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Earnings Scorecard For Top 25 US Banks And Thrifts, Q1'13

By Aarti Kanjani, SNL Financial

Earnings at U.S. banks and thrifts grew year over year, based on median percentage EPS growth, according to first-quarter earnings reports available for about 86% of the companies traded on major exchanges. However, net interest margin continued to act as a spoilsport. The median net interest margin was down 10 basis points quarter over quarter and 16 basis points year over year.

Of the largest 25 banks and thrifts by assets, 13 disclosed growth in EPS over the prior quarter, and 17 showed a year-over-year increase. The median EPS growth for the top 25 institutions was 1.39% over the prior quarter and 8.96% over the year-ago quarter. Only two of the 25 largest companies posted a loss for the quarter. One of these was Popular Inc., which reported a first-quarter net loss of $1.18 per share. According to the company, the quarter's net loss reflects a $180.6 million after-tax loss on a bulk asset sale and valuation adjustments. Excluding the effect of asset sale and valuation adjustments, the company recorded an adjusted net income of $60.3 million in the quarter.

Of the largest 25, Bank of America Corp. reported the largest quarter-over-quarter as well as year-over-year EPS growth. Its diluted EPS for the first quarter was 20 cents, compared to 3 cents in the fourth quarter and the first quarter of 2012. According to the company, the results were driven by increased brokerage income, higher investment banking fees and improved credit quality across all major portfolios, partially offset by lower mortgage banking income and lower net gains on the sales of debt securities.

Citigroup Inc.'s earnings also grew strongly compared to the other big banks, with EPS of $1.23 reported in the first quarter compared to 38 cents in the linked quarter and 95 cents in the year-ago quarter. Credit valuation adjustments/debt valuation adjustments were $198 million after-tax in the first quarter, mainly resulting from the improvement in Citigroup's credit spreads. Higher revenues and lower net credit losses were partially offset by higher legal and related expenses, a lower loan loss reserve release and a higher effective tax rate, according to its earnings release.

After BofA, Zions Bancorp. showed the strongest year-over-year percentage EPS growth among the largest 25, rising from 14 cents in the first quarter of 2012 to 48 cents in the first quarter of 2013. It recognized credit-related other-than-temporary impairments of $10.1 million related to one CDO in the first quarter, a steep drop from the $83.8 million pretax OTTI the company saw in the fourth quarter of 2012.

The largest plunge in EPS growth during the quarter was seen by BB&T Corp., with EPS of 29 cents reported in the first quarter, compared to 71 cents in the linked quarter and 61 cents in the year-ago quarter. The company said in its earnings release that net income available to common shareholders and earnings per share include the impact of a previously announced $281 million adjustment recorded in connection with an unresolved disputed tax liability. Excluding this adjustment, BB&T's first-quarter net income available to common shareholders was $491 million, or 69 cents per share.

The other bank with negative EPS was Bank of New York Mellon Corp. with a first-quarter net loss of 23 cents per share. The company said the results included a previously announced charge of $854 million, or 73 cents per common share, related to the U.S. Tax Court's disallowance of certain foreign tax credits. Excluding this charge, net income applicable to common shareholders was $588 million and earnings per diluted common share was 50 cents.

Only three of the top 25 companies reported increased net interest margin over the prior quarter:BofA, Capital One Financial Corp., First Niagara Financial Group Inc. The median decline was 10 basis points. Results were even worse compared to the year-ago quarter, with a median decline of 19 basis points. Four companies witnessed a year-over-year improvement: Capital One Financial, Regions Financial Corp., KeyCorp and First Niagara.

People's United Financial Inc. had the largest quarter-over-quarter decline in NIM among the top 25. The company's net interest margin for the quarter was 3.38%, compared to 3.63% for the previous quarter and 3.97% for the year-ago quarter. "The net interest margin reflects the impact of strong loan originations, higher average balances in the investment portfolio and a full quarter of interest expense on the senior notes issued in December 2012," said CFO Kirk Walters in the company's earnings release.

When measuring banks' earnings performance relative to Wall Street estimates, SNL compares the FactSet operating or adjusted EPS value to the FactSet mean estimate. Three companies of the top 25 met the estimate, 16 exceeded it and six did not meet the estimate.

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