(Updated from 9:15 a.m. EDT)

Despite challenging economic conditions, top financial services firms are beating Wall Street's earnings forecasts.

Bank of America ( BAC - Get Report) reported second-quarter earnings of $2.02 billion, or $1.24 a share, besting its year-ago mark by a penny. Analysts, on average, were expecting the company to post earnings of $1.18 a share according to Thomson Financial/First Call. Investment banking income grew 22% in the quarter, led by strong fixed-income originations and syndications.

Citigroup ( C - Get Report) said its operating profit rose 13% in the second quarter, bolstered by solid growth in its consumer banking segment and the strengthening of strategic franchises worldwide. The company reported second-quarter earnings of 74 cents a share, up from 65 cents a share in the year-ago quarter. Analysts were expecting earnings of 73 cents a share.

"The strength and diversity of our global franchises produced results that once again proved Citigroup's ability to increase revenue and earnings, even in light of the difficult market conditions'', Sanford I. Weill, the chairman and chief executive officer of Citigroup, said in a prepared statement. "Revenues grew 8%, led by 12% growth in the Global Consumer segment. Given the recent economic trends, we are particularly pleased with 14% growth in our core EPS."

Earnings Reports & Warnings:

  • Continental Airlines ( CAL) reported second-quarter earnings of 74 cents a share, a 70% decline from the year-ago quarter, but ahead of analysts' expectations. On average, analysts were expecting the carrier to post earnings of 58 cents a share. The company said that cutbacks in business travel have taken a significant toll on its revenue.

  • Eaton ( ETN) said its second-quarter earnings took a substantial hit because of weak demand both at home and abroad. Excluding charges, the company reported earnings of 94 cents a share, down from $1.95 in the year-ago quarter. Net income for the quarter came in at 69 cents a share. The company warned June 26 that earnings would be 20% to 30% lower than analysts' forecasts. As a result, analysts lowered their expectations to 90 cents a share for the quarter.

  • Expedia ( EXPE) expects to beat Wall Street's third-quarter earnings estimates of 9 cents a share by a wide margin. The online travel services company now expects to earn 20 cents to 23 cents a share, excluding noncash items. Additionally, USA Networks ( USAI) plans to buy a controlling interest in Expedia from Microsoft ( MSFT). USA will own about 75% of Expedia after the companies complete the transaction.

  • Fifth Third Bancorp ( FITB) reported a 14% increase in second-quarter earnings, in line with analysts' estimates, citing loan growth and very few bad loans. The company posted earnings of $338.2 million, or 58 cents a share, compared with $296.7 million, or 46 cents a share, in the year-ago period.

  • Metro One Telecommunications expects to report second-quarter record revenue of $59 million to $60 million, slightly higher than its previous forecast. The company also plans on reporting second-quarter earnings of 29 cents to 31 cents a share, which would beat the current consensus estimate of 25 cents a share. The company previously expected 25 cents to 27 cents a share. Metro One will announce complete financial results for the second quarter after the close of the market on July 24.

  • Temple-Inland reported second-quarter earnings of 58 cents a share , down from $1.20 a share in the year-ago quarter, a decline of 53%. Analysts were expecting the company to post earnings of 45 cents a share.

    Miscellany:

  • Agere Systems said it was bowing out of the chip market for Universal Serial Bus 2.0, a product designed to reduce the number of cables for personal computers. The company also said it was accelerating the development of its 1394b applications, which enable users to send large multimedia files at high transmission rates over long distances.

  • Sanmina ( SANM - Get Report) agreed to acquire SCI Systems ( SCI) for about $4.5 billion in stock. Both companies are electronics contract manufacturers. Sanmina will swap 1.36 shares for each share of SCI. The merged company will have revenue of about $14 billion and 100 manufacturing facilities in more than 20 countries.

    On the Economic Lookout:

  • The Census Bureau released the May business inventories report, which measures the total number of inventories at the three stages of production: manufacturing, wholesaling and retailing. Total business inventories were unchanged, according to the latest data. The report is used to help predict the inventory portion of the gross domestic product data, but most of the components of the report are already known by the time it is released. Economists polled by Reuters were expecting a 0.1% decline in inventories for the month. Typically, the report has little effect on the market.

    ( Forecasts are from Reuters . Times are Eastern. For a longer-term economic calendar and more, see TSC's Economic Databank. )

    After the Close Friday:

  • Pharmacia reaffirmed its guidance of 20% earnings growth in 2001. But the company said Friday the Food and Drug Administration issued a letter denying approval for one of the company's painkillers. The pharmaceutical company said it will supply additional data to the FDA in the next 12 to 18 months. Pharmacia added that the denial shouldn't have any financial impact in the current fiscal year.

  • Cymer ( CYMI), a company that makes lasers used in semiconductor production, said after the market closed Friday that second-quarter earnings will be at least in line with analysts' estimates of a penny a share, but that it will post a decline of 25% to 30% sequentially in the next quarter because of ongoing weak demand.

    For an extended take on late-night action, be sure to take a gander at The Night Watch.

    Sources & Definitions: All analyst EPS estimates are from Thomson Financial/First Call, unless otherwise noted. All economic forecasts are from Reuters , unless otherwise noted. All times are Eastern, always. After-hours quotes courtesy of Instinet, unless otherwise noted.