Wells Fargo & Co (WFC), JPMorgan Chase & Co. (JPM): Financials Kicking off the Season

With the market hitting new highs, are you one of the many investors looking to reposition your portfolio into the year’s end?

As we enter earnings season, the Street has placed the majority of its focus once again on the financial sector. While the financial sector has outperformed the broader markets for much of the last year, it hasn’t been exempt from the turbulence we’ve experienced over the last three weeks.  A slew of our powerhouse institutions, including Wells Fargo & Co (NYSE:WFC) and JPMorgan Chase & Co. (NYSE:JPM) have already reported to start off the season. In this article I will review recent reports while offering forward guidance for the remainder of the year.

The mortgage leader

Last Friday Wells Fargo & Co (NYSE:WFC), the mortgage king, reported its second quarter earnings amid high analyst expectations and predictions. Record diluted earnings per share of $0.98 topped analyst estimates of $0.93, and represented 20% growth for the company. If you break down the company’s revenues you will find an even 50/50 split between interest generating and non-interest generating revenue streams. While net interest margins slid for yet another quarter, the drop was almost negligible, 2 basis points. The company made up for the decline through strong deposit and lending growth. As a result net interest income moved higher by 2%, reflecting loan growth, securities purchases, lower funding costs, and one more day in the quarter.

The company’s earnings report gave us a good look into the real strength of the economy. Credit quality has improved greatly over the last year; in my previous articles I have highlighted the declining delinquency rates within the credit card sector. Wells Fargo & Co (NYSE:WFC) benefited, as well: the net charge-off rate declined to 0.58%, or the lowest since second quarter 2006. Going forward, the company should benefit greatly from the continuance of rising interest rates and credit quality. The perfect storm of loan growth and margin expansion will bode well for the company’s EPS over the next few years.

Our nation’s banker

If you haven’t yet watched the History Channel’s look at the Men Who Built America, it’s a must-watch for anyone interested in history. The series did a great job and service by giving us a clear look at who J.P. Morgan was, and the struggles he overcame to assert his dominance in the financial world. Today, his name still lingers through his company JPMorgan Chase & Co. (NYSE:JPM), which reported its second quarter earnings late last week. The company reported yet another strong quarter where earnings per share rose by 32% to $1.60,  significantly higher than analysts’ estimates of $1.44.