Big banks post YOY EPS growth in Q3 as credit reserve releases continue

Most large banks in the U.S. reported year-over-year growth in third-quarter earnings. Quarter-over-quarter comparisons, however, yielded mixed results.

Among the 15 banks with assets over $100 billion that released their third-quarter financial results between Oct. 13 and Oct. 22, 13 posted year-over-year EPS increases in the double digits, with only PNC Financial Services Group Inc. and SVB Financial Group reporting declines. Sequential increases were seen in six institutions: PNC, Signature Bank, M&T Bank Corp., Truist Financial Corp., Fifth Third Bancorp and U.S. Bancorp, according to data compiled by S&P Global Market Intelligence.

At several banks, credit loss reserve releases were the primary drivers of year-over-year EPS growth. Higher revenues and lower expenses resulting from efficiency initiatives were also factors that pushed up earnings, some companies said.

Citizens Financial Group Inc. reported the largest year-over-year growth in third-quarter EPS, posting earnings of $1.18 per share, up 73.5% from the third quarter of 2020. The results included a credit provision benefit of $33 million, reflecting strong credit performance across the retail and commercial loan portfolios and improvement in the macroeconomic outlook.

Besides the Big 4 and Citizens, large banks that reported year-over-year increases in third-quarter EPS were KeyCorp, Truist, Signature Bank, M&T, U.S. Bancorp, Regions Financial Corp., Fifth Third and First Republic Bank.

At KeyCorp, which saw EPS jump 58.5% year over year to 65 cents, provision for credit losses was a net benefit of $107 million, including a $136 million reserve release largely driven by a continued improvement in the economic outlook.

Truist recorded EPS of $1.20 for the third quarter, representing year-over-year growth of 51.9%. Excluding merger-related and restructuring charges, incremental merger-related operating expenses and a one-time professional fee expense, adjusted net income available to common shareholders was $1.42 per share.

CEO Bill Rogers said during the bank's third-quarter earnings call that its quarterly results reflect the diversity of the business mix, which drove strong fee income and helped overcome "continued softness" in net interest income. Rogers also noted that credit quality was outstanding, resulting in another provision benefit. Truist's provision for credit losses was a benefit of $324 million, primarily reflecting an improving economic outlook.

Signature Bank, which recently surpassed $100 billion in assets, posted third-quarter EPS of $3.88, up 48.1% year over year. The increase was primarily the result of an increase in net interest income, fueled by strong average deposit and loan growth, according to the bank's earnings release. The bank also reported a lower provision for credit losses compared to the third quarter of 2020.

U.S. Bancorp posted EPS of $1.30 for the three months ended Sept. 30, up 31.3% year over year. The increase was mainly due to lower provision for credit losses driven by a reserve release, a result of continued improvement in the global economy, as well as strong credit and collateral performance, according to the company's earnings release.

First Republic Bank posted EPS of $1.91 for the third quarter, an increase of 18.6% year over year. CFO Michael Roffler said during the bank's third-quarter earnings call that revenue growth for the period was "exceptional," up 30% year over year, driven by strong organic growth across the franchise, including loans, deposits and wealth management assets.

Of the two banks that posted year-over-year declines in third-quarter EPS, SVB recorded the largest drop, with consolidated net income available to common stockholders down 26.3% to $6.24 per share. Compared to the second quarter, EPS decreased 31.4%.

The results included merger-related charges of $83 million, or $1.02 per share, as well as a $46 million, or 57 cents per share, day one provision on non-purchased credit deteriorated loans and unfunded credit commitments acquired from Boston Private Financial Holdings Inc.

PNC posted earnings of $3.30 per share, down 2.7% from the third quarter of 2020. Compared to the second quarter, however, EPS rose 35.8%.

PNC's results for the three months ended Sept. 30 reflect the full-quarter benefit of BBVA USA, which the company acquired earlier this year. Excluding $243 million of pretax integration costs related to BBVA USA, EPS stood at $3.75.

Third-quarter results also included a provision recapture of $203 million, reflecting continued improvements in credit quality and changes in portfolio composition, according to PNC's earnings release.