UPDATE: BB&T, Fifth Third Join Surprising Bank-Profit Parade

BB&T Corp. (BBT) and Fifth Third Bancorp (FITB) reported strong second-quarter earnings and were able to grow revenue despite the slowing economy.

The quarterly profit at BB&T rose 46% from a year earlier, to $327 million, and Fifth Third's rose 75%, to $337 million. Both banks set aside less money for future losses from delinquent loans, but both also reported rising revenue from the first quarter even though weakening economic growth has caused worries about job creation and household income.

The two banks' results add to what has been a surprisingly good quarter for banks: Profits, business loan demand and, in many cases, revenue are up even at banks that had a tough time in recent quarters convincing investors that they can grow.

The source of rising revenue varies. BB&T reported that insurance commissions rose, as did investment-banking income. At Fifth Third, mortgage-banking revenue and fees from processing credit-card transactions rose. Many banks already reported more commercial and industrial loans, particularly those made to mid-sized businesses.

Barclays Capital analyst Jason Goldberg, in a research note, said earnings at the 16 big banks he follows that have so far reported results have met or exceeded estimates. "This has never happened before" in more than 16 years covering banks as a sell-side analyst, Goldberg wrote.

Similarly, Keefe, Bruyette & Woods said in a report that, of the 30 banks that reported and are covered by the brokerage, 80% beat estimates; almost all are profitable. A year earlier, 55% beat estimates; in the first quarter, that percentage was 63%.

Bank stocks rose for the third consecutive day. Shares of BB&T, of Winston-Salem, N.C., rose 2.3%, to $26.22, and Fifth Third, of Cincinnati, rose 2.76%, to $12.66.

Challenges remain for the industry. Increased demand for business loans may not necessarily keep leading to higher profits, as the interest rates banks are charging for such loans are falling because competition for loans has grown.

Consumers, meanwhile, continue to pay back loans. Despite improvements in demand for auto, student and credit-card loans, overall consumer loans are only inching up slightly.

Revenue at BB&T rose 7% from the first quarter, to $2.1 billion, though it fell almost 11% from a year earlier as gains on investment securities plummeted. Fifth Third's revenue rose 3.9% from the first quarter and 1.2% from a year earlier, to $1.5 billion.

BB&T reported a per-share profit of 44 cents, 1 cent ahead of analyst estimates, according to Thomson Reuters; Fifth Third reported earnings of 35 cents a share, compared to analysts estimates of 27 cents.

"These results were the strongest we reported since 2007," Fifth Third Chief Executive Kevin Kabat told investors during a conference call.

Higher bank revenue, to be sure, doesn't mean the economy is strong, bankers warned. Loan demand stems in part from manufacturers who benefit from the weak dollar and demand for their products from abroad.

"We don't...foresee anything, at least through the rest of this year, that fundamentally changes the trajectory of the economy--not a double dip," nor accelerating, Kabat said.

Andrew Cecere, chief financial officer at Minneapolis bank U.S. Bancorp (USB), said in an interview Wednesday that the banking industry "is going to grow consistent with the economy. I'd say it's a little too soon to be certain about a trend in the third quarter."

Stephen Steinour, CEO at Huntington Bancshares Inc. (HBAN), was more pessimistic. Concerns over the U.S. debt ceiling, unemployment, and the ongoing housing slump led the bank to shrink its investment portfolio, which damped revenue and may continue to pressure earnings, he said.

At Huntington, a regional bank in Ohio, profit nearly tripled from the prior year, to $145.9 million. Revenue from the prior quarter rose 2.8%, to $659.1 million, largely on the back of fee growth from its deposit accounts and higher usage of its online-banking products.

-By Matthias Rieker, Dow Jones Newswires; 212-416-2471; matthias.rieker@dowjones.com

--David Benoit and Corrie Driebusch contributed to this article.

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