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U.S. Banks Industry Analysis

UpdatedJul 03, 2022
DataAggregated Company Financials
Companies640
  • 7D-1.9%
  • 3M-16.1%
  • 1Y-18.3%
  • YTD-24.6%

Over the last 7 days, the Banks industry has dropped 1.9%, driven by JPMorgan Chase declining 2.8%. Overall the industry is down 18% in 12 months. As for the next few years, earnings are expected to grow by 9.7% per annum.

Industry Valuation and Performance

Has the U.S. Banks Industry valuation changed over the past few years?

DateMarket CapRevenueEarningsPE
Sun, 03 Jul 2022US$1.7tUS$615.6bUS$179.4b9.5x
Tue, 31 May 2022US$1.9tUS$616.0bUS$179.5b9.9x
Thu, 28 Apr 2022US$1.8tUS$617.7bUS$180.4b10x
Sat, 26 Mar 2022US$2.1tUS$637.3bUS$196.3b10.6x
Mon, 21 Feb 2022US$2.2tUS$636.6bUS$196.2b10.8x
Wed, 19 Jan 2022US$2.3tUS$628.4bUS$192.8b11.2x
Fri, 17 Dec 2021US$2.2tUS$624.4bUS$192.9b10.7x
Sun, 14 Nov 2021US$2.2tUS$623.9bUS$193.2b10.9x
Tue, 12 Oct 2021US$2.2tUS$601.9bUS$180.9b11.3x
Thu, 09 Sep 2021US$2.0tUS$602.4bUS$180.8b10.9x
Sat, 07 Aug 2021US$2.1tUS$602.6bUS$181.0b11x
Fri, 30 Apr 2021US$2.1tUS$548.9bUS$139.9b11.8x
Mon, 01 Feb 2021US$1.6tUS$494.4bUS$96.9b11.4x
Thu, 05 Nov 2020US$1.3tUS$485.7bUS$91.8b10x
Sun, 09 Aug 2020US$1.3tUS$485.8bUS$95.7b9.7x
Sat, 02 May 2020US$1.3tUS$520.6bUS$127.0b9.8x
Tue, 04 Feb 2020US$1.8tUS$547.5bUS$156.3b12.4x
Fri, 08 Nov 2019US$1.8tUS$550.6bUS$160.0b12.5x
Thu, 01 Aug 2019US$1.8tUS$549.6bUS$162.1b12.6x
Median PE Ratio

12.6x


Total Market Cap: US$1.8tTotal Earnings: US$162.1bTotal Revenue: US$549.6bTotal Market Cap vs Earnings and Revenue0%0%0%
U.S. Banks Industry Median PE3Y Average 11x202020212022
Current Industry PE
  • Investors are pessimistic on the industry, indicating that they anticipate long-term growth rates will be lower than they have historically.
  • The industry is trading at a PE ratio of 9.3x which is lower than its 3-year average PE of 12.4x.
  • The industry's 3-year average PS ratio 3.2x is higher than the industry's current PS ratio of 2.7x.
Past Earnings Growth
  • The earnings for companies in the Banks industry have grown 3.4% per year over the last three years.
  • Revenues for these companies have grown 3.9% per year.
  • This means that more sales are being generated by these companies overall, and subsequently their profits are increasing too.

Industry Trends

Which industries have driven the changes within the U.S. Financials industry?

US Market-2.46%
Financials-1.57%
Banks-1.87%
Regional Banks-1.14%
Diversified Banks-2.44%
Industry PE
  • Investors are most optimistic about the Regional Banks industry even though it's trading below its 3-year average PE ratio of 11.0x.
  • Analysts are expecting annual earnings growth of 11%, which is lower than the prior year's growth of 21% per year. So the market might believe that analysts are underestimating future growth.
  • Investors are most pessimistic about the Diversified Banks industry, which is trading below its 3-year average of 11.0x.
Forecasted Growth
  • Analysts are most optimistic on the Regional Banks industry, expecting annual earnings growth of 11% over the next 5 years.
  • However this is lower than its past earnings growth rate of 21% per year.
  • In contrast, the Diversified Banks industry is expected to see its earnings grow by 8.6% per year over the next few years.

Top Stock Gainers and Losers

Which companies have driven the market over the last 7 days?

CompanyLast Price7D1YValuation
BANF BancFirstUS$98.473.7%
+US$114.2m
60.8%PB2.8x
INDB Independent BankUS$81.523.1%
+US$114.1m
9.1%PB1.3x
FIBK First Interstate BancSystemUS$38.722.1%
+US$86.5m
-7.6%PB1.2x
PPBI Pacific Premier BancorpUS$30.223.0%
+US$84.5m
-28.1%PB1x
FRC First Republic BankUS$147.380.3%
+US$84.5m
-22.7%PB2.1x
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Latest News

C

US$46.87

Citigroup

7D

-2.1%

1Y

-33.4%
Jun 30

Bank Of America: Step Up To The Plate

A year ago, I considered Bank of America common stock a "hold" based upon several soft fundamentals and valuation concerns. Leading up to expected Fed interest rate hikes, the stock price got overheated and offered an opportunity to take some profits on part of a position. BAC shares have now "come in" and appear to be a prospective opportunity for long-term investors. This article updates several key metrics I suggest bank stock investors may choose to watch and provides my current opinion a BAC Fair Value Estimate. I last wrote you about Bank of America (BAC) stock a year ago in an article entitled, Bank Of America: A Look Behind The Headline Numbers. This article is an update and re-assessment. In July 2021, I considered BoA shares to be a HOLD due to valuation concerns and several soft fundamentals. The long-term thesis remained intact. Since that article was published, the stock has fallen over 15 percent. BAC is down about 35 percent from its January 2022 peak. Shares now sits in the BUY zone I suggested last July. Personally, as outlined in my investment plan, I distributed BAC shares when the stock topped out at $45 and $50; then repurchased these shares at approximately $32. Bank of America Long-Term Investment Thesis Bank of America is a well-managed, well-capitalized, and shareholder-friendly financial institution. The stock represents an investment in the overall growth and well-being of the United States economy. Management focuses the bank upon responsible growth: seeking to grow slightly faster than GDP and aims for positive Operating Leverage. Positive Operating Leverage is defined as delta percentage revenue less delta percentage non-interest expense resulting in a positive number. Reading Past The Headlines Good investors read past the headlines. If everyone knows / expects good (or bad) news, it's probably baked into the bid already. For example, since the Fed began raising rates, buy-side analysts have been crowing about banks enjoying an improvement in Net Investment Income. It's true. As rates rise, NII should improve. In late 2021 and early this year, many bank stocks rose when the Fed indicated it would raise interest rates. However, a Fed that's raising rates to stem inflation also includes a dose of recession fears. Typically, Fed tightening marks the end of the expansion phase of the economic business cycle and the beginning of a flat / contraction phase. Historically, banking stocks do not do well under these circumstances. Earnings, valuation multiples, or both may shrink. The cycle appears no different. As an investor, I seek to identify several non-headline metrics that may offer clues as to the direction of the business. In my July 2021 article, I highlighted Loan volume Net interest spread Non-interest expense Pre-tax, pre-provision income (PTPP) Operating leverage Let's check up on the most recent results. Afterwards, we will look at BAC stock valuation. Loan Volume As of the end of 1Q2022, loans continued to show improvement, returning to pre-pandemic levels. Residential mortgages recovered, too. Bank of America loan trends (Bank of America investor website) But what about the looming Fed-induced recession? Should not that cripple the lending business? Fortunately, BoA management offered commentary on the subject during two recent investment conferences. At the June 13, 2022 Morgan Stanley U.S. Financials conference, CFO Alastair Borthwick had this to say: So, across the board right now, we're seeing reasonable good loans growth. We've talked about the fact that we feel like this will be an above average year for loans growth. Normally, we think about GDP plus because we feel like we should be able to take a little bit of market share each year. This year, obviously, GDP is a little higher. … we should see high single digits growth in loans. We're still on track for that. We feel pretty good about this quarter, so it's a good loans growth environment. Commercial has been very strong, [and] continues to be that way. These appear to be reasonably clear and positive remarks. Net Interest Spread A year ago, I pointed out BAC net interest spread (or net interest yield) had been drifting down. That's changed. Bank of America net interest trends (Bank of America investor website) The spread bottomed about a year ago. The current rate environment indicates significant incremental improvement. Returning to the June 13, 2022 Morgan Stanley Financials conference: Analyst Okay. So, what you're saying is Q-on-Q net interest income up 650-plus [million dollars] in 2Q and in 3Q at this stage you're expecting an even higher step-up Q-on-Q? CFO Alastair Borthwick Yes. And previously on June 1, 2022 at the Bernstein Strategic Decisions Conference, CEO Brian Moynihan offered these comments during an exchange with an analyst: Analyst And just to kind of level set on the net interest income expectations you had talked about, for the second quarter had been up at least 650 million -- from first quarter to second. Any change in that outlook? CEO Brian Moynihan Still feel good about that. So up 650 first quarter to second quarter per quarter, and that'll produce almost 2 billion in lift from second quarter last year to the second quarter this year... And again, the rate effect is just coming through. Indeed, Bank of America is more rate-sensitive than some peers. This bodes well for the future. While the concept that higher Fed rates are good for banks was baked into stock prices months ago, BoA investors received recent confirmation and solid forecasts from the CEO and CFO. Non Interest Expense Non-interest expense management has been one of my few recent disappointments with BoA. In 2021, management missed guidance on this item, despite revising guidance at midyear. One can make the old "yeah-but" arguments for certain expenses; however, in most cases management should be in front of most exceptional items. Putting that aside, here's what CEO Brian Moynihan offered for 2022 at the Bernstein conference: And that means we've been able to bring the cost structure company [in] round numbers … to as low as 53 billion on a core operating basis. It's back up now just because of inflation and market levels and compensation, but we think it will be flat this year to last year meaning 2022 to 2021. Total 2021 non-interest expense was $59.7 billion. It's midyear 2022, so his statement is pretty clear. However, given the current inflationary environment, keeping expenses flat would be an achievement. How can the bank do it? Well, the CEO offered some remarks about that's too. Analyst So just back to expenses. If you're able to hold expenses, flattish this year versus '21, that's quite an impressive achievement given the inflationary environment. So maybe just talk about the mechanics of how you're holding expenses flat, while also making these investments, how you doing both of those? Brian Moynihan It really comes down to what we've been doing over the last five years to continue to drive the digitization of franchise. So it compounds on itself... Indeed, Bank of America has been spending ~$3.5 billion a year on digitization and cyber security. Perhaps now it's payoff time? I'm optimistic. If 2022 non-interest expenses are ~flat, I project Bank of America's Efficiency Ratio (non-interest expense divided by total revenue) could finish the year at 63 percent. This would be an excellent performance. The bank's Efficiency Ratio in 2021 and 2020 was 67 percent and 64 percent, respectively. Pre-Tax Pre-Provision Income Another metric I follow is PTPP income. The figure strips out some of the noise in a financial institution's earnings. It also discounts share repurchases. Back in 2Q2021, I noted PTPP income had fallen to $6.4 billion; rivaling the 2020 pandemic low. Since then, it's recovered. Bank of America financial highlights (Bank of America investor website) I expect continued PTPP income stability in 2022. Operating Leverage A combination of several of the preceding factors help to comprise Operating Leverage. I believe it's a valid metric to gauge broad, overall performance. Prior to the pandemic, management used to highlight positive Operating Leverage each quarter. However, after pandemic-driven economic dislocation sidetracked O.L. for several quarters, I made the following observation in my 2021 article: 3Q 2019 was the last time management published the [Operating Leverage] chart. After 18 consecutive quarters of positive operating leverage, the string was broken. The metric went negative in 3Q 2019 and hasn't gone green since then. Management stopped publishing it. Looking back through past earnings reports, full-year operating leverage went negative in 2019 through 2021. More recently, times have changed. Despite remaining negative for FY 2021, operating leverage turned green in the second half of the year. The trend continued in 1Q2022, and I expect these results to be extended as the year progresses. Holding down expenses will be a key factor. A Note to Readers!

Jun 30

Pinnacle Financial: Team Expansion, Interest Rates Bode Well For Revenue Growth

The loan portfolio will likely continue to grow strongly on the back of the recent team expansion. The topline is slightly sensitive to rate hikes. The excess cash position provides an opportunity to further expand the margin. Non-interest income will benefit from the continued expansion of the BHG business. The December 2022 target price suggests a high upside from the current market price. Further, PNFP is offering a modest dividend yield. Earnings of Pinnacle Financial Partners, Inc. (PNFP) will likely somewhat increase this year relative to last year on the back of anticipated topline growth. The recent team expansion and higher interest rates will play a pivotal role in net interest income growth. Further, strong growth in the BHG business will most probably drive the bottom line. On the other hand, the above-normal provisioning expense in the last nine months of 2022 will likely restrict earnings growth. Overall, I'm expecting Pinnacle Financial to report earnings of $6.87 per share for 2022, up 2% year-over-year. Compared to my last report on Pinnacle Financial, I have slightly revised upwards my earnings estimate mostly because I have revised upwards the non-interest income estimate. The year-end target price suggests a high upside from the current market price. Therefore, I’m upgrading Pinnacle Financial to a buy rating. Team Expansion to Play a Pivotal Role in Loan Growth Pinnacle Financial Partners’ loan portfolio increased by a remarkable 4.7% in the first quarter of the year, which exceeded my expectations. The management mentioned in the earnings presentation that it anticipates mid-teen percentage loan growth for 2022. This target doesn't appear out of the norm or difficult to achieve because the company has easily achieved double-digit loan growth in the past. Moreover, Pinnacle Financial has already performed quite well during the first quarter of the year. Further, Pinnacle Financial has continued to aggressively recruit revenue-generating team members in the recent past. The company has hired 176 financial advisors recently, as mentioned in the conference call. To put this number in perspective, 176 is 6% of the 2,841 employees at the end of 2021. The strong job market can also give a boost to loan growth. The country's unemployment rate was near multi-year lows of 3.6% in May 2022. Considering these factors, I'm expecting the loan portfolio to increase by 12.7% by the end of December 2022 from the end of 2021. Meanwhile, deposits growth will likely slightly lag loan growth this year. The following table shows my balance sheet estimates. FY17 FY18 FY19 FY20 FY21 FY22E Financial Position Net Loans 15,566 17,624 19,693 22,139 23,151 26,101 Growth of Net Loans 85.5% 13.2% 11.7% 12.4% 4.6% 12.7% Other Earning Assets 3,268 3,847 4,338 8,268 11,047 11,527 Deposits 16,452 18,847 20,181 27,706 31,305 34,779 Borrowings and Sub-Debt 1,921 2,033 2,938 1,887 1,464 1,649 Common equity 3,708 3,966 4,356 4,687 5,093 5,410 Book Value Per Share ($) 57.6 51.2 56.7 62.0 67.1 71.3 Tangible BVPS ($) 28.7 27.3 32.4 37.3 42.7 46.5 Source: SEC Filings, Author's Estimates (In USD million unless otherwise specified) Excess Cash May Boost the Margin Neither the asset nor the liability side of Pinnacle Financial’s balance sheet is very sensitive to interest rate changes. Asset yields are made sticky by the fixed-rate loans, which constituted around 42.5% of total loans at the end of March 2022, as mentioned in the presentation. Meanwhile, variable-rate loans (linked to Libor/SOFR and prime rates) made up 52.8% of total loans. Moreover, the sizable bond portfolio will likely make the average earning-asset yield somewhat sticky. Bonds made up around 21% of total earning assets at the end of March 2022. Around 77% of the bond portfolio is fixed rate based, as mentioned in the presentation. The deposit book has historically been not too sensitive to rate changes. The company's deposit beta in the last up-rate cycle was 40% to 45%, as mentioned in the presentation. This means that a 100 basis points hike in interest rates increased the average deposit cost by 40 to 45 basis points. The results of the management's interest-rate sensitivity analysis given in the presentation showed that a 100 basis points increase in interest rates could boost the net interest income by only 1.2% over twelve months. As a result, Pinnacle Financial does not stand to gain much from a rising rate environment given its existing balance sheet positioning. However, the excess cash position presents an opportunity to significantly improve the margin this year, provided the management is capable enough. Interest-earning deposits with other banks, which are the biggest component of cash equivalents, made up 9% of total earning assets at the end of March 2022. This excess cash gives Pinnacle Financial the chance to promptly change its asset mix in favor of higher-yielding assets as rates rise. Even if the company is unsuccessful in deploying its excess cash, the net interest margin still stands to benefit from the recent shift in the yield curve. U.S. Treasury Department Considering these factors, I'm expecting the margin to increase by 20 basis points in the last nine months of 2022 from 2.89% in the first quarter of the year. Revising Upward the Non-Interest Income Estimate Pinnacle Financial surprised me by reporting a 12% year-over-year jump in non-interest income for the first quarter of 2022. Some of the growth was attributable to a gain of $5.5 million on the re-measurement of an investment. This line item will not recur in the coming quarters. Nevertheless, non-interest income will likely trend upwards in the remainder of the year thanks to the anticipated growth of the Bankers’ Healthcare Group (“BHG”) segment. BHG lends to patients as well as medical and other professionals for re-sale. As BHG operates on a gain-on-sale model, its income is reported in the non-interest income line item. The management mentioned in the presentation that it expects fees from BHG to increase by 20%, and other fee income to increase by 7% to 9% year-over-year in 2022. In my last report on Pinnacle Financial, I estimated a non-interest income of $40 million for 2022. I have now decided to revise my estimate upwards to $43 million, in line with the management’s guidance. My estimate revision is also attributable to the first quarter’s surprise. Provisioning to Remain Slightly Above Normal The Federal Reserve projects the Fed Funds rate to reach around 3.5% this year. Such a high interest rate environment is likely to hurt the portfolio's credit quality and increase the threat of delinquencies. The last time the Federal Funds rate was above 2.0%, i.e. the third quarter of 2019, PNFP’s non-performing loans and loans 90 days past due altogether made up 0.24% of total loans (source: 3Q2019 10-Q filing). In comparison, non-performing loans and loans 90 days past due made up 0.12% of total loans at the end of March 2022, as mentioned in the presentation. Nevertheless, I'm not too worried because even if non-performing loans double in the next few quarters, they will remain easily covered by allowances. Allowances for loan losses made up 1.1% of total loans at the end of March 2022. Considering these factors, I am expecting the provision expense to be slightly above normal in the year ahead. For the full year, I'm expecting the provision expense to make up around 0.16% of total loans, which is the same as the average from 2017 to 2019. Expecting Flattish Earnings this Year The anticipated loan growth, margin expansion, and fee income will likely drive the bottom line this year. On the other hand, higher provisioning expenses will limit earnings growth. Overall, I'm expecting Pinnacle Financial to report earnings of $6.87 per share for 2022, up 2% year-over-year. The following table shows my income statement estimates. FY17 FY18 FY19 FY20 FY21 FY22E Income Statement Net interest income 543 736 766 822 932 1,034 Provision for loan losses 24 34 27 192 16 43 Non-interest income 145 201 264 318 396 428 Non-interest expense 367 453 505 577 660 764 Net income - Common Sh. 174 359 401 305 512 522 EPS - Diluted ($) 2.70 4.64 5.22 4.03 6.75 6.87 Source: SEC Filings, Author's Estimates (In USD million unless otherwise specified) In my last report on Pinnacle Financial, I estimated earnings of $6.58 per share for 2022. I have increased my earnings estimate because I've revised upwards the non-interest income estimate.

Jun 29

Truist Financial: Favorable Demographic Exposure With A Bullish Near-Term Setup

Bank stress test results were generally positive, allowing many financial firms to increase dividends. Truist Financial is a large regional bank with exposure to growing areas of the Mid-Atlantic and Southeast. Strong fundamentals and a mixed technical outlook create a tactical trading opportunity and a solid long-term investment. The Fed’s stress test results last week were generally positive and as expected. The annual measure of how well major financial firms could weather various extreme market scenarios did not send any shockwaves through the markets. Instead, its passage allowed many banks to announce new shareholder accretive activity plans. Bigger dividends and stock buybacks were announced in the hours after last Friday’s regulatory exercise. Bank Dividend Hikes Post-Stress Test Results Bloomberg TV Still, JP Morgan Chase and Citigroup face stricter capital requirements – enough so that those two big money-center banks had to leave their dividend unchanged. One regional bank, Truist Financial (TFC), hiked its dividend a whopping 8.3% to 52 cents beginning in the third quarter. CEO Bill Rogers said, “Truist’s strong stress test results, combined with this past year’s solid financial results and a successful integration, means that we are well-positioned to execute on our strategy,” according to CNBC. Serving much of the Southeast U.S., the bank features positive demographic exposure across the “Smile” states and the sunbelt. According to Bank of America Global Research, Truist is a Charlotte, North Carolina based financial services company with more than $470 billion in assets. With a history dating back to the Civil War, and now the 6th largest bank in the US by deposits, TFC offers a wide variety of different financial products ranging from consumer and commercial banking to securities brokerage and asset management. Truist is a popular regional bank trading play – seen as more sensitive to changes in interest rates than bigger national banks. The SPDR S&P Regional Banking ETF (KRE) is a popular broad way to play that narrative, and TFC is in that portfolio. Regional Banking ETF Holdings SSGA Funds Turning to TFC’s fundamentals, analysts at BofA expect strong earnings growth in 2023 given its historically strong credit cycle performance and flexibility to manage its balance sheet effectively after completing its BBT/SunTrust merger in 2019. Truist also acquired Kensington Vanguard which BofA believes will drive synergies. Moreover, more Fed rate hikes should help this depository institution. Its next earnings report, according to Wall Street Horizon, is confirmed to happen on the morning of Tuesday, July 19 with a conference call to follow. BofA sees EPS topping $6 per share in the next two-plus years after a dip in 2022. With a P/E forecast to be under 10x at current prices and a rising yield, the fundamental backdrop looks good. But what do the charts say? Truist Earnings, Valuation, Dividend Forecasts BofA Global Research The Technical Take Over the last five years, TFC shares are unchanged. It’s a messy chart considering the broad market’s strong returns in that time. This underperformer is below its pre-pandemic high but has recently found a few buyers. Let’s zoom in on the one-year chart. TFC Five-Year Chart: Below Pre-Pandemic Peak, Support at $44 Stockcharts.com The stock made a bullish double bottom formation just below $45 in May and June. It is a key spot traders should watch. What’s encouraging is that it took place on improving RSI momentum – that's a bullish divergence in technical analysis parlance. A move above $51 resistance would help confirm that bottom.