Following the lead of their much larger compatriots JPMorgan Chase, Citigroup, and Wells Fargo, many regional banks released second-quarter earnings this week. It was good news for 25 banks, decent news for three banks, and seven banks can be viewed as disappointments depending on how you look at them.
One-time credit equals big earnings beat
Among the bigger surprises of the week was the performance of California-based bank Hanmi Financial (Nasdaq: HAFC), which exceeded analyst expectations for the quarter by nearly 400%! While the consensus among analysts was a respectable $0.38 per share, Hanmi checked in with a robust $1.77 per share. When looking beyond the headline grabbing numbers, however, we see that the majority of this income was from the reversal of a valuation of a "deferred tax asset." This is not to say that the bank didn't improve this quarter -- nonperforming assets decreased nearly $100 million from the same quarter last year, strengthening the bank's overall balance sheet.
Regional bank favorites continue to impress
Regional banking stalwarts Huntington Bancshares (Nasdaq: HBAN) and US Bancorp (NYSE: USB) continue a recent run of beating earnings expectations. Huntington followed up a solid first quarter, a quarter that saw profits leap by 22% over the previous year, with a solid second quarter. While not a double-digit increase, a solid increase of 4.7% over the same quarter last year was the third quarter in a row that saw a rise in net income.
US Bancorp, on the other hand, was recently lauded by rating agency Fitch for its great performance relative to its regional bank peers, which helps place it in high esteem among some of the largest U.S. banks. The second quarter saw the Minnesota-based bank report record earnings per share, primarily driven by increases in net interest and noninterest income. Furthermore, mortgage banking revenue more than doubled, while its provision for loan losses declined by 18%.
Two who failed to meet expectations
The biggest miss of the week belonged to Independent Bank (Nasdaq: INDB), which missed earnings expectations by more than 20%. Similar to Hanmi on the other side of the expectation spectrum, Independent was affected this quarter by a couple of one-time charges -- a charge relating to the acquisition of Central Bancorp and the charge-off of one $4 million loan that ran into some legal problems. Without these two rare occurrences, earnings would have fallen right in line with expectations, buoyed by a 5.8% increase in deposits from the same quarter last year. As long as something like this doesn't occur again, Independent should be back to its estimate beating ways by next quarter.
Another that failed to meet expectations was Northern Trust (Nasdaq: NTRS). Higher revenue and fewer net charge-offs led total earnings to rise 18% during the quarter, but this was still slightly below analysts' expectations. During the previous quarter, which included a dividend increase, net income was up 23% from the previous quarter, which might have led some of the analysts to expect the same rate of growth during the second quarter.
Opportunities in regional banks
I like the potential of regional banks personally, but they may not be for everyone. Earnings are just one thing to consider when choosing an investment, so view these results as a small piece to a much larger puzzle. In fact, a bank similar to the ones here is featured prominently in our brand new free report "The Stocks Only the Smartest Investors are Buying." To find out more about the opportunity, get your copy today, before it's too late.
Fool contributor Robert Eberhard holds no position in any company mentioned. Follow him on Twitter, or click here to see his holdings and a short bio. The Motley Fool owns shares of Huntington Bancshares, Citigroup, and JP Morgan Chase. Motley Fool newsletter services have recommended buying shares of Wells Fargo. The Motley Fool has a disclosure policy.
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