Banks should show solid second-quarter results as they begin to report this week, analysts said Friday.

The analysts said they expect reports for the period to show that capital rose and that banks increased deposits and mortgage activity to soften the blow from rising loan weakness from increasing unemployment.

Still, the reports will likely be "noisy," the analysts said, as the picture of their fundamental operations gets obscured by the wave of capital raising following the stress test results, repayment of Troubled Asset Relief Program money and special regulatory charges.

Strong mortgage revenue, increasing deposits and a recovery of unrealized losses on some securities portfolios because of an improvement in credit spreads will be positive for banks, Bernstein Research analyst John McDonald wrote in a note to clients. "However, the industry is still up against several fundamental economic headwinds (i.e., rising unemployment, negative GDP), which could potentially push out the time frame for when banks move closer to normalized profitability," he wrote.

FBR Capital Markets analyst Paul Miller told clients Friday that he expects banks to have record levels of nonperforming assets and chargeoffs for the second quarter.

The market may overlook this, he said, as the banks use their capital raising and other one-time benefits to build their cushion of reserves held against future losses. "However, if the job picture does not improve over the next couple of months, we believe credit costs will continue to rise at an alarming rate, pressuring bank [return on equity] and valuations," according to Miller.

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