After an impressive first-quarter performance, driven by significant volatility, banks are losing momentum on the flattening of the yield curve. Therefore, net interest margin (NIM), which is the backbone for banks’ top-line growth, is expected to have remained subdued in the second quarter.
Nonetheless, given the benefits of rising interest rates, along with a moderate improvement in lending — particularly commercial and industrial (C&I), and consumer loans, banks’ net interest income (NII) is expected to have received some boost during the quarter.
On the fee revenue side, volatility-driven growth in trading revenues, which supported the top line during the January-March quarter, is likely to be muted in the second quarter. Also, the mortgage business is anticipated to have continued to witness a slowdown in the April-June quarter because, with interest rates moving higher, refinancing activities have been slowing down.
Further, investment banking performance is anticipated to be flat. Strong equity issuances, globally, might have been boosted by IPOs and follow-on offerings, thereby supporting equity underwriting fee growth. However, this is likely to be offset by lower debt origination fees because of limited corporate involvement in these activities due to rising rates.
Coming to expenses, while the absence of considerable legal expenses since the last few quarters is encouraging, increased investments in technology to improve digital offerings might have escalated costs moderately.
Notably, the passage of the new law to lessen banks’ regulatory burden and lower tax rates are anticipated to support bottom-line growth.
Per the latest Earnings Outlook, overall earnings for the major banks, and banks & thrifts in second-quarter 2018 are projected to rise 15.6% and 23.2% year over year, respectively.
Let’s take a look at four banks that are scheduled to announce results tomorrow, before the opening bell.
With a Zacks Rank #2 (Buy) and Earnings ESP of +0.31%, chances of SunTrust Banks STI beating the Zacks Consensus Estimate in the second quarter are high. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Supported by a modest improvement in lending, mainly in the areas of commercial and industrial, along with higher rates, the company’s NII is likely to get a boost. However, this might be offset to some extent by the flattening of the yield curve.
However, though overall mortgage servicing fees remained decent in the second quarter, production volumes slowed down. Thus, mortgage production income is expected to remain subdued. (Read more: Will Loan Growth, Fee Income Aid SunTrust Q2 Earnings?)
Notably, SunTrust surpassed the Zacks Consensus Estimate in three and matched in one of the trailing four quarters, as shown in the chart below:
Regions Financial RF is expected to witness a modest improvement in NII in the to-be-reported quarter, given the decent growth in commercial and industrial loans along with higher rates. However, the company’s equity and fixed income trading revenues are expected to be flat on a year-over-year basis. Also, poor mortgage banking revenues during the quarter are anticipated to have offset the positives to some extent. (Read more: Will Loan Growth Benefit Regions Financial Q2 Earnings?)
The company has an Earnings ESP of -0.24% and it currently carries a Zacks Rank #3 (Hold). Hence, chances of it beating estimates in the second quarter are low.
Nonetheless, Regions Financial has an impressive earnings surprise history. It has beaten the Zacks Consensus Estimate in three of the trailing four quarters, with an average beat of 5.2%, as demonstrated in the chart below:
For Citizens Financial Group CFG, we cannot conclusively predict an earnings beat in the quarter, because, despite having a Zacks Rank of 2, the company has an Earnings ESP of 0.00%.
In a rising rate environment, mortgage refinancing activities and fresh originations have been slowing down, thereby, leading to muted growth in mortgage banking revenues. However, as the trend of consumer spending was strong during the second quarter, the company’s card revenues are likely to get some boost. Moreover, despite the flattening of the yield curve during the quarter under review, margins are likely to have expanded due to the rising interest rates, thereby, boosting NII. (Read more: What's in the Offing for Citizens in Q2 Earnings?)
Citizens Financial boasts an impressive earnings surprise history. It surpassed earnings estimates in each of the trailing four quarters, with an average beat of 5.4%, as reflected in the chart below:
State Street’s STT NII is expected to remain either stable or improve modestly in the second quarter, driven by decent loan growth along with higher rates (partly offset by the flattening of the yield curve). However, despite the company’s continued investments in new products and business wins, its servicing fees are not expected to witness an improvement during the second quarter because of weaker equity market performance. Further, State Street’s expenses have remained elevated over the past few years because of rise in compensation and employee benefit costs as well as acquisition and restructuring costs. Because of its continuing restructuring efforts, costs are likely to remain elevated. (Read more: Can Higher Rates Aid State Street's Earnings in Q2?)
Notably, with an Earnings ESP of +0.28% and a Zacks Rank of 3, chances of State Street beating the Zacks Consensus Estimate in the second quarter are high. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Moreover, the company boasts an impressive earnings surprise history. Its earnings have surpassed the Zacks Consensus Estimate in all of the trailing four quarters, with an average beat of 5.5%.
Check later for our full write-up on earnings releases of these stocks.
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SunTrust Banks, Inc. (STI): Free Stock Analysis Report
State Street Corporation (STT): Free Stock Analysis Report
Regions Financial Corporation (RF): Free Stock Analysis Report
Citizens Financial Group, Inc. (CFG): Free Stock Analysis Report
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