Bank Stock Roundup: Enough Positive Surprises In Q2 Despite Weakness, JPM & BAC In Focus

Over the last five trading days, major banks displayed a bearish trend. Though most banks which reported second-quarter 2017 results this week managed to beat estimates, concerns over the underlying weakness shadowed the optimism.

Results demonstrated an upswing in loans and improved margins. However, lower treasury yields curbed the benefits. Additionally, rise in deposit balances and lower provisions driven by reserve releases in the Oil & Gas loan portfolio were impressive.

Investment banking fees were favorable, but fixed income and equity trading slumped during the quarter. Also, higher funding costs and decline in mortgage origination volume were on the downside.

Though the absence of exceptionally high legal expenses was a big support, an overall rise in non-interest expenses owing to high spending on technology and other market development initiatives was an undermining factor.

(Read: Bank Stock Roundup for the week ending Jul 14, 2017)

Important Earnings of the Week

1. Rising interest rates and loan growth drove JPMorgan Chase & Co.’s (NYSE:JPM) second-quarter 2017 earnings of $1.82 per share, which easily surpassed the Zacks Consensus Estimate of $1.57. Also, the figure reflects a 17% rise from the year-ago period. Notably, the results included a legal benefit of $406 million.

Solid loan growth and higher interest rates supported net interest income. Further, investment banking fees recorded a rise. Apart from these, results were supported by a fall in provision for credit losses, mainly driven by reserve releases in the Oil & Gas loan portfolio.

As expected, fixed income and equity trading slumped during the quarter. Also, fall in mortgage banking income, due to higher funding costs and decline in mortgage origination volume, was a headwind. Operating expenses reported a rise during the quarter. (Read more: JPMorgan Q2 Earnings Beat on Loan Growth, Higher Rates)

2. Citigroup Inc. (NYSE:C) delivered a positive earnings surprise of 5.0% in second-quarter 2017, riding on higher revenues. The company’s income from continuing operations per share of $1.27 for the quarter outpaced the Zacks Consensus Estimate of $1.21. Also, earnings compared favorably with the year-ago figure of $1.25 per share.

Overall revenues escalated, driven by higher banking revenues. However, expenses surged. Further, Citigroup’s costs of credit escalated largely reflecting net credit losses and a net loan loss reserve release. (Read more: Citigroup Beats on Q2 Earnings, Shares Fall Slightly)

3. Higher interest income drove Wells Fargo & Company’s (NYSE:WFC) second-quarter 2017 earnings which recorded a positive surprise of 4.9%. Earnings of $1.07 per share outpaced the Zacks Consensus Estimate of $1.02. Moreover, the figure compared favorably with the prior-year quarter’s earnings of $1.01 per share.

Wells Fargo witnessed organic growth aided by strong loans and deposit balances. Higher net interest income was also favorable. In addition, a solid capital position and improving credit quality acted as the key positives. However, higher expenses and lower non-interest income were on the downside. (Read more: Wells Fargo Tops Q2 Earnings Estimates, Costs Flare Up)

4. Higher investment banking fees as well as loan growth drove Bank of America Corporation (NYSE:BAC)’s (NYSE:C) second-quarter 2017 earnings of 46 cents per share, which outpaced the Zacks Consensus Estimate of 43 cents. Results included $103 million of after-tax gains related to the sale of its non-U.S. consumer credit card business. The figure was 12% higher than the prior-year quarter.

Sequential decline in net interest margin (owing to lower treasury yields during the quarter) and decline in mortgage banking fees were headwinds. Further, a slight rise in expenses and fall in trading revenues (as expected) acted as negatives. However, increase in investment banking fees more than offset these and partially aided fee income growth during the quarter.

The quarter witnessed modest loan growth, which helped in improving interest income. Additionally, provision for credit losses recorded a fall. (Read more: BofA's Q2 Earnings Top on Investment Banking, Loans)

5. Riding on higher revenues, The PNC Financial Services Group, Inc. (NYSE:PNC) reported a positive earnings surprise of 4.5% in second-quarter 2017. Earnings per share of $2.10 easily beat the Zacks Consensus Estimate of $2.01.

Moreover, it reflects a 15% increase from the prior-year quarter. Continued growth in loans helped the company earn higher revenues during the quarter. Further, decline in provision for loan losses was a tailwind. However, the positives were partially offset by an increase in expenses. (Read more: PNC Financial's Q2 Earnings Beat, Costs Increase)

6. Driven by high net interest income, U.S. Bancorp (NYSE:USB) reported a positive surprise of 1.2% in second-quarter 2017. The company reported earnings per share of 85 cents, beating the Zacks Consensus Estimate by a penny. Results also came ahead of the prior-year quarter earnings of 83 cents. Rising interest-rate environment aided the bank’s interest income.

Further, elevated average loans and deposits balances were tailwinds. Steady capital deployment activities reflected a strong capital position. However, escalating expenses and provisions were undermining factors. (Read more: U.S. Bancorp Q2 Earnings Beat, Costs & Provisions Rise)

Price Performance

Here is how the seven major stocks performed:

In the last five trading sessions, Capital One Financial Corp. (NYSE:C) and BofA were the major losers, with their shares dropping 1.8% and 1.1%, respectively. Furthermore, JPMorgan edged down 1.1%.

Citigroup and JPMorgan were the best performers in the last six months, with their shares jumping 18.9% and 10.2%, respectively. Additionally, PNC Financial’s shares increased 9.3%.

What’s Next?

The focus will solely be on earnings releases in the next five trading days. TCF Financial Corp. (NYSE:C) is scheduled to report quarterly numbers on Jul 24, Zions Bancorp (NASDAQ:ZION) on Jul 25, BankUnited, Inc. (NYSE:BKU) , BOK Financial Corp. (NASDAQ:BOKF) and Prosperity Bancshares, Inc. (NYSE:PB) on Jul 26 while SVB Financial Group (NASDAQ:SIVB) and Cullen/Frost Bankers, Inc. (NYSE:C) will report on Jul 27.

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