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Bank Stock Roundup: Q2 Earnings Season Unfolds, JPMorgan, BofA & Citi Top Estimates

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Bank Stock Roundup: Q2 Earnings Season Unfolds, JPMorgan, BofA & Citi Top Estimates

Investor sentiment upbeat on banks' Q2 earnings, with the major players displaying top-line strength on the back of higher rates and improved trading.

Most banks that reported second-quarter 2018 results this week managed to record bottom-line improvement on the back of rising rates, lower provisions and improved trading activities. This also led to positive price movement for most bank stocks over the last five trading days.

In addition to the benefits from higher interest rates, banks’ results mirrored a marginal upswing in loans. Moreover, the results display eased margin pressure.

Importantly, unexpected improvement in trading activities, mainly spurred by escalating trade war tensions between the United States and China, boosted trading revenues. Further, continued momentum in investment banking business was recorded, highlighting higher equity underwriting revenues and increased financial advisory revenues.

However, mortgage banking business was disappointing. Also, an overall rise in non-interest expenses owing to high spending on technology and personnel, and other market development initiatives was an undermining factor. Nevertheless, legal expenses remained under control.


 

(Read: Bank Stock Roundup for the Week Ending Jul 13, 2018)

Important Earnings of the Week

1. Despite dismal investment banking performance, loan growth, better-than-expected trading activities and tax cuts drove Bank of America’s BAC second-quarter 2018 earnings of 63 cents per share, which handily outpaced the Zacks Consensus Estimate of 57 cents. Also, the figure came in 43% higher than the prior-year quarter. Net interest income growth (driven by higher interest rates and loan growth), higher card income and rise in trading income (up 7%) supported revenues. Operating expenses also recorded a decline. Mortgage banking fees were lower on decrease in loan production. Additionally, provision for credit losses increased during the quarter. (Read more: BofA Beats Q2 Earnings on Loan Growth & Higher Trading)

2. Higher-than-expected trading revenues and rise in demand for loans drove JPMorgan’s JPM second-quarter 2018 earnings of $2.29 per share, which surpassed the Zacks Consensus Estimate of $2.22. The figure was up 26% from the prior-year quarter. Unexpected improvement in trading activities, mainly driven by escalating trade war tensions between the United States and China boosted JPMorgan’s market revenues. (Read more: JPMorgan Q2 Earnings Beat on Higher Trading & Loans)

3. Driven by top-line strength, Citigroup C delivered a positive earnings surprise of 5.2% in second-quarter 2018. Earnings from continuing operations per share of $1.62 for the quarter easily beat the Zacks Consensus Estimate of $1.54. Also, earnings were up 28% year over year. Overall high revenues were reflected, driven by elevated banking, equity markets and consumer banking revenues, along with loan growth. Moreover, expenses remained stable. However, fixed income market revenues disappointed. (Read more: Citigroup Q2 Earnings Top on High Revenues, Stable Costs)

4. Impacted by lower mortgage banking revenues, Wells Fargo WFC recorded a negative earnings surprise of 3.6% in the second quarter. Adjusted earnings of $1.08 per share missed the Zacks Consensus Estimate of $1.12. Results were in line with the prior-year quarter earnings. Lower provisions and higher net interest income aided results. However, reduced fee income was an undermining factor. Moreover, expenses soared. Further, reduction in loans and deposits acted as headwinds for the quarter. (Read more: Wells Fargo Q2 Earnings Miss, Fee Income Disappoints)

5. Reflecting top-line strength and lower provisions, U.S. Bancorp’s USB second-quarter 2018 earnings per share of $1.02 outpaced the Zacks Consensus Estimate by a penny. Also, results came ahead of the prior-year quarter earnings of 85 cents. Easing margin pressure on rising rates was witnessed in the quarter. Moreover, revenues improved, aided by rise in net interest, as well as fee income. Further, elevated average loans and deposits balances, along with lower provisions, were tailwinds. However, escalating expenses and lower mortgage banking revenues were major drags. (Read more: U.S. Bancorp's Q2 Earnings Beat on Higher Revenues)

6. Fifth Third Bancorp FITB delivered a notable positive earnings surprise of 10.5% in second-quarter 2018. Adjusted earnings per share of 63 cents surpassed the Zacks Consensus Estimate of 57 cents. However, including certain one-time items, the bottom line came in at 80 cents, surging 78% year over year. Increase in net interest income and lower provisions were positive factors. Moreover, credit quality improved and a strong capital position was depicted. However, lower fee income and escalating expenses were undermining factors. (Read more: Fifth Third Q2 Earnings Top Estimates, Provisions Fall)

Price Performance

Here is how the seven major stocks performed:
 

Company

Last Week

6 months

JPM

3.3%

-1.7%

BAC

3.9%

-5.7%

WFC

1.8%

-11.1%

C

3.0%

-11.1%

COF

0.8%

-7.8%

USB

0.9%

-7.9%

PNC

2.4%

-8.3%



Over the last five trading sessions, BofA and JPMorgan were the major gainers, with their shares increasing 3.9% and 3.3%, respectively. Moreover, shares of Citigroup rallied 3%.

In the past six months, shares of both Citigroup and Wells Fargo have dropped 11.1%. In addition, shares of PNC Financial PNC have declined 8.3%.

What’s Next?

In the coming week, the focus will solely be on earnings releases. Some banks are scheduled to report second-quarter earnings in the next five trading days. Zions Bancorporation ZION will be reporting on Jul 23, BankUnited, Inc. BKU on Jul 24, Huntington Bancshares Incorporated HBAN and Prosperity Bancshares, Inc. PB on Jul 25, while Cullen/Frost Bankers, Inc. CFR on Jul 26.

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JPMorgan Chase & Co. (JPM) : Free Stock Analysis Report
 
The PNC Financial Services Group, Inc (PNC) : Free Stock Analysis Report
 
U.S. Bancorp (USB) : Free Stock Analysis Report
 
Fifth Third Bancorp (FITB) : Free Stock Analysis Report
 
Wells Fargo & Company (WFC) : Free Stock Analysis Report
 
Citigroup Inc. (C) : Free Stock Analysis Report
 
Bank of America Corporation (BAC) : Free Stock Analysis Report
 
BankUnited, Inc. (BKU) : Free Stock Analysis Report
 
Huntington Bancshares Incorporated (HBAN) : Free Stock Analysis Report
 
Cullen/Frost Bankers, Inc. (CFR) : Free Stock Analysis Report
 
Prosperity Bancshares, Inc. (PB) : Free Stock Analysis Report
 
Zions Bancorporation (ZION) : Free Stock Analysis Report
 
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