Regional banks will dominate rest of earnings season this week. Here’s what analysts expect

Investors will parse through regional bank results this week to deliberate how to trade a sector that has been weighed down by the prospect of higher-for-longer interest rates. Regional bank stocks have slid in anticipation of their results this week, with the SPDR S & P Regional Banking ETF (KRE) sliding by more than 7% this month. A slew of results are on deck this week, such as from U.S. Bancorp and KeyCorp , among others. For investors, what’s key this earnings season is the impact elevated interest rates may have on regional banks’ net interest income, as well as commentary around exposure to commercial real estate after New York Community Bank’s troubles this year. Net interest income is the difference between revenue generated from loans and the interest paid on deposits. “What we’ve seen is deposit pressures escalate more than previously anticipated,” said Alexander Yokum, analyst at CFRA Research, who has a neutral view on regional banks. “A lot of these regional banks, they have less deposits, so if they lose deposits, it can really impact their operating results,” Yokum said. “So, higher for longer, I think for a lot of regional banks, would be negative.” Thus far, reaction to results from the overall banking sector have been mixed. JPMorgan Chase shares dropped after the bank issued disappointing guidance on 2024 interest income, while Goldman Sachs shares climbed after the firm topped first-quarter estimates. M & T Bank shares rose this week post-earnings, while PNC shares on Tuesday dropped after its results. But some on Wall Street said that they remain upbeat. Earlier this month, Goldman Sachs’ Ryan M. Nash said results are likely to be mixed, but that it “should mark the bottom (or close to it for most).” He continued, “The move from 4-6 cuts down to 2-3 shouldn’t have a meaningful impact on NII guides.” Bank of America’s Ebrahim H. Poonawala said this month he expects first-quarter earnings results will demonstrate resiliency, adding “regional banks with strong deposit franchises should be well-suited to compete in a structurally higher rate backdrop.” For investors, CFRA’s Yokum maintained that it’s important to remain a stock picker in the sector, adding they should choose firms that are well capitalized, with robust reserves. He also likes banks that are reducing their commercial real estate exposure. “For banks, I think it’s pretty important to be company specific,” Yokum said. “I would really only pick the ones that you know, I feel like are strong from multiple categories.” Here’s what Wall Street analysts expect from regional banks this season. U.S. Bancorp U.S. Bancorp , which is set to report earnings on Wednesday, is rated as buy by a majority of analysts covering the stock, according to LSEG data. But some analysts worry about the setup for the stock going forward. “USB’s capital overhang has largely been alleviated with the Fed releasing USB from requirements to comply with Category II requirements by year-end 2024,” Citi’s Keith Horowitz wrote in an April note. “However, we continue to see downside to consensus estimates and USB trades at a relative premium on our implied cost of equity metric as the stock is viewed as high-quality and defensive, so we see better risk/reward elsewhere.” Horowitz has a neutral rating on U.S. Bank, as well as a price target of $45. The stock is down by more than 5% this year. Huntington Bancshares Huntington Bancshares is expected to release earnings on Friday. Shares of the Ohio-based firm have gained more than 2% this year, lagging the broader market. Analysts on average have a buy rating on the stock. Bank of America upgraded Huntington Banchsares to buy recently, saying the consensus view on Wall Street fails to appreciate the growth momentum in the bank. “We view HBAN as well positioned to navigate multiple macro-economic outcomes,” the firm’s Poonawala wrote in an April note. “Moreover, franchise investments and footprint should drive superior growth relative to most super-regional bank peers.” KeyCorp, Comerica KeyCorp and Comerica are both set to report earnings this week. Shares of Comerica and KeyCorp are down this year 10% and 1%, respectively. Additionally, Comerica has a hold rating, according to CNBC’s analyst consensus tool. “Considering that their long term rates are rising again, these are two banks that we think could have a tough couple of quarters here,” CFRA’s Yokum said. “They both do have pretty significant unrealized losses, and their net interest margins have gotten hit pretty hard.” “And they’ve seen pretty substantial non-interest bearing deposit outflows as well,” Yokum added. Other regional banks reporting this week include Fifth Third Bancorp .