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Bank Earnings Grow, Though Just Barely

NEW YORK ( TheStreet) -- U.S. banks managed to grow both earnings and revenues in the second quarter, though with several qualifications, according to a research note published late Thursday by analysts at Keefe, Bruyette & Woods.

Perhaps the largest asterisk of all is that the sample includes just 36 banks, and it does not include "universal" banks JPMorgan Chase (JPM), Citigroup (C) or Bank of America (BAC). These banks, which dwarf all the others (with the possible exception of Wells Fargo (WFC - Get Report)) generally saw revenues and earnings decline versus both the previous and year-ago quarters. Trust banks, such as Bank of New York Mellon (BK), State Street Corp. (STT) and Northern Trust Corp. (NTRS) were also excluded.

Included in the group were Wells, US Bancorp (USB - Get Report), PNC Financial (PNC - Get Report) as well as a sample of other large and mid-sized institutions.

The group grew operating earnings by 24% versus a year ago and 6% versus the first quarter, though those numbers were boosted by reserve releases, KBW said. Operating revenues, meanwhile, grew by just 2% versus a year ago and 1% versus the first quarter.

Twenty-six banks, or 72% beat consensus analyst expectations, though shrinking net interest margins (NIM) have been "an issue due to aggressive loan pricing,securities repricing, & less funding cost relief."

KBW's analysts see asset quality continuing to improve, along with the strength of bank balance sheets. Deposits and loans both increased by 3% versus the second quarter of 2011 and 1% compared to the previous quarter, according to KBW's report. They were also disappointed with expense results, which were flat versus the previous quarter. The 36 banks were up 22.4% year to date prior to their second quarter earnings releases and gained an additional 0.3% on the date they released earnings.

Bank stocks as a group have outperformed the broader stock market year to date, with SPDR KBW Regional Banking (KRE) and SPDR KBW Bank (KBE) up 10.93% and 8.51% respectively, versus a gain of 5.20% for the Dow Jones Industrial Average.

-- Written by Dan Freed in New York.

Follow this writer on Twitter.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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