Regional Banks May Do Better Than The Big Banks

 | Oct 13, 2017 04:51AM ET

Results from the big banks largely came in line with expectations, though Bank of America (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.