Things could have just as easily gone the other way under different circumstances. As it stands, though, the market showed Zions Bancorp(NASDAQ: ZION) and KeyCorp(NYSE: KEY) some bullish love today following the release of last quarter's results, yet it sent Truist Financial(NYSE: TFC) shares lower. The two winners gained 10% and 4% (respectively) on Thursday, according to data from S&P Global Market Intelligence, while Truist fell 7.1% after posting a rare earnings miss for the three-month stretch ending in June.
The fallout from the Fed's recent streak of interest rate hikes is still being felt. At the same time, the echoes of Silicon Valley Bank's liquidity crises are still ringing. It's a challenge for banks of all sizes but an unpredictable one for most smaller banks.
That's the collective takeaway from recent earnings reports from Truist Financial, KeyCorp, and Zions Bancorp, anyway...and investors' responses to those numbers. The market seems to be surprised about all three, even if one of those surprises was an unpleasant one.
Truist is the proverbial problem child. Last quarter's per-share earnings of $0.92 per share not only fell from the year-ago comparison of $1.09 but also fell short of the $1.01 per-share profit analysts were calling for. Key performance ratios, including its ROTCE (return on tangible common equity), fell from Q1's 24.1% to 19.4% this time around, with its costs of offering interest on deposits growing 39 basis points during the second quarter. Rising provisions for loan losses didn't help matters either. The bank earmarked $538 million for credit losses during Q2, well up from the year-ago comparison of $171 million. Charge-offs booked during the quarter roughly tripled year over year as well.
Perhaps the one nuance investors struggled to accept the most, however, is that despite Truist's efforts to be highly accommodative, the average customer deposit sequentially slipped by 2.1%.
That's not a problem KeyCorp had during its second quarter. Its Q2 deposits grew $1.0 billion from Q1's levels. While its costs for servicing these deposits swelled from less than 1% to 1.49%, and its loan-loss provisions more than tripled year over year (and the bank's bottom line of $0.27 per share was halved year over year and fell short of estimates of $0.31), investors are cheering its cost-culling effort and well-tempered charge-off rate of only 0.17% of its loan portfolio.
As for Zions, it's still attracting new customers...or at least new money. Deposits grew by 7% from Q1's tally during the second quarter. And while its net interest margin rates were also crimped -- thanks to higher interest rates paired with rising loan losses -- like KeyCorp, Zions is managing the challenge to maintain its overall health. Nonperforming loans fell from 0.38% of its loan portfolio to only 0.29%, while its CET1 (common equity tier 1) capital ratio and efficiency ratio both improved slightly during Q2.
Don't worry too much about the numbers themselves. As was noted, the economic backdrop has been particularly tricky for banks. Nobody really knew what to expect from Q2's numbers. That's especially true of the nation's smaller banks that typically operate under most investors' and analysts' radars.
Still, tests like the ones banks have been through this year often separate the strong from the weak. Investors can at least draw this much from this recent reporting and today's disparate responses from these stocks: Zions Bancorp and KeyCorp are doing something right, while Truist is doing something wrong. That's too clear of a hint to ignore if you were considering buying any of these stocks, as each bank's individual strengths and/or weaknesses could persist into the foreseeable future.
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