Morning Brief: Regional banks split between clean beats and balance-sheet resets

Friday's earnings slate is all regional banks, and it splits two ways. Citizens, Regions and M&T delivered straightforward quarters built on margins and lower credit losses. Truist, like First Horizon on Thursday, used the quarter to take losses now in exchange for a better earnings base later.

Truist resets

Truist reported diluted EPS of $0.56 versus $1.04 a year earlier. The gap to its $1.16 adjusted figure comes from a $1.4 billion pretax loss on AFS securities sales ($0.90 a share), a $581 million reserve recapture (a $0.36 benefit) and $0.06 of impacts tied to selling Regional Acceptance Corporation loans. The RAC sale accounted for $5.5 billion of a $5.9 billion drop in loans held for investment and lifted the net charge-off ratio to 0.77%, 39 basis points of it from RAC. The bank still bought back $1.2 billion of stock, leaving preliminary CET1 at 10.7%.

The cleaner prints

Citizens' net interest income rose to $1,675 million from $1,488 million and its margin widened to 3.18% from 2.99%, lifting EPS to $1.41 from $1.05. Regions earned $0.71 a share with a 3.68% margin and net charge-offs of 0.29% of loans, down from 0.55% a year ago. M&T's EPS rose to $5.04 from $4.82 even though net income slipped to $775 million, as buybacks shrank the share count and estimated CET1 fell to 10.16% from 10.99%. The common thread is that credit costs are falling while margins hold, which is the opposite of what an energy-driven slowdown would normally produce for lenders.

Data and Europe

BLS publishes September import and export prices at 8:30 a.m. ET, and the Fed's industrial production report follows at 9:15 a.m. After this week's producer-price data, the import figures will show how much of the energy shock is arriving through traded goods. In Europe, Eurostat's final data put September inflation at 3.8%, with energy up 18.9% on the year and adding 1.71 percentage points; services inflation edged up to 3.2% from 3.0%, the component most sensitive to ECB policy.