Call it silver linings — maybe not yet green shoots. But bank earnings are showing that loan loss reserves were more conservative than needed (at least for now) and that in some cases, consumer spending and card activity might be emerging from the most recent depths spurred by the pandemic. Here’s the earnings roundup … so far.
The state of the consumer, according to banks, per commentary and numbers in earnings season … is … resilient. At least in terms of third-quarter results that gave insight into card spending and charge-offs.
Robust? That may be stretching things. Then again, of course, it could have easily been worse.
Thus far into earnings season, a slew of big banks, spanning J.P. Morgan, Citi, Wells Fargo, Bank of America and Goldman (where consumer deposits stood at $96 billion in the latest tally, up $4 billion in the quarter) have shown variations on a theme: We’re emerging from what seems (so far) to be a nadir seen earlier in the year. And loan loss reserves, taken in anticipation of souring loans, may have been overly pessimistic.
Yes, trading revenues were high, a nod to the whipsaw markets seen the past several months. But looking at individual data points show that declining sequential charge-offs were part of the landscape.
But the horizon is not exactly clear.
“As we look forward, the trajectory of the economic recovery remains unclear as the negative impact of COVID continues and further fiscal stimulus is uncertain,” Wells Fargo CEO Charles Scharf told investors on the company’s earnings call, as PYMNTS reported this week. In a positive development, Wells management said card fees, an indicator of consumer spending, were $912 million in the third quarter, up from $797 million in the second quarter. Debit purchase volume was $102.9 billion, gaining 11 percent year on year.
And at Citi, “We continue to navigate the effects of the COVID-19 pandemic extremely well,” CEO Michael Corbat noted in Citi’s earnings statement. “Credit costs have stabilized; deposits continued to increase.” Citi’s own net credit losses (as detailed in supplemental earnings materials) declined to $1.9 billion in the most recent quarter, down from $2.2 billion in the second quarter.
Citi saw revenue from cards declining 18 percent and pending volume by customers down 10 percent year over year. But cards purchase sales, globally, were up 17 percent quarter over quarter to $127 billion.
“We are still in the midst of a crisis,” Corbat noted in his call with analysts. “And so, we're very much still seeing pressure on purchase sales. It’s better than it was in the prior quarters, but there certainly is still pressure there. We’re seeing that across the franchise.”
J.P. Morgan’s results for the third quarter showed resilient consumer activity with an incrementally more sanguine view of lending. The company logged $611 million provision in credit costs in the period, compared with $10.5 billion in the previous quarter.
J.P. Morgan noted that in the quarter, net charge-offs of $1.2 billion were down $191 million from the prior year, predominantly driven by the card segment. But in signs of life, management said on the earnings call with investors that growth in average deposits, sequentially, was 5 percent, reaching a recent $2 trillion. Management also said — with a nod to improving the loan loss landscape — it does not expect to see meaningful increases in charge-offs until the second half of 2021.
With detail on card spending, J.P. Morgan said that card sales were down 8 percent year on year but continued to improve through the quarter, and were down only 3 percent year on year in the month of September.
Going Digital, Still
Digital adoption remains strong amid the pandemic, according to details from the J.P. Morgan results. Active mobile customers were up 10 percent year on year to 40 million. Nearly 69 percent of J.P. Morgan’s customers are digitally active, and that's up 3 percentage points year on year and accelerating, said the CFO. QuickDeposit now represents more than 40 percent of all check deposits versus 30 percent pre-COVID, as detailed on the analysts call.
Wells saw continued uptake in digital-banking activity during the quarter, with 32 million active digital customers (online and mobile), including 25.9 million active mobile customers.
Citi’s active digital customers were up three percent year on year to 20 million, while active mobile customers gained 4 percent to 13 million.
No easy time for banks or consumers, to be sure, but there are some positive signs.