Wells Fargo & Co and US Bancorp, two of the largest banks in the United States, said rising loan demand helped lift their earnings more than analysts had expected.
Rising loan demand means some banks might be doing better and winning market share even as business remains tough.
The strong are getting stronger, said Blake Howells, head of equity research at Becker Capital Management, which owns US Bancorp shares.
Consumer and corporate credit quality also showed signs of improving during the quarter. Executives at both banks said credit is on an upward trajectory.
Investment banking hurt bigger banks like JPMorgan Chase & Co and Bank of America Corp , but US Bancorp and Wells Fargo have much smaller underwriting and trading businesses, which proved to be an advantage in the quarter.
Several other banks also reported results that beat Wall Street forecasts.
While suffering higher credit losses than last year, Wells said the worst might be over for loan writedowns.
We believe credit quality has indeed turned the corner, Wells Chief Financial Officer Howard Atkins said.
Wells Fargo's corporate loan demand rose. If it were widespread, it would be good for the economy, but most of Wells Fargo's rivals have reported weak demand. Rising demand for Wells Fargo likely means that it is winning market share.
Minneapolis-based US Bancorp said consumer loan demand rose, which likely means that it is winning market share.
Wells Fargo said credit losses fell 16 percent in the second quarter to $4.49 billion from $5.33 billion in the first quarter, with improvement in home equity, consumer loans and credit card portfolios.
The bank reduced the amount of money set aside to cover bad loans by about $500 million, which boosted profits.
Other banks said credit quality improved. Dallas-based Comerica Inc beat Wall Street earnings estimates as credit losses fell.
Hudson City Bancorp Inc, a bank best known for making mortgages in the New York City area, said profit rose 11.5 percent as growth in nonperforming loans slowed.
We believe the real estate markets are stabilizing, Chief Executive Ronald Hermance said, adding that high unemployment will continue to put pressure on the company's loan book.
Those difficulties are still affecting banks.
Wells Fargo, which is integrating Wachovia Corp, which it bought in 2008, reported a 5 percent drop in revenue to $21.39 billion, but net interest margin improved.
Net charge offs were 3.27 percent of total loans, up from 2.86 percent a year ago and down from the first quarter.
We'd be more prudent to consider it a slow, steady recovery than one that's going to bump back fast, US Bancorp Chief Executive Richard Davis said on a conference call.
US Bancorp's loan book grew 4 percent from the 2009 quarter as credit card issuance and residential mortgages increased. Quarterly revenue climbed almost 9 percent to $4.5 billion.
Loan losses rose to $1.11 billion, but losses on commercial loans, home equity and residential mortgages fell. The bank put aside $1.13 billion against bad loans, down from $1.4 billion a year earlier.
We believe the company has reached the inflection point in credit quality and we expect net charge-offs and nonperforming assets to be lower in the third quarter than the current quarter, Davis said in a statement.
Bank of America Corp , JPMorgan Chase & Co and Citigroup Inc reported earnings last week that were boosted by reserve releases after their credit costs eased.
Wells Fargo reported second-quarter earnings of $3.06 billion, or 55 cents a share, compared with $3.17 billion, or 57 cents a share, a year earlier.
Analysts on average expected 48 cents a share, according to Thomson Reuters I/B/E/S.
US Bancorp's second-quarter profit was $766 million, or 45 cents a share, compared with $471 million, or 12 cents a share, a year earlier. Excluding one-items, it earned 40 cents a share, above analysts' average estimate of 38 cents, according to Thomson Reuters I/B/E/S.
Comerica reported second-quarter net income attributable to common shares of $69 million, or 39 cents a share, compared with a loss of $16 million, or 11 cents a share, last year.
Hudson City, the largest U.S. thrift, said net income rose to $142.6 million, or 29 cents per share, from $127.9 million, or 26 cents per share, a year earlier.
(Reporting by Elinor Comlay; editing by John Wallace and Robert MacMillan)