Garnet Capital Advisors Blog

Bank earnings season is upon us as financial institutions disclose whether they beat or fell short of analysts' expectations in the third quarter.

JPMorgan misses targets
The nation's largest bank went first, with JPMorgan Chase failing to meet experts' predictions on earnings per share. The banking giant reported adjusted earnings per share of $1.32. That's six cents less than the figure expected by 29 analysts interviewed by Bloomberg News. JPMorgan's revenue fell 6.4 percent in the third quarter, mostly due to trading losses and soft results in mortgage banking. JPMorgan shares fell 1.7 percent in after-hours trading following the earnings call.

Despite the market's reaction, it's worth noting that the bank's third-quarter profits rose a tidy 22 percent versus the same period last year, largely because of a one-time tax benefit, the Associated Press reported. Christopher Wheeler, a bank analyst for Atlantic Equities, summed up JPMorgan's performance as "decent results in an absolutely awful quarter" during an appearance on Bloomberg TV.

Loan growth remains strong
Masked by a focus on the overall revenue drop for JPMorgan were continued signs of health in the bank's loan portfolio. American Banker called JPMorgan's 9 percent increase in loan growth "strong," although it noted that margins remain tight as the Federal Reserve continues to keep interest rates at near zero. JPMorgan's total loans reached $809.5 billion for the quarter. The bank's yield on interest-earning assets fell slightly, from 2.19 percent in the third quarter of 2014 to 2.16 in the corresponding three-month period of this year. JPMorgan predicts its core loans will grow 15 percent in the fourth quarter.

JPMorgan Chase chief financial officer, Marianne Lake, painted a reassuring picture for earnings call participants.

"We would say the U.S. economy is doing pretty well," Lake said, according to American Banker. "We're seeing good demand for loans in the consumer space and reasonably good sentiment in the business-banking space, and our core loan growth numbers do show that. There's nothing particularly bumpy in the loan-growth numbers."

Better news for Bank of America, Wells Fargo
Third-quarter reports continued with Bank of America and Wells Fargo beating analysts' expectations both for revenue as well as earnings, according to the Wall Street Journal's MoneyBeat. Bank of America shares, which have been in the pits so far in 2015, rose 1 percent after the announcement. The market received Wells Fargo's news differently, sending shares of the nation's fourth-largest bank and top mortgage lender down nearly 1 percent.

Bank of America outperformed analyst expectations to the tune of four cents per share, coming in with earnings of 37 cents per share on greater-than-expected revenue of $20.91 billion. Wells Fargo posted profits of $1.05 per share. That's one cent more than analysts interviewed by Thomson Reuters had expected. The San Francisco-based bank had earnings of $21.9 billion, slightly more than prognosticated.

Loan outlook bright
The loan side of the ledger also looked rosy for Bank of America and Wells Fargo. The CFO of the Charlotte-based bank termed Bank of America's loan growth as "broad based." Loan growth was a theme for Wells Fargo executives, too. Interestingly, of the banks who have so far released their third quarter earnings, only Wells Fargo appears to be making large-scale purchases of loan portfolios. Wells Fargo will acquire $30 billion in loans from General Electric as that company sheds its financial ventures to get back to its origins as a manufacturer.

One commonality among the big banks is a continued search for cost-cutting as the low-interest environment drags on. JPMorgan has shed 10,000 workers through the end of the third quarter.

When your bank is looking for help on maximizing loan portfolio performance, any questions or concerns can be discussed with loan sale advisory firm Garnet Capital Advisors.