Bank Q2 Earnings to Reflect ‘Rebound’: Sterne Agee

The first quarter wasn't kind to this segment of the financial sector, Sterne Agee reports

Citigroup, JPMorgan and Bank of America report second-quarter earnings next week. Citigroup, JPMorgan and Bank of America report second-quarter earnings next week.

Wells Fargo (WFC) kicked off the second-quarter bank earnings season this quarter. The bank met earnings expectations with net income of $1.01 per share.

Citigroup (C) is set to report on Monday, followed by JPMorgan (JPM) on Tuesday and Bank of America (BAC) on Wednesday. Analysts expect earnings of $1.08 per share, $1.29 per share and $0.27 per share, respectively.

Other heavy reporting days (when 10 or more companies share their latest results) will be next Friday, as well as July 22, 23 and 24, according to Sterne Agee.

Looking at the financial models for the nearly 120 banks covered by the investment firm, Sterne Agee estimates second-quarter EPS is likely to rise 3.4% year over year vs. the 1.1% growth rate of Q1’14.

On a quarterly basis, the average EPS should improve 22%.

“We believe the Q2’14 pickup relative to the prior quarter reflects expectations for a seasonal rebound in certain fee-income areas and in some cases lower operating expenses,” said Terry McEvoy and colleagues in their industry report, which was published Friday.

Pre-tax revenue should jump up at about the same rate — before accounting for any special charges or provision — to 3.4% year over year and 21% quarter over quarter, “benefiting from a pickup in revenue … and controlled expense growth … as management teams remained focused on expense reduction or at least containment,” the analysts say.

“After seasonal weakness in Q1’14, which reflected slower economic growth and a harsh winter for much of the nation, we forecast revenue to increase 2.5% year over year and 10% quarter over quarter,” they explained.

The Birmingham, Ala.-based group believes that net interest income should grow 4% year over year and 7.7% quarter over quarter. Fee income, though, is expected to decline 2.6% year over year, but improve 10.4% quarter over quarter.

“The earnings headwind created by a declining level of reserve releasing is tough to quantify given the typical variability in loan loss provisioning from one quarter to the next,” McEvoy noted. “With that said, our models would indicate that reserve levels have neared the bottom for the banks we cover as we estimate that these levels will be unchanged quarter over quarter after declining 2% in Q1’14. Less reserve releasing suggests an improvement in earnings ‘quality’ going forward.”

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Check out ThinkAdvisor’s 2014 Q2 Earnings Calendar for the Finance Sector.

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