Top U.S. banks are in the process of releasing first-quarter
2014 results, likely to reflect the tough backdrop endured by the
sector since the beginning of the year.
The first to report earnings was
Wells Fargo & Company
), which beat estimates by a decent margin. But numbers from
JPMorgan Chase & Co.
) lagged behind estimates by a wide margin. However,
) reported impressive first-quarter 2014 results, following Wells
JPMorgan Chase failed to override industry conditions and
delivered a negative earnings surprise of 9.2%. The banking giant
came out with earnings of $1.28 per share, missing the Zacks
Consensus Estimate of $1.41 by a wide margin. This is also
significantly lower from the year-ago number of $1.59.
However, it would not be unjustified to blame industry-wide
headwinds, as the company was largely unaffected by settlements
of legal disputes. A lower level of consumer and corporate
activities, soft trading volumes and sluggish mortgage banking
dragged earnings this time around. Moreover, fundamental pressure
from a low interest rate and sluggish loan growth made matters
However, Wells Fargo earned $1.05 per share in first-quarter
2014, thereby achieving earnings growth for the 17th consecutive
quarter. Results improved from $1.00 earned in the prior quarter
and 92 cents in the year-ago quarter. The reported figure also
beat the Zacks Consensus Estimate by 8 cents.
Despite negative market sentiment, shares of Wells Fargo
increased marginally in the pre-market session, indicating that
investors have been bullish on the results. The price reaction
during the trading session will give a fair idea whether Wells
Fargo has been able to meet market expectations.
Following a disappointing second-half 2013, Citigroup reported
impressive first-quarter 2014 results. Earnings per share came in
at $1.30, outpacing the Zacks Consensus Estimate of $1.18.
Moreover, earnings surpassed the prior-year period earnings by a
Shares of Citigroup jumped around 3.7% in the pre-market
session, indicating that investors have been bullish on the
results. The price reaction during the trading session will give
a better idea whether Citigroup has been able to meet
What Did They Get Right?
Both Wells Fargo and Citibank's success was a result of
prudent expense management. In Wells Fargo's case total loans and
deposits grew. Moreover, a strong capital position and returns on
assets and equity acted as the positives. But more importantly,
the company recorded reduction in non-interest expenses.
Wells Fargo also reported $500 million in reserve release
(pre-tax), attributable to its improved credit performance.
However, the company experienced a fall in its top line owing to
lower non-interest income.
Better expense management was the driving force behind
Citigroup's better performance as well. Total costs of credit for
the first quarter at Citigroup were down 20% year over year to
$1.97 billion. The improvement was primarily attributable to a
decline in net credit losses and reduced provision for benefits
The Bottom Line
Going forward, expense management may well be the key factor
which determines a bank's success and failure. Moreover,
reserve releases for most banks are not expected to be strong
enough to support bottom-line growth similar to the past year.
Only continued expense control and stable balance sheets can make
bank stocks desirable in the upcoming quarters.
Below we present two banking stocks which possess the
potential to grow appreciably and are slated to report soon, each
of which also has a good Zacks Rank and is poised to exceed
) is the holding company for the Bank of North Carolina. A full
service commercial bank, it offers a large number of banking
services. It conducts both retail and business banking
operations. Earlier this month, the bank completed a merger with
South Street Financial Corp.
The company holds a Zacks Rank #1 (Strong Buy) and has
expected earnings growth of 30.40% for the next financial year.
The forward price-to-earnings Ratios (P/E) for the current
financial year (F1) is 15.22. This stock has a positive earnings
ESP of 8.33%
The First of Long Island Corporation
The First of Long Island Corporation
) is also a holding company for a bank. Its wholly owned
subsidiary is The First National Bank of Long Island. Besides
commercial and retail banking, it has an investment banking
division and an insurance agency. Another subsidiary, FNY Service
Corp, is an investment firm.
Currently the company holds a Zacks Rank #2 (Buy), and has
expected earnings growth of 11.40% for the next financial year.
It has a P/E (F1) of 15.43. The stock has a positive earnings ESP
The banking environment remains fraught with challenges and
yet some stocks have the ability to outperform the sector. These
two choices have the ability to post good earnings numbers and
would make excellent additions to your portfolios.
BNC BANCORP (BNCN): Free Stock Analysis
CITIGROUP INC (C): Free Stock Analysis Report
FIRST LONG IS (FLIC): Free Stock Analysis
JPMORGAN CHASE (JPM): Free Stock Analysis
WELLS FARGO-NEW (WFC): Free Stock Analysis
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