Ahead of the earnings season, Bill Hebel, Head of 22V Financials Research, highlighted (HERE) that positive earnings revisions, a steeper yield curve, and sector rotation are the three keys to banks’ solid performance this quarter. That has materialized. With 19 S&P 500 financials reporting in the first week of earnings releases, 95% of the names beat estimates with unusual strong revisions.
Banks Margins Remian Supportive. Forward looking and current margin sentiment expressed by Bank management remain at a high level, though the forward looking readings showed some weakness. Margins are trending higher across Bank, but names with higher AI adoption have seen margins improve more rapidly than those of other Banks this year. The absolute level of profitability for accelerating AI adoption banks is lower, but the strong margin trend is another sign that AI is moving from strategic narrative to operational reality. We list the current names in the AI adoption group in the report.
In addition to the fundamental tailwinds from margin sentiment and AI adoption, Banks’ factor exposure is a support for Bank performance. Currently, S&P 1500 Banks are most exposed to Low Volatility, Cash Return, and Realized Value, while carrying negative exposure to risk factors. This allows them to benefit from the significant rotations out of price momentum names.
There are 86 S&P 500 names reporting next week, the names with higher beat potential and higher miss risk are listed at the end of this report.
Banks Kick Off a Strong 2Q26 Earnings Season: Financial companies reporting in the first week of 2Q earnings season posted much higher EPS beat rates than normal. So far, 95% of Financials companies beat EPS estimates, well above the historical median of 72%, and positive surprises were skewed toward larger beat. As 22V Economist Peter Williams summarized in his early earnings season report (HERE), despite plenty of shocks, the early macro read from earnings season have been very strong.
In addition to the strong EPS beat rate, EPS revisions for S&P 500 Financials and Banks are unusually strong. The 13.3% and 10% EPS revisions for Financials and Banks respectively are both well above their historical 75th percentiles.
Beyond the strong headline numbers, a key focus within banks’ earnings transcripts this quarter is AI adoption. We used LLMs to identify bank names demonstrating accelerated AI adoption this quarter and list them below. Banks are flagged as “accelerating” based on their current quarter earnings transcripts and a prior two-quarter transcript trend review. A bank earns the acceleration tag when management commentary shifts from high-level AI references to quantified deployments, headcount productivity claims, or explicit cost-out timelines, and when analyst AI-related questions are rising in frequency, indicating AI is moving from strategic narrative to operational reality. For instance, Citi noted that nearly 9 out of 10 employees use AI tools, driving productivity, client experience and growth, bringing products to market faster; Bank of America says Over 200,000 teammates actively using AI-enabled capabilities across the company, ranging from productivity tools to agentic workflows and coding support.
Accelerated AI adoption is also contributing to improving margin dynamics. Banks with accelerated AI adoption show a higher YTD change in NTM Margin compared to the broad S&P 500 Banks universe and their peers without accelerated AI adoption. The faster YTD margin improvement of the group has allowed them to narrow the margin gap with other Banks. JPMorgan CEO Jamie Dimon stated: “In a competitive capitalist world, we always use AI to do a better job for the customers, we can’t just say, oh, it’s going to increase our margins and going to keep that. If that were true, our margins would be 80% today, because of computerization over the last 20 years.” As Dimon notes, margin expansion is not a direct consequence of accelerated AI adoption, but it does help AI-adopting banks gradually close the NTM Margin gap relative to their peers.
Currently, margin sentiment expressed by Bank management is supportive, reflecting strong bank confidence in current operating margins and the near-term outlook. While forward looking Margin Commentary Sentiment ticked down from its recent high, it remains above any level seen prior to 2025. Margin Results Sentiment ticked up, reaching its highest level since 2023.
Complementing the fundamental tailwinds from margin sentiment and AI adoption, the positive exposure to Risk-off and Value factors positions Banks well during current significant Price Momentum dispersion. Currently, S&P 1500 Banks are most exposed to Low Volatility, Cash Return, and Realized Value, while carrying negative exposure to risk factors, away from Earnings Turbulence risk two quarters ago (HERE). As we highlighted (HERE), Realized Value is an effective hedge against momentum risk. The factor exposure of S&P 1500 Banks therefore positions them to benefit from significant rotations out of price momentum names.
Week Ahead: 86 S&P 500 names are scheduled to report next week. Below we list the names falling into the higher beat potential basket. These names have high Earnings Quality and positive earnings sentiment scores. The higher miss risk basket contains names with high Earnings Turbulence and negative earnings sentiment score.
