Charlotte’s biggest banks reported earnings this week. Here are 5 takeaways
Charlotte’s biggest banks — Bank of America, Truist and Wells Fargo — reported third-quarter earnings on Thursday and Friday.
Truist is progressing with its merger, Wells Fargo is still addressing the fallout of its 2016 scandal, and all three banks are benefiting from a recovering economy despite some lingering financial impacts from the pandemic. Here are five things you should know:
The banks are bullish on the economy
Charlotte’s biggest banks reiterated their confidence in America’s post-COVID-19 economic recovery.
Wells Fargo CEO Charlie Scharf told investors the economic outlook is “promising” despite concerns about the delta variant of the coronavirus and a fiscal policy stalemate on Capitol Hill.
Truist CEO Bill Rogers said that economic growth was on “firm footing,” particularly in the bank’s markets.
And Bank of America CFO Paul Donofrio said the bank’s research team expects inflation to be transient and supply chains to gradually come unclogged in the coming months. “We’re optimistic.”
During the pandemic, U.S. banks built up their loan loss reserves to protect against what many feared would be widespread loan defaults. As those concerns have waned, banks have released funds from those reserves. All three banks said that they shrank their loan loss reserves this quarter.
A low appetite for loans
Although banks are benefiting from an improved economy, many have struggled to grow the number of loans on their books during the recovery. Average loans were down from the third quarter of last year at all three banks, not accounting for the impact of federal Paycheck Protection Program loans.
During the pandemic, many consumers and businesses got an influx of cash — and held on to it, said Kyle Sanders, an analyst at Edward Jones. Those people and companies are still borrowing at a lower rate than you would expect during an economic recovery, he said.
That hurts banks’ bread-and-butter business and their profit growth.
But there are some signs that loan growth might pick up soon.
Bank of America CEO Brian Moynihan told investors that the bank reached an apparent “inflection point” a couple quarters ago. Since then, loan growth has ticked upward and the bank has seen signs of higher demand.
Sanders added that individuals and businesses may use more credit as supply chain snafus are unfurled and the holiday shopping season approaches.
In recent quarters, many banks have seen profits lifted by the release of funds from their loan loss reserves, he said. As those temporary boosts dwindle, banks will need to grow the money made from their core business activities, and they’ll need to build out their loan books to do it.
“We think that’s the next catalyst for the banks,” Sanders said.
More changes ahead for Truist
Truist, the $66-billion combination of SunTrust and BB&T, remains on track for a complete conversion to the newly formed bank in the first quarter of next year.
And keep an eye out for sign switches in Charlotte and beyond around the same time, when all SunTrust and BB&T branches will become Truist.
The bank reported quarterly net income of $1.6 billion, a 51% increase over the same quarter last year.
Friday’s earnings call was also Bill Rogers’ first as CEO. Rogers, formerly the CEO of SunTrust, took over the role from former BB&T leader Kelly King in September.
Wells Fargo sees signs of progress
Wells Fargo CEO Charlie Scharf said the bank is making progress in addressing the problems at the heart of its 2016 scandal, when it was discovered that employees had created millions of fake accounts for customers.
“I remain confident in our ability to close the remaining gaps (in the bank’s risk and control infrastructure) over the next several years,” Scharf said on a call with investors. “We are a different bank than we were several years ago.”
Last month, Wells announced it no longer was under a 2016 consent order from the Consumer Financial Protection Bureau regarding its retail sales practices. At the same time, the Office of the Comptroller of the Currency slapped the bank with a $250 million fine for “unsafe and unsound practices” related to the bank’s mortgage business.
The bank is also still operating under a $1.95 trillion asset cap imposed by the Federal Reserve in the aftermath of the violations.
Sanders, the Edward Jones analyst, said setbacks are to be expected in the long-term turnaround of the company, but management seems focused on addressing regulatory concerns. “I do think they have the right people on the bus,” he said. “It’s taking longer than anyone would like, but I do feel like there is progress being made.”
The San Francisco-based bank, which employs more than 27,000 people in Charlotte, said Thursday that its net income for the third quarter was $5.1 billion, up from $3.2 billion last year.
Wells has continued to cut costs, particularly in consumer banking. Over the past year, the bank has closed 433 branches and shrunk its branch employee headcount by 23%.
Bank of America details racial equity spending
In the summer of 2020, Bank of America announced it would pledge $1 billion to fight racial inequities in the U.S., one of the biggest commitments from a U.S. company on the issue. This year, it increased that amount to $1.25 billion spent over five years.
The bank has spent about a third of that money, it said Thursday, including $72 million for philanthropic funding and $300 million invested in funds to support minority and women-owned businesses. The priorities for the racial equity fund include job retraining, healthcare access and affordable housing.
Bank of America reported net income of $7.7 billion, jumping 58% from the same quarter last year.
The quarterly earnings call was also the last with Paul Donofrio as chief financial officer.
Donofrio is moving into a different role at the bank as vice chair overseeing sustainable finance. And president of global commercial banking Alastair Borthwick is taking over as CFO in the fourth quarter — part of a number of changes in the bank’s recent senior leadership shake-up.
This story was originally published October 15, 2021 at 1:36 PM.
