Digital, Deposits and Delinquencies in Focus as Banks Kick Off Earnings Season

Every three months, some of the biggest names in banking report earnings, all on the same day, kicking off an avalanche of quarterly reports across all manner of sectors.

The roster is almost always the same: JPMorgan — the largest bank by assets — Citigroup and Wells Fargo are the first out of the gate, followed by Bank of America, Goldman Sachs and regional players.

Beyond Earnings Per Share

While many observers, particularly investors and traders, may parse the Wednesday (Jan. 15) details for information on net interest margins, earnings per share, stock buybacks and revenues gleaned from investment management and trading arms, the reports also offer a wealth of information on other trends.

These are the technological and mindset shifts shaping the transformation of financial services as a whole, including the (seemingly permanent) pivot toward mobile and digital banking, as well as the movement to use technology to modernize interactions with clients and capture deposits.

Banking metrics in the earnings supplements and management commentary on conference calls also give a sense of how retail and commercial clients are using credit, and how they’re handling their debt loads. Those nuggets of information will prove to be especially important, due to the fact that the end of the year may have seen some additional accumulation of debt thanks to the holiday shopping season.

Banking executives also will give a sense of how they view the overall economic landscape and where interest rates are headed — which will have an impact on their own financial performance projections.

The Digital Shift

PYMNTS Intelligence has noted in its own research that the move toward digital channels in banking has been a trend that has been given tailwind by the pandemic, but has far outlasted those difficult days. In reports such as “How the World Does Digital,” nearly half of consumers across the globe “engage” with digital banking channels at least weekly — translating to about 22 days of “activity days” on a monthly basis.

JPMorgan’s latest supplementals, per its third-quarter report this past fall, noted that active mobile customers were up 7% year-over-year (YoY) to 57 million. Interestingly, the banking behemoth is also on track to open 500 new bank branches through the next few years. The convergence between digital enablement via in-branch settings will be a feature, as financial institutions have been revisiting the role of technology in re-fashioning their physical footprints.

Elsewhere, Citi’s own earnings supplementals show that active mobile users were up 8% YoY to 19 million in the third quarter, while active digital users jumped by 5% to 26 million.

CFO Mark Mason said on the call that, in terms of technologies and efficiencies, “we’ve continued to simplify our technology infrastructure, retiring over 450 applications year-to-date and now over 1,250 since our 2022 Investor Day.” He added that for its own in-person banking developments, “we’ve upgraded 100% of our over 2,300 ATMs in North America and Asia Pacific to next-gen software for better customer security and monitoring.”

Wells Fargo said in its third-quarter report that digital (online and mobile) customers gathered momentum, where that population stood at 35.8 million in the most recent period, up from 34.6 million a year ago. Mobile active customers were 31.2 million, surging 5.4% YoY to 31.2 million.

How Consumers and Credit Trends are Faring

Broadly speaking, commentary and earnings data shows that consumer trends were largely positive, though there have been pockets of turbulence that bear watching.

In JPMorgan’s results, management noted that consumer spending, in the words of CFO Jeremy Barnum, is firmly entrenched in a period of “normalization” as consumers are on “solid footing.”

Citi’s overall debit and credit card sales volumes were up 6% in the most recent period, to a combined $453.4 billion. Drilling down, credit card spending volume was up 3% YoY, according to company materials on branded cards, to $129 billion. Looking ahead, the company expects to see full-year branded card NCLs to be between 3.5% to 4%.

During the call with analysts, Citi CEO Jane Fraser said: “While growth is a notch slower than last year, global economic performance continues to be surprisingly resilient. Whatever you want to call the U.S. landing, the sentiment around it is more optimistic. … And we see a healthy yet more discerning U.S. consumer,” she said. Signs of “stress,” she said, are “isolated” to lower FICO scoring consumers.

JPMorgan maintained guidance last quarter that net charge-offs on its card loans would be 3.4% for the year. The third-quarter results detailed that the card services net charge-off rate was 3.2%, up from 2.5% a year ago, but down from the first quarter’s 3.5% rate.

Wells Fargo’s data showed that credit card POS volume was $43.4 billion in the third quarter, up from $39.4 billion last year. The net loan charge-off ratio as reflected in earnings materials came in at 0.5% for consumer loans, up from 0.4% a year ago.

Deposit trends signal how consumers have been using their money, and perhaps even moving their money. That could include drawdowns of money in the bank to meet other financial needs, or to chase yield. Wells Fargo’s data indicate that consumer deposits were $773.6 billion in the third quarter, off from $801.1 billion last year. JPMorgan’s latest quarter indicated that deposits were just over $1 trillion, down from the $1.1 trillion seen a year ago. Management noted that in the wake of rate cuts from the central bank headed into the end of last year, there’s been a slowdown customer yield-seeking activity across deposits.