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 – Free Report) 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 – Free Report) 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.
