Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Earnings Scorecard For Top 25 US Banks And Thrifts, Q3'12

By Aarti Kanjani, SNL Financial

Publicly traded U.S. banks and thrifts saw improved earnings and credit quality in the third quarter, based on earnings reports available for about 75% of the companies traded on major exchanges. However, net interest margins have compressed across the industry.

SNL Financial scanned data collected from 346 of about 460 major exchange-traded banks and thrifts, representing institutions that had reported third-quarter earnings as of October 30.

The median EPS growth over the prior quarter was 4.76%, while the median EPS growth over the year-ago quarter was 13.56% for the institutions. (The figures exclude companies that reported negative earnings in any of the periods analyzed.) The outlook for credit quality also has improved along with profits, as loan loss provisions declined. The median loan loss provision decrease compared to the year-ago quarter was 26%. But, net interest margin acted as a spoilsport. The median net interest margin was down 2 basis points quarter over quarter and 11 basis points year over year.

Of the largest 25 banks and thrifts by assets, no company reported a loss for the third quarter, 14 disclosed growth in EPS over the prior quarter, and 19 showed a year-over-year increase. The median EPS growth for the top 25 institutions was 4.61% over the prior quarter and 15.09% over the year-ago quarter. Eleven of the 25 companies reported increased net interest margin over the prior quarter, though only six companies saw a year-over-year improvement.

Capital One Financial Corp. reported the highest quarter-over-quarter EPS growth among the largest 25 banks and thrifts, with EPS of $2.01 reported in the third quarter compared to 16 cents in the linked quarter and $1.77 in the year-ago quarter. The company said in its earnings release that the increase in net revenue was largely due to the full-quarter impact of the HSBC credit card loans acquired in the second quarter and a lower nonprincipal reserve build related to the HSBC acquisition. This also resulted in an increase in net interest margin of 93 basis points to 6.97% in the third quarter from 6.04% in the second quarter, marking the largest quarter-over-quarter jump in net interest margin for the top 25. Chairman and CEO Richard Fairbank said in the news release that the quarter's results also received strong contributions from ING Direct, acquired in February.

SunTrust Banks Inc.'s earnings also grew strongly compared to the other big banks. It reported a third-quarter EPS of $1.98, compared to an EPS of 50 cents and 39 cents for the prior quarter and year-ago quarter, respectively. According to its earnings release, the growth was driven by the termination of agreements regarding shares owned in The Coca-Cola Co. that resulted in a pre-tax securities gain of $1.9 billion. It was offset by a number of one-time charges relating to balance sheet repositioning.

The largest plunge in EPS growth during the quarter was seen by Citigroup Inc., with EPS of 15 cents reported in the third quarter, compared to 95 cents in the linked quarter and $1.23 in the year-ago quarter. Major reasons were credit valuation/debt valuation adjustments of negative $776 million, a $2.9 billion after-tax loss from the sale of a 14% interest in the Morgan Stanley Smith Barney joint venture and an other-than-temporary impairment of the carrying value of Citi's remaining 35% interest in the joint venture.

PNC Financial Services Group Inc. reported the largest quarter-over-quarter drop in net interest margin among the top 25. It reported NIM of 3.86% in the third quarter, compared to 4.10% in the second quarter. According to the earnings release, 16 basis points of the decline was due to lower purchase accounting accretion.

New York Community Bancorp Inc. saw a substantial drop in loan loss provisions for the third quarter compared to the prior quarter, recording the largest drop among the top 25 banks and thrifts. It reported a provision of $12.8 million in the third quarter, compared to $33.4 million in the second quarter and $18.0 million in the third quarter of 2011.

When measuring banks' earnings performance relative to Wall Street estimates, SNL compares the Fact Set operating or adjusted EPS value to the Fact Set mean estimate. The Fact Set EPS value is the core or operating version of the company's reported EPS value, adjusted to align with consensus treatment of nonrecurring or one-time items incurred during the period.

Depending on the period, there may be a significant difference between the Fact Set adjusted EPS value and the company-reported EPS value, due to Fact Set's exclusion of certain nonrecurring items.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.