Major Banks' Q2 Earnings To Watch On Jul 20: BK, BBT, KEY

Earnings season for the banks has already begun and the results released so far by the big banks reflect a challenging second-quarter 2017. Despite hikes in interest rates by the Fed (twice this year), banks seem to be struggling to improve their net interest margin, owing to lower treasury yields.

Other headwinds include soft capital market businesses and dismal performance of the investment banking business. Also, modest rise in mortgage origination is expected to hurt mortgage banking revenues.

On the other hand, loan demand improved on a sequential basis. Per the Federal Reserve’s latest data, both commercial real estate loans and commercial and industrial loans are expected to increase, while growth in consumer loans remained soft. Therefore, interest income for banks is projected to improve marginally.

On the cost front, the chance of a significant rise in expenses is low, though a marginal increase in expenses could occur owing to digitization. As cost-saving efforts continue supporting the bottom-line performance, overall expenses are expected to remain manageable in the quarter.

Per the latest Earnings Preview, overall earnings for the major banks in second quarter are projected to grow 4.5% year over year.

So, this is the right time to add a few banking stocks in case they beat earnings estimates.

Our quantitative model offers some insights into stocks that are about to report their earnings. Per the model, in order to be confident of an earnings beat, a stock needs to have the right combination of the two key ingredients – a positive Earnings ESP and a favorable Zacks Rank – Zacks Rank #3 (Hold) or better. You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Let’s check what’s in store for the following major banks that are scheduled to report second-quarter results on Jul 20, before the opening bell.

For The Bank of New York Mellon Corporation (NYSE:BK) , we can’t conclusively predict an earnings beat this time as the company does not have the right combination. It is expected to witness an increase in net interest income. However, legal and professional expenses are expected to be slightly higher in the quarter due to ongoing compliance costs. (Read More: BNY Mellon to Report Q2 Earnings: What's in Store?)

Further, this Zacks Rank #3 stock surpassed the Zacks Consensus Estimate in three of the trailing four quarters, as reflected in the chart below:

Bank Of New York Mellon Corporation (The) Price and EPS Surprise

Bank Of New York Mellon Corporation (The) Price and EPS Surprise | Bank Of New York Mellon Corporation (The) Quote

Similarly for BB&T Corporation (NYSE:BBT) , we cannot conclusively predict an earnings beat in the quarter as higher expenses are likely to hurt its financials. However, the company is anticipated to witness top-line growth on modest increase in loan demand and higher rates. (Read more: Why Earnings Beat is Less Likely for BB&T Corp in Q2)

This Zacks Rank #3 stock pulled off an average beat of 4.8% over the trailing four quarters, having beaten the Zacks Consensus Estimate in three, as depicted in the chart below:

BB&T Corporation Price and EPS Surprise

BB&T Corporation Price and EPS Surprise | BB&T Corporation Quote

For KeyCorp (NYSE:KEY) also we are unable to conclusively predict an earnings beat for the quarter. Weak mortgage banking and soft equity underwriting remain the headwinds. On the other hand, improving loans and higher rates are expected to support the financials. (Read more: Will KeyCorp Stock Rally Further Post Q2 Earnings?)

This Zacks Rank #3 stock delivered an average beat of 8.3% over the trailing four quarters, having beaten the Zacks Consensus Estimate in three, as reflected in the chart below:

KeyCorp Price and EPS Surprise

KeyCorp Price and EPS Surprise | KeyCorp Quote

Check later our full write-up on earnings releases of these stocks.

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