Third Quarter results are rolling in and credit card issuers delivered strong results. Happy Days are here again.
At Bank of America, Yahoo Finance notes:
The provision for credit losses was a net benefit of $624 million in the quarter, reflecting a net reserve release of $1.1 billion. The company reported total loans and leases of $927.7 billion, down 2.9% from the prior-year quarter. Meanwhile, total deposits grew 15.4% to $1.96 trillion.
And the earnings transcript quoted CEO Brian Moynihan:
Card loans grew 7% annualized from Quarter 2 levels with increased spending. But as you well know, repayment rates trends remain high.
BoA CFO, Paul Donofrio mentioned one of our favorite topics: Current Expected Credit Loss (CECL).
We had a reserve release of $1.1 billion, split roughly 80% in commercial and 20% in consumer. Our allowance as a percentage of loans and leases ended the quarter at 1.43%, which is still well above the level following our Day 1 adoption of CECL, especially considering the mix of loans today versus then.
For more info on CECL, look for Mercator’s soon-to-post Viewpoint, CECL: Proven in the Field and Ready for Prime Time, available next week.
CNN Business covered Citi and Wells, where they noted:
Citi reported that credit card spending is up 20% compared to one year ago and is now “well above 2019 levels.”
Wells Fargo also found that weekly debit card spending was up every week last quarter compared to 2019 as customers shelled out on entertainment and restaurants again.
“We continue to see that our customers have significant liquidity and consumers are continuing to spend,” Wells Fargo CEO Charles Scharf said.
And NASDAQ.Com covered Chase. Clearly, our friend CECL is in town…
CFO Jeremy Barnum said there are signs that credit card loan growth will eventually pick up, such as strong consumer spending levels, but it’s still a question of whether that spend translates into card loan growth.
Credit card loan balances in Q3 rose 1% from the end of the second quarter and 4% from Q2 in terms of average card balances. Barnum said data within the bank shows that the customers who typically contribute to credit card loan growth are starting to spend the savings built up from the pandemic at a faster clip, suggesting they could be getting closer to taking on debt again.
Net charge-offs in the bank’s credit card portfolio dropped from 2.24% in the second quarter to 1.39% at the end of Q3, which is very low.
Management guided for the full-year 2021 net charge-off rate to be about 2%, and JPMorgan has set aside enough reserves to cover losses equivalent to more than 8% of its credit card loan book.
But, as a sign of being back in the green, Credit Union Times mentioned:
Credit card spending also set a two-year record at $339.4 billion in the third quarter at the four banks. It was 22% higher than two years earlier, 29% higher than 2020’s third quarter and 3.6% higher than the second quarter.
Operational results are good now, but as you plan 2022 budgets, keep three things in mind: Inflation is looming, interest rates will likely rise, and CECL budgets are back to normal.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group
