US Bankcorp issued its first quarter of fiscal 2016 earnings last week as slumps were both seen on earnings and profit. Stocks were lowered by research analysts from a Buy rating into a Hold rating after financial earnings were released. It was reported that the reason of declining stocks was led by losses on loans exposed in the energy sector.
US Bancorp provides financial services in retail and commercial businesses, considering it as one of the largest regional banks throughout North America. The bank has failed to meet expectations on earnings as its revenue continued slumping.
However, Deutshce bank shares were witnessed climbing after issuing a steady earnings for this season. On an average basis, shares rallied by about 10% after JP Morgan Chase issued an earnings report. It has outperformed the S&P 500 which increased by about 8.5%.
Meanwhile, it was reported that 11 banks have reached their forecasted earnings, while three of which have missed. Analysts expected earnings were lower compared to earlier forecasts at the beginning of the year.
It is likely that a major theme for bank earnings involves sluggish response mainly from emerging markets, including slumps on energy prices, and low interest rates.
Consequently, research analysts are expecting the global economy to continue its sluggish movement to decline the Fed’s approaching rate hike for this year. The expected four rake hikes have already been brought down to two in one quarter. Hence, it appears that banks are not in favor of a lower interest rate as it projects narrower net interest margins.
Net interest income rallied by about 4.9% on a year-over-year (YoY) basis, hitting $136 million. However, growth in average earning asset remained steady but was offset by slumps on net interest margin (NIM) around two basis points to 3.06%.
Declines in margin was fueled by higher short-term rates, along with below level in reinvestment rates in the security portfolio. It appears that net interest margin is considered better-than-expected due to a rate hike in December, however, it is anticipated to decrease once more if rates remained constant.
Subsequently, analysts at Deutsche Bank mentioned same energy concerns as stated in the press release. It tackled about the lower energy prices that currently weigh in on the credit. Non-performing assets surge 13% for the quarter, compared to the prior quarter, citing concerns over continued credit declines.
In addition, net charge-off increased by about 7% compared to the quarter in the prior year. Although an increase was seen in non-performing assets, loan reserves rose by about 1%, compared to the prior quarter. To expand their energy reserves, the bank has decided to cut outside reserves for loans on the energy sector.
USB is a high quality bank by Deutsche Bank with a recognized record of resilient management. It is one of the top stock performers as shares rallied nearly 5% after earnings was issued. However, a slight progress is expected on the bank’s earnings given concerns over increasing expenses.
Non-interest expenses climbed about 3.2% YoY to $84 million. USB is prepared and has some leverage to add on its short term rates if the Fed will choose for the rates to remain unchanged in the near future. USB is incapable of acquiring other banks unless AML/KYC issues are addressed. Meanwhile, M&A supports USB during difficult times.
Analysts at Deutsche Bank claimed that the bank is in a steady position, but declining oil prices and the sluggish global economy have led banks to struggle. Investors traded with caution, but the company holds a solid position and analysts are not all bearish as stocks were downgraded.