With earnings season only a few weeks away and the financial sector starting to show bits of unrest following announcements of lower expected trading revenue and general uncertainty surrounding Federal Reserve policy, here is one thing to keep an eye on in the upcoming earnings releases at five regional banks.
PNC (NYSE: PNC ) -- Return on Assets
PNC has made an aggressive push to improve its profitability by becoming more reliant on fee income and less dependent on interest income. It has also set out to improve its efficiency ratio (which measures how much it costs to generate one dollar of revenue) over the last year.
All of these efforts have translated to significant improvements in its ability to return money to shareholders over the last year -- so keep an eye on return on assets (which stood at 1.49% last quarter) to see if PNC can continue its great work.
First Niagara Financial Group (NASDAQ: FNFG ) -- Return on Equity
First Niagara has been on an acquisition spree over the last few six years -- yet it has seemingly finally slowed down and has begun to focus on organically growing its business. Almost all of those acquisitions were funded by equity issuances, and as a result, the price of the stock has dramatically lagged the market.
In fact, First Niagra's return on equity of 5.65% last quarter was 19th out of the 20 banks with between $10 billion and $200 billion in assets located in the U.S. Now is the time for First Niagara to begin generating the returns to its shareholders. Let's hope it can.
SunTrust Banks (NYSE: STI ) -- Revenue Growth
SunTrust has watched its net income steadily rise over the last year, which is certainly a good thing. However, it has also seen its revenue fall by about 7% as both its net interest income and its noninterest income have fallen.
While it has correspondingly reduced expenses, which has helped its bottom line, expense reduction can only get a company so far. While net interest margins are shrinking for most banks in the face of rising rates, many of them have been creative in generating additional revenue. We'll be closely watching to see if SunTrust can grow its top line.
Regions Financial Corporation (NYSE: RF ) -- Loan Dynamics
Regions has seen its commercial loans grow a little over $2 billion (or 6%) over the past year, while its total loans outstanding has actually fallen by a little over $1 billion. This was primarily driven by its big push into commercial and industrial loans, which were up 11.4% year over year.
While these have some of the lowest yields of the loans held on Regions' balance sheet, they also have some of the lowest risk as well. It has grown its commercial loan portfolio for the past 12 quarters, and saw loan originations grow 36% year over year. Watch to see if Regions continues its charge into the commercial loan industry.
Fifth Third Bancorp (NASDAQ: FITB ) -- Actual Net Income
Fifth Third had eye-popping growth in its net income last quarter, which was almost 60% greater than the second quarter of last year, and almost 45% greater than the first quarter of this year. As a result, its return on average common equity was at 17.6% -- one of the highest numbers in the industry.
Yet a big explanation for all of this was its sale of shares in its former subsidiary Vantiv, which is now publicly traded. Excluding that, its noninterest income (which was the biggest driver of profits) was only up 5%. While business is improving at Fifth Third, check in this quarter to see if those improvements are attributable to its sustained operations and not just one-time gains.
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