"Our knuckles are white, but we're still hanging in there," Davis said during an earnings conference call.
Most big banks reported narrower net interest margins, showing the increasing difficulty of generating revenue from loans. Bank of America reported the sharpest decline, as its margin shrunk 34 basis points, to 2.03%. Wells Fargo and Citigroup reported declines of 11 and 9 basis points, respectively.
Large regional banks including U.S. Bancorp and PNC held relatively steady.
Meanwhile, JPMorgan Chase said its margin expanded 16 basis points, to 2.25%.
Never-Ending Cost Cuts
U.S. Bancorp (12% increase) and Wells Fargo (4% increase) went the wrong direction, with each seeing increases in labor-related costs and spending on outside professional services. U.S. Bancorp also is investing in a major marking campaign. Deposit assessments rose 15% at Wells, and JPMorgan and U.S. Bancorp warned that new increases in federal deposit insurance premiums will drive up their overall expenses in the second half of the year.
Harnessing Energy Risk
JPMorgan boosted its provision for credit losses by 50%, to $1.4 billion, but it said the higher reserves reflected the downgrade of one borrower.
The oil and gas sector "remains stressed," but "the overall trends have been somewhat positive with oil prices continuing to stabilize," Chief Financial Officer Marianne Lake said. "In addition outside of energy, we still have not seen contagion or deterioration in our wholesale or consumer portfolios."
Wells Fargo acknowledged that net chargeoffs and nonaccrual loans in its oil and gas loan portfolio rose, but its $150 million provision for loan losses was primarily for auto and credit card portfolios and not energy. Meanwhile, credit exposure fell 9.5% year over year to $39.1 billion primarily on a reduction in unfunded commitments.
"And as in every challenging cycle, we're also seeing opportunities, and we originated new loans during the second quarter to well-qualified borrowers," CFO John Shrewsberry said.
However, whether the respite will last is unclear as regional and midsize banks that have bigger chunks of their credit portfolios linked to energy borrowers still have to report quarterly results.
Confronting Brexit Fears
U.S. Bancorp's Richard Davis said that the vote could be a boon to its payments unit. The Minneapolis bank has expanded its merchant-acquiring business across Europe in recent years, with a focus on hotels and airlines. The decline in the value of the pound could make vacations to London relatively cheap and that could result in higher revenue for the bank, Davis said.
Wells Fargo said the decline in mortgage rates following the June 23 Brexit vote has led to a surge in refinancing activity.
And JPMorgan Chase put on a good face. The company which has 16,000 employees in the U.K., far more than many competitors said it will simply take time to sort out the impact of Brexit on its EU operations.
"The truth of the matter is it's very, very early days," Lake said.
Too Many (CR)Eggs in One Basket?
JPMorgan said last week that it grew its CRE book by 18% a rate that one analyst described as "growing like a weed."
"It's growing like a sunflower," JPMorgan's Lake said in response, pointing to the "really good" credit quality in the portfolio. The company increased total loans at a slower clip of 10%.
Other big banks followed suit. U.S. Bancorp reported an uptick in CRE lending, driven by demand in San Francisco and other cities along the West Coast. It had previously indicated that it planned to scale back.
Meanwhile, Bank of America and Wells Fargo both expanded their CRE books by about 10%.