Bank Stock Roundup: Q3 Earnings Season Unfolds, JPM, WFC & C Top Estimates
Though most banks that reported third-quarter 2020 results this week managed to beat estimates on higher fee income, decent reserve builds and manageable expenses, investors’ concerns are still high on the looming economic uncertainty. Moreover, the lack of resilience from management, comments of major banks and ambiguity over an additional stimulus package have only added fuel to the fire, dragging down the stocks in the last five trading sessions.
Notably, low interest rates and muted loan demand (except for commercial real estate) resulted in a decline in net interest income and contraction of banks’ net interest margins. Though high spending on technology and other market development initiatives was witnessed, overall expenses were manageable.
On the fee income front, major banks managed to get some relief on higher trading revenues, resulting from solid client activities and a continued upsurge in market volatility. Further, a decent investment banking performance, aided by strong underwriting business, was on the upside. Also, low mortgage rates supported banks’ mortgage banking business as refinancing activities witnessed a surge.
Nonetheless, consumer banking operations played spoilsport due to the low consumer sentiments. Additionally, advisory business was on the downside.
Having already built quite significant reserves in the June-end quarter because of further worsening of the operating backdrop since the end of March, banks recorded comparatively lower provision for loan losses in the September-end quarter.
Overall, banks’ balance sheet and liquidity positions remained solid amid the economic slowdown due to coronavirus crisis.
Important Earnings of the Week
1. Citigroup C delivered an earnings surprise of 38.6% in the third quarter on robust market revenues. Earnings per share of $1.40 for the quarter handily outpaced the Zacks Consensus Estimate of $1.01. Results were, however, down significantly from the prior-year quarter.
Citigroup recorded higher revenues on investment banking and market revenues during the reported quarter. Notably, equity market revenues (up 15%) were impressive on strong performance in cash equities and derivatives, partially offset by lower prime finance revenues, while fixed income revenues (up 18%) were also on an upswing, reflecting strength in spread products and commodities.
Moreover, investment banking revenues (up 13%) increased on a solid underwriting business, partly muted by lower advisory business. However, consumer banking disappointed due to the continued impact of pandemic. Moreover, elevated cost of credit and elevated expenses were major drags.
2. Aided by robust mortgage banking revenues, Wells Fargo WFC reported third-quarter adjusted earnings of 56 cents per share, beating the Zacks Consensus Estimate of 47 cents. Results, however, compared unfavorably with the prior-year quarter figure of 92 cents. Including certain adjustments, net income came in at $2.04 billion or 42 cents per share.
Increased gains on trading activities also supported the bank. Moreover, the company reflects prudent expense management. Further, high loans and deposits balance displayed a strong capital position. However, reduced net interest income on lower rates negatively impacted the company’s results. Provisions also soared during the reported quarter.
3. Unexpected lower provisions, along with improvement in trading and mortgage banking businesses drove JPMorgan’s JPM third-quarter 2020 earnings of $2.92 per share. The bottom line comfortably surpassed the Zacks Consensus Estimate of $2.35. Results included legal expenses of $524 million or 17 cents per share. Excluding these, earnings amounted to $3.09 per share.
During the quarter, the company reported net reserve releases, which led to lower credit costs. In a statement, the CEO Jamie Dimon said, “we maintained our credit reserves at $34 billion given significant economic uncertainty and a broad range of potential outcomes.”
4. Bank of America’s BAC earnings of 51 cents per share marginally lagged the Zacks Consensus Estimate of 53 cents during the July-September quarter. Also, the figure was 9% below the prior-year quarter level. As expected, a low interest-rate environment and soft loan demand hurt BofA’s net interest income. A reserve build in the commercial portfolio was one of the reasons for a rise in credit costs.
Furthermore, despite a rebound in deal-making activities during the third quarter, advisory fees declined 17% from the year-ago quarter. Also, debt issuance fees fell 10%. Conversely, equity underwriting fees surged 147%. This supported total investment banking fees, which increased 8%.
5. U.S. Bancorp’s USB reported third-quarter earnings per share of 99 cents, which beat the Zacks Consensus Estimate of 93 cents. However, the bottom line compared unfavorably with the $1.15 reported in the prior-year quarter.
Fee income growth aided by higher mortgage banking, corporate bond issuance fees and trading activities was recorded. Furthermore, capital position remained strong and deposit balances increased. Nevertheless, a substantial rise in provisions, due to the coronavirus outbreak-related concerns, was a headwind. Moreover, higher expenses and contraction of margin were undermining factors.
6. PNC Financial PNC pulled off an earnings surprise of 62% on prudent expense management during the September-end quarter. Earnings per share of $3.39 surpassed the Zacks Consensus Estimate of $2.09. Also, the figure was 15% higher than the prior-year level. Decline in expenses and lower provisions drove the results. Moreover, decent fee income aided revenue growth. However, a lower net interest margin and decrease in loans were undermining factors.
Here is how the seven major stocks performed:
Over the past five trading days, Wells Fargo and Bank of America have recorded the maximum loss, with their shares depreciating 9.3% and 4.8%, respectively. Also, shares of PNC Financial have declined 4.1% in the same period.
In the past six months, shares of Wells Fargo have slumped 17.3%, while Capital One Financial COF and PNC Financial have appreciated 50.6% and 21.1%, respectively.
In the coming week, the focus will solely be on earnings releases. Some banks are scheduled to report third-quarter results in the next five trading days. Comerica Incorporated CMA and Regions Financial RF will report on Oct 20, KeyCorp KEY and Northern Trust Corporation NTRS on Oct 21, while Bank OZK OZK, Huntington Bancshares Incorporated HBAN, M&T Bank Corporation MTB, Fifth Third FITB and Capital One Financial will release their quarterly numbers on Oct 22.
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JPMorgan Chase Co. (JPM): Free Stock Analysis Report
Regions Financial Corporation (RF): Free Stock Analysis Report
Comerica Incorporated (CMA): Free Stock Analysis Report
U.S. Bancorp (USB): Free Stock Analysis Report
MT Bank Corporation (MTB): Free Stock Analysis Report
Huntington Bancshares Incorporated (HBAN): Free Stock Analysis Report
Bank of America Corporation (BAC): Free Stock Analysis Report
Citigroup Inc. (C): Free Stock Analysis Report
Fifth Third Bancorp (FITB): Free Stock Analysis Report
Capital One Financial Corporation (COF): Free Stock Analysis Report
Northern Trust Corporation (NTRS): Free Stock Analysis Report
The PNC Financial Services Group, Inc (PNC): Free Stock Analysis Report
Wells Fargo Company (WFC): Free Stock Analysis Report
KeyCorp (KEY): Free Stock Analysis Report
Bank OZK (OZK): Free Stock Analysis Report
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