What happened
It was a strong month for most banks in July, as the industry stabilized with predominantly solid earnings reports after a tumultuous first quarter. Three of the biggest gainers were Comerica(NYSE: CMA), Valley National Bancorp(NASDAQ: VLY), and Eagle Bancorp(NASDAQ: EGBN). Comerica was up 27% in July, while Valley National jumped 32% and Eagle rose 31%, according to S&P Global Market Intelligence.
All three of these bank stocks beat the S&P 500, which was up 3.2% in July. They also topped the Dow Jones Industrial Average (up 3.4%), and the Nasdaq Composite (up 4.1%) last month.
So what
Two of these banks -- Comerica and Valley National -- are larger, regional banks, so let's take a look at them first. Comerica, based in Dallas, has about $91 billion in total assets, making it the 33rd largest U.S. bank. Valley National, based in New York, has roughly $62 billion in assets and is 39th largest in the country. Comerica beat earnings and revenue estimates, while Valley National fell short of them, but both saw improvements that pleased investors.
It also helped that the banking industry had a good month overall, as many of the larger bellwether banks set the tone with strong second-quarter earnings that floated all boats. The KBW Nasdaq Bank Index, which tracks the 24 largest U.S. banks, gained 11% in July, while the KBW Nasdaq Regional Bank Index was even better, up 18% last month. The bigger bounce for regional banks was due primarily to the fact that they were hit much harder by the March-through-May banking meltdown, which led to three banks going under. Bigger banks had performed much better, and thus had less to gain back.
Comerica actually saw net income increase about 5% year over year to $273 million, despite considerably higher interest expenses, caused by high interest rates. Those deposit costs were offset by record average loans of $55.4 billion, up nearly 11% year over year. The bank also had its second-best quarter for noninterest income with $303 million, up 13% compared to the second quarter of 2022. Net interest margin was 2.93%, down from Q1, but up from 2.7% a year ago.
Valley National saw net income jump 44% year over year to $139 million, but it was down slightly from the first quarter ($147 million). Like Comerica, high deposits costs offset an increase in loans, which lowered the net interest margin to 2.94% from 3.16% for the first quarter of 2023. Deposits came back, too, up $2 billion to $49.6 billion quarter over quarter.
Eagle Bancorp, the smallest of the three with $11 billion in total assets, also got a boost in July from its decent second-quarter earnings, which beat consensus estimates. Net income of $28 million, or $0.94 per share, was up 18.4% over the first quarter and 83% from the second quarter of 2022, but the latter spike was due to one-time costs last year related to legal settlements. The net interest margin fell 28 basis points from Q1 to 2.49%.
Now what
All three of these stocks are still down significantly year to date, with Eagle down 38%, Valley National down 12% and Comerica off 23%.
The stocks each remain cheap, so there could be a bit more run in each of them. But these remain uncertain times for small banks, as another one, Heartland Tri-State Bank, based in Elkhart, Kansas, went under on July 28.
Of the three, Comerica looks the sturdiest with a 57% efficiency ratio, lots of liquidity with a Common Equity Tier 1 (CET1) ratio of 10.8%, and a $0.71 dividend at a yield of 5.3% with a payout ratio of 29% that hasn't declined since 2008.
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Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
