators that are on deck to release results this week.

No major surprises with respect to other areas of weakness like trading revenues, mortgages and credit cards. Credit card charge-offs are starting to increase across the board in the industry, as is typically the case at this stage in the credit cycle. All the players appear to be doing a good job with expense controls, which has been a key earnings driver over the last few years of flat net-interest margins, a by-product of super-loose Fed policy. But margins have started going up, which is helping offset the drags from other areas.

The bottom line on bank results is that they aren’t bad, but they aren’t great either. The stocks have responded negatively to the results because they had run up so much ahead of these earnings reports. The Zacks Major Banks industry, which includes all the big banks, has lost ground over the last few sessions, but is still up significantly since September 8th.

Finance Sector Scorecard

It is still fairly early, with results from only 6 Finance sector companies in the S&P 500 (out of 97 total) out already. But these 6 companies are the some of the largest in the entire index and account for 30.1% of the sector’s total market capitalization in the index. Total earnings for these 6 Finance sector companies are up +6.8% from the same period last year on +1.7% higher revenues, with 83.3% beating EPS estimates and 50% beating top-line estimates.

The chart below compares the growth pace (earnings and revenue) and proportion of positive surprises for these 6 banks with what we saw from this same group of companies in other recent periods.

What this shows is that the Q3 earnings and revenue growth pace is below what we saw from the same six banks in the preceding quarter as well as the 4-quarter average. The proportion of positive surprises is broadly the same trend.

Looking at Q3 earnings and revenue expectations for the sector as a whole, combining the reported actual results with the still-to-come estimates, Finance sector earnings are expected to be down -4.6% from the same period last year on +1% higher revenues. The chart below shows the sector’s Q3 earnings growth expectations contrasted with estimates for the following four quarters and actual results for the preceding two periods.

The sector’s earnings decline in Q3 will follow double-digit earnings growth in each of the two preceding quarters, as the chart above shows. Earnings growth is expected to be modestly positive for the banking industry, but the drag is coming from the insurance industry which has been hit hard by this recent run of damaging hurricanes.

The table below shows the sector’s Q3 earnings growth expectations at the medium-industry level contrasted with estimates for the following four quarters and actual results for the preceding three periods.

Please note that the Major Banks industry, of which JPMorgan, Wells Fargo and others are part, accounts for roughly 45% of the sector’s total earnings (insurance is the second biggest earnings contributor, accounting for about 25% of the total).

Q3 Earnings Season Scorecard (as of Friday, October 13, 2017)

We now have Q3 results from 32 S&P 500 members that combined account for 10.3% of the index’s total market capitalization. Total earnings for these companies are up +12.8% from the same period last year on +6.3% higher revenues, with 81.3% beating EPS estimates and 78.1% beating revenue estimates.

The charts below compare the Q3 results thus far from the 32 index members with what we had seen from the same group of companies in other recent periods.

This is still a fairly small sample of results, but growth is tracking a tad below what we had seen from the same group of 32 index members in the preceding quarter while companies are beating estimates at about the same rate.

The chart below shows the weekly calendar of earnings releases for the entire Q3 earnings cycle. As you can see, the reporting cycle really starts ramping up this week, with 178 companies reporting results, including 53 S&P 500 members.

Expectations for Q3

Total Q3 earnings are expected to be up +2.1% from the same period last year on +5% higher revenues. This would follow +11.1% earnings growth in 2017 Q2 on +5.5% revenue growth, the second quarter in a row of double-digit earnings increases.

Estimates for Q3 came down as the quarter unfolded, with the current +2.1% growth down from +6.3% at the end of June. The chart below shows how Q3 earnings growth expectations have evolved since the start of the quarter.

Please note that while Q3 estimates have followed the well traversed path that we have been seeing consistently over the last few years, the magnitude of negative revisions nevertheless compares favorably to other periods. In other words, Q3 estimates have come down, but they haven’t come down by as much.

The table below shows the summary picture for Q3, contrasted with what was actually achieved in Q2.

In terms of sector focus, the strongest growth in Q3 is coming from the Energy sector which benefits from easy comparisons. Excluding the Energy sector, the aggregate growth pace drops to +0.2% from +2.1%. The Conglomerate sector is the only other sector with double-digit growth rates. Earnings growth is also strong for the Technology sector, with total earnings for the sector expected to be up +9.7% on +6.7% higher revenues.

On the negative side, Q3 earnings are expected to be below the year-earlier level for 8 of the 16 Zacks sectors, with double-digit declines for the Transportation, Aerospace, Basic Materials and Autos sectors.

The chart below shows Q3 earnings growth expectations contrasted with what is expected in the following three quarters and actual results in the preceding 5 quarters. As you can see in the chart below, the growth pace has started decelerating from the double-digit level of the first two quarters of the year.

Note: Sheraz Mian manages the Zacks equity research department. He is an acknowledged earnings expert whose commentaries and analyses appear on and in the print and electronic media. His weekly earnings related articles include Earnings Trends and Earnings Preview. He manages the Zacks Top 10 and Focus List portfolios and writes the Weekly Market Analysis article for Zacks Premium subscribers.

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Here is a list of the 178 companies including 53 S&P 500 and reporting this week.

Company Ticker Current Qtr Year-Ago Qtr Last EPS Surprise % Report Day Time
MCCLATCHY CO-AMNI-0.55-0.29-31.67%MondayBTO
NETFLIX INCNFLX0.320.12-6.25%MondayAMC
IDEX CORPIEX1.060.921.89%MondayAMC
SONIC CORPSONC0.430.454.88%MondayAMC
CELANESE CP-ACE1.921.672.87%MondayAMC
BROWN & BROWNBRO0.490.524.26%MondayAMC
BADGER METERBMI0.350.32.86%MondayAMC
KMG CHEMICALSKMG0.530.3812.77%MondayAMC
WIPRO LTD-ADRWIT0.060.0616.67%TuesdayN/A
PROLOGIS INCPLD0.670.737.69%TuesdayBTO
CSX CORPCSX0.510.488.47%TuesdayBTO
JOHNSON & JOHNSJNJ1.81.682.23%TuesdayBTO
COMERICA INCCMA1.230.927.48%TuesdayBTO
GOLDMAN SACHSGS4.314.8817.56%TuesdayBTO
MORGAN STANLEYMS0.810.814.47%TuesdayBTO
PROGRESSIVE CORPGR0.430.36-1.67%TuesdayBTO
GRAINGER W WGWW2.573.064.58%TuesdayBTO
SYNOVUS FINL CPSNV0.640.521.69%TuesdayBTO
SYNTEL INCSYNT0.420.6310.00%TuesdayBTO
HANMI FINL CPHAFC0.460.410.00%TuesdayBTO
TILE SHOP HLDGSTTS0.040.1-6.25%TuesdayBTO
INTL BUS MACHIBM3.283.298.79%TuesdayAMC
LAM RESEARCHLRCX3.271.812.98%TuesdayAMC
NAVIENT CORPNAVI0.480.54.88%TuesdayAMC
CDN PAC RLWYCP2.322.090.49%TuesdayAMC
SELECT COMFORTSCSS0.680.56100.00%TuesdayAMC
FULTON FINLFULT0.280.240.00%TuesdayAMC
ADTRAN INCADTN0.270.2622.73%TuesdayAMC
PZENA INVESTMNTPZN0.150.1225.00%TuesdayAMC
UTD COMM FIN CPUCFC0.150.1114.29%TuesdayAMC
UNIVL FST PRODSUFPI1.431.36-11.35%TuesdayAMC
HANCOCK HLDG COHBHC0.740.590.00%TuesdayAMC
PINNACLE FIN PTPNFP0.890.785.00%TuesdayAMC
CREE INCCREE-0.060.0655.56%TuesdayAMC
US BANCORPUSB0.880.841.19%WednesdayBTO
ABBOTT LABSABT0.650.593.33%WednesdayBTO
M&T BANK CORPMTB2.42.134.39%WednesdayBTO
NORTHERN TRUSTNTRS1.121.08-4.84%WednesdayBTO
ASML HOLDING NVASML1.281.041.89%WednesdayBTO
UNIFIRST CORPUNF1.241.271.49%WednesdayBTO
SUPERVALU INCSVU0.380.7-10.00%WednesdayBTO
UNION BANKSHARSUBSH0.490.47-2.13%WednesdayBTO
COMMUN TRUST BCCTBI0.720.7-2.99%WednesdayBTO
MGIC INVSTMT CPMTG0.250.2524.00%WednesdayBTO
FIRST COMMTY CPFCCO0.290.25-7.69%WednesdayBTO
UTD RENTALS INCURI2.992.582.60%WednesdayAMC
AMER EXPRESS COAXP1.481.240.68%WednesdayAMC
SL GREEN REALTYSLG1.581.639.88%WednesdayAMC
EBAY INCEBAY0.380.38-5.56%WednesdayAMC
CROWN CASTLECCI1.11.094.35%WednesdayAMC
UNITED CONT HLDUAL23.111.10%WednesdayAMC
ALCOA CORPAA0.77N/A3.33%WednesdayAMC
WINTRUST FINLWTFC1.090.9212.12%WednesdayAMC
TRIUMPH BANCORPTBK0.450.3254.55%WednesdayAMC
COHEN&STRS INCCNS0.510.512.04%WednesdayAMC
TEXAS CAP BCSHSTCBI1.110.873.19%WednesdayAMC
UMPQUA HLDGS CPUMPQ0.290.32-3.70%WednesdayAMC
BRANDYWINE RTBDN0.350.330.00%WednesdayAMC
CROWN HLDGS INCCCK1.411.331.82%WednesdayAMC
KAISER ALUMINUMKALU1.091.0245.54%WednesdayAMC
STEEL DYNAMICSSTLD0.660.650.00%WednesdayAMC
VALMONT INDSVMI1.621.484.15%WednesdayAMC
WESBANCO INCWSBC0.640.6-3.23%WednesdayAMC
BOSTON PRIV FINBPFH0.230.2122.73%WednesdayAMC
SLM CORPSLM0.170.120.00%WednesdayAMC
TRISTATE CP HLDTSC0.30.37.41%WednesdayAMC
EAGLE BCP INCEGBN0.820.726.58%WednesdayAMC
EXPONENT INCEXPO0.430.4224.39%WednesdayAMC
GUARANTY BANCRPGBNK0.370.322.86%WednesdayAMC
LIMELIGHT NETWKLLNW-0.03-0.03100.00%WednesdayAMC
NATIONAL BK HLDNBHC0.30.317.86%WednesdayAMC
CENTRAL VLY COMCVCY0.320.2829.03%WednesdayAMC
FIRST CT BANCRPFBNK0.350.24-6.06%WednesdayAMC
CONSOL TOMOKACTO0.221.44168.00%WednesdayAMC
NVE CORPNVEC0.610.683.03%WednesdayAMC
HEXCEL CORPHXL0.690.65-2.90%WednesdayAMC
CVB FINLCVBF0.270.230.00%WednesdayAMC
GREENHILL & COGHL-0.340.41-33.33%WednesdayAMC
RLI CORPRLI-0.020.3712.96%WednesdayAMC
BANCFIRST OKLABANF0.710.5623.48%ThursdayN/A
CNB FINL CP PACCNE0.390.4437.50%ThursdayN/A
DANAHER CORPDHR0.950.872.06%ThursdayBTO
Quest Diagnostics IncDGX1.381.379.93%ThursdayBTO
VERIZON COMMVZ0.981.010.00%ThursdayBTO
KEYCORP NEWKEY0.350.30.00%ThursdayBTO
DOVER CORPDOV1.120.872.97%ThursdayBTO
PPG INDS INCPPG1.511.561.10%ThursdayBTO
TEXTRON INCTXT0.620.619.09%ThursdayBTO
BANK OF NY MELLBK0.930.99.52%ThursdayBTO
PHILIP MORRISPM1.381.25-7.32%ThursdayBTO
SNAP-ON INCSNA2.432.221.96%ThursdayBTO
GENUINE PARTSGPC1.281.24-1.53%ThursdayBTO
ALLIANCE DATAADS4.84.543.17%ThursdayBTO
BB&T CORPBBT0.780.761.30%ThursdayBTO
QUEST DIAGNOSTCDGX1.381.379.93%ThursdayBTO
TRAVELERS COSTRV0.592.4-7.25%ThursdayBTO
NUCOR CORPNUE0.790.88-6.54%ThursdayBTO
ROGERS COMM CLBRCI0.80.64.23%ThursdayBTO
WABCO HOLDINGSWBC1.531.549.74%ThursdayBTO
EAST WEST BCEWBC0.870.760.00%ThursdayBTO
WEBSTER FINL CPWBS0.640.546.67%ThursdayBTO
BLACKSTONE GRPBX0.590.57-4.84%ThursdayBTO
GATX CORPGATX0.992.2520.00%ThursdayBTO
AMERIS BANCORPABCB0.650.61-3.08%ThursdayBTO
POOL CORPPOOL1.171.03-1.34%ThursdayBTO
SANDY SPRINGSASR0.640.563.39%ThursdayBTO
S&T BANCORP INCSTBA0.60.5918.18%ThursdayBTO
NAVIOS MARITIMENAP0.210.26-56.52%ThursdayBTO
NEUROMETRIX INCNURO-1.9-6.0812.01%ThursdayBTO
SAP AG ADRSAP0.890.68-26.21%ThursdayBTO
TAIWAN SEMI-ADRTSM0.550.59-25.00%ThursdayBTO
FNB CORPFNB0.240.240.00%ThursdayBTO
MB FINANCL INCMBFI0.640.63-15.63%ThursdayBTO
SONOCO PRODUCTSSON0.740.721.43%ThursdayBTO
E TRADE FINL CPETFC0.510.518.33%ThursdayAMC
PEOPLES UTD FINPBCT0.260.254.35%ThursdayAMC
WERNER ENTRPRSWERN0.320.2623.08%ThursdayAMC
EASTGROUP PPTYSEGP1.081.040.00%ThursdayAMC
WESTERN ALLIANCWAL0.780.664.11%ThursdayAMC
ATHENAHEALTH INATHN0.240.35300.00%ThursdayAMC
ASSOC BANC CORPASB0.360.340.00%ThursdayAMC
MAXIM INTG PDTSMXIM0.550.481.61%ThursdayAMC
PROOFPOINT INCPFPT-0.23-0.27-50.00%ThursdayAMC
IBERIABANK CORPIBKC1.161.08-1.79%ThursdayAMC
ATLASSIAN CP-ATEAM-0.05057.14%ThursdayAMC
HAWAIIAN HLDGSHA1.881.923.27%ThursdayAMC
FIRST FIN BC-OHFFBC0.380.37-2.63%ThursdayAMC
MARTEN TRANSMRTN0.140.1613.33%ThursdayAMC
NCR CORP-NEWNCR0.90.876.67%ThursdayAMC
DEL TACO RSTRNTTACO0.130.130.00%ThursdayAMC
GRUPO AEROP-ADRASR2.11.585.18%ThursdayAMC
COBIZ FINL INCCOBZ0.230.259.52%ThursdayAMC
BRYN MAWR BK CPBMTC0.60.553.51%ThursdayAMC
INDEP BK MASSINDB0.910.781.23%ThursdayAMC
WD 40 COWDFC0.970.9912.09%ThursdayAMC
SENSIENT TECHSXT0.860.830.00%ThursdayAMC
LASALLE HTL PRPLHO0.730.85-1.22%ThursdayAMC
SKECHERS USA-ASKX0.430.42-13.64%ThursdayAMC
CLEARWATER PAPRCLW0.060.1317.39%ThursdayAMC
PROCTER & GAMBLPG1.071.038.97%FridayBTO
SUNTRUST BKSSTI1.060.915.10%FridayBTO
CITIZENS FIN GPCFG0.640.526.78%FridayBTO
KANSAS CITY SOUKSU1.321.125.56%FridayBTO
SYNCHRONY FINSYF0.640.735.17%FridayBTO
BAKER HUGHES GEBHGE0.12-0.15-168.75%FridayBTO
GENL ELECTRICGE0.50.3212.00%FridayBTO
ALTRA INDUS MOTAIMC0.460.3511.76%FridayBTO
VOLVO AB-BVLVLY0.270.153.13%FridayBTO
GENTEX CORPGNTX0.310.32-3.12%FridayBTO
MANPOWER INC WIMAN1.951.875.20%FridayBTO
DST SYSTEMSDST0.730.76-2.56%FridayBTO
MOBILE MINI INCMINI0.330.31-7.69%FridayBTO
ERICSSON LM ADRERIC0.010.04-60.00%FridayBTO

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