We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
FDIC-Insured Banks' Q1 Earnings Impressive, Costs Flare Up
Read MoreHide Full Article
Federal Deposit Insurance Corporation (FDIC)-insured commercial banks and savings institutions reported first-quarter 2017 earnings of $44 billion, up 12.7% year over year. Notably, community banks, constituting 92% of all FDIC-insured institutions, reported net income of $5.6 billion, up 10.4% year over year.
Banks’ earnings were driven by higher revenues, loan growth and lower loan-loss provisions. Moreover, improved trading revenue remained another positive. However, on the other hand, expenses flared up.
Banks, with assets worth more than $10 billion, contributed a major part of the earnings in the reported quarter. Though such banks constitute only 1.8% of the total number of the U.S. banks, these accounted for approximately 80% of the industry’s earnings. Leading names in this space include Wells Fargo & Co. (WFC - Free Report) , Bank of America Corporation (BAC - Free Report) , Citigroup Inc. (C - Free Report) and U.S. Bancorp (USB - Free Report) .
Banks have been consistently striving to reap profits and are consequently boosting productivity. Around 57% of all institutions, insured by the FDIC, reported improvement in their quarterly net income, while the remaining recorded a decline in comparison to the prior-year quarter. Additionally, the percentage of institutions reporting net losses for the quarter edged down to 4.1% from 5.1% in the year-ago quarter.
The measure for profitability or average return on assets (ROA) inched up to 1.04% from 0.97% in the prior-year quarter.
Net operating revenue was $183.6 billion, up 6.3% year over year. A rise in net interest income, as well as non-interest income, was the driving factor.
Net interest income was recorded at $121.1 billion, up 7.8% year over year, driven by rise in interest-bearing assets and net interest margin (NIM). NIM advanced to 3.19% from 3.10% recorded in the year-earlier quarter.
Non-interest income for the banks climbed 3.4% year over year to $62.5 billion. Increase in trading revenues and servicing income stemmed this rise.
Total non-interest expenses for the establishments were $109.2 billion in the quarter, up 4.3% on a year-over-year basis. Increase in salary and employee benefit costs, and expenses for premises and fixed assets led to the rise.
Credit Quality: A Concern?
Overall, credit quality was a mixed bag in the reported quarter. Net charge-offs increased to $11.5 billion, up 13.4% year over year, reflecting the sixth quarterly rise. Notably, higher losses on loans to individuals led to this rise.
In the quarter under review, provisions for loan losses for the institutions came in at $12.0 billion, down 4.3% year over year. The level of non-current loans and leases decreased 11.5% year over year to $125 billion, indicating the 27th decline in non-current loan balances over the last 28 quarters. The non-current rate was 1.34%, reflecting the lowest rate since third-quarter 2007.
Strong Loan & Deposit Growth
The capital position of banks was solid. Total deposits continued to rise and were recorded at $13.1 trillion, up 5.3% year over year. Further, total loans and leases were $9.3 trillion, up 4.0% year over year.
As of Mar 31, 2017, the Deposit Insurance Fund (DIF) balance increased to $84.9 billion from $75.1 billion as of Mar 31, 2016. Furthermore, interest earned on investment securities and assessment income primarily led to the growth in fund balance.
Less Bank Failures, Shrinking Problem Institutions, New Charters
During first-quarter 2017, three banks failed. As of Mar 31, 2017, the number of "problem" banks declined from 123 to 112, highlighting the lowest number in approximately more than seven years, and significantly decreased from 888 recorded in first-quarter 2011. Total assets of the "problem" institutions decreased to $23.7 billion from $27.6 billion.
Notably, two new charters were added during the quarter, highlighting the first addition since third-quarter 2015.
Our Viewpoint
The decline in the number of problem institutions looks encouraging with the quarter witnessing top-line growth on higher NIM. Banks have been gradually easing their lending standards and trending toward higher fees to counter pressure on the top line. In addition, more interest rate hikes will dodge the pressure on interest income. Then, again, consistent expense control and stable balance sheets should act as tailwinds in the upcoming quarters.
With lingering uncertainty in the economy, we do not see this issue-ridden sector returning to its pre-recession levels anytime soon. What encourages us though is that a lot depends on to what extent Trump lives up to his promises. Bank stocks may be hit hard if he does not deliver on certain policy goals. There is absolutely no reason to be pessimistic about the prospects of bank stocks, so far, since the President has already signed two directives – review of the Dodd-Frank Act and delay in implementing the fiduciary rule.
The Fed’s actions on expediting rate hike – which is again a function of economic growth based on Trump’s policy alterations – will also play a major role in keeping the optimism on bank stocks alive.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look. See the pot trades we're targeting>>
Unique Zacks Analysis of Your Chosen Ticker
Pick one free report - opportunity may be withdrawn at any time
Image: Bigstock
FDIC-Insured Banks' Q1 Earnings Impressive, Costs Flare Up
Federal Deposit Insurance Corporation (FDIC)-insured commercial banks and savings institutions reported first-quarter 2017 earnings of $44 billion, up 12.7% year over year. Notably, community banks, constituting 92% of all FDIC-insured institutions, reported net income of $5.6 billion, up 10.4% year over year.
Banks’ earnings were driven by higher revenues, loan growth and lower loan-loss provisions. Moreover, improved trading revenue remained another positive. However, on the other hand, expenses flared up.
Banks, with assets worth more than $10 billion, contributed a major part of the earnings in the reported quarter. Though such banks constitute only 1.8% of the total number of the U.S. banks, these accounted for approximately 80% of the industry’s earnings. Leading names in this space include Wells Fargo & Co. (WFC - Free Report) , Bank of America Corporation (BAC - Free Report) , Citigroup Inc. (C - Free Report) and U.S. Bancorp (USB - Free Report) .
All the above mentioned banks carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Revenues Escalate, Costs Flare Up
Banks have been consistently striving to reap profits and are consequently boosting productivity. Around 57% of all institutions, insured by the FDIC, reported improvement in their quarterly net income, while the remaining recorded a decline in comparison to the prior-year quarter. Additionally, the percentage of institutions reporting net losses for the quarter edged down to 4.1% from 5.1% in the year-ago quarter.
The measure for profitability or average return on assets (ROA) inched up to 1.04% from 0.97% in the prior-year quarter.
Net operating revenue was $183.6 billion, up 6.3% year over year. A rise in net interest income, as well as non-interest income, was the driving factor.
Net interest income was recorded at $121.1 billion, up 7.8% year over year, driven by rise in interest-bearing assets and net interest margin (NIM). NIM advanced to 3.19% from 3.10% recorded in the year-earlier quarter.
Non-interest income for the banks climbed 3.4% year over year to $62.5 billion. Increase in trading revenues and servicing income stemmed this rise.
Total non-interest expenses for the establishments were $109.2 billion in the quarter, up 4.3% on a year-over-year basis. Increase in salary and employee benefit costs, and expenses for premises and fixed assets led to the rise.
Credit Quality: A Concern?
Overall, credit quality was a mixed bag in the reported quarter. Net charge-offs increased to $11.5 billion, up 13.4% year over year, reflecting the sixth quarterly rise. Notably, higher losses on loans to individuals led to this rise.
In the quarter under review, provisions for loan losses for the institutions came in at $12.0 billion, down 4.3% year over year. The level of non-current loans and leases decreased 11.5% year over year to $125 billion, indicating the 27th decline in non-current loan balances over the last 28 quarters. The non-current rate was 1.34%, reflecting the lowest rate since third-quarter 2007.
Strong Loan & Deposit Growth
The capital position of banks was solid. Total deposits continued to rise and were recorded at $13.1 trillion, up 5.3% year over year. Further, total loans and leases were $9.3 trillion, up 4.0% year over year.
As of Mar 31, 2017, the Deposit Insurance Fund (DIF) balance increased to $84.9 billion from $75.1 billion as of Mar 31, 2016. Furthermore, interest earned on investment securities and assessment income primarily led to the growth in fund balance.
Less Bank Failures, Shrinking Problem Institutions, New Charters
During first-quarter 2017, three banks failed. As of Mar 31, 2017, the number of "problem" banks declined from 123 to 112, highlighting the lowest number in approximately more than seven years, and significantly decreased from 888 recorded in first-quarter 2011. Total assets of the "problem" institutions decreased to $23.7 billion from $27.6 billion.
Notably, two new charters were added during the quarter, highlighting the first addition since third-quarter 2015.
Our Viewpoint
The decline in the number of problem institutions looks encouraging with the quarter witnessing top-line growth on higher NIM. Banks have been gradually easing their lending standards and trending toward higher fees to counter pressure on the top line. In addition, more interest rate hikes will dodge the pressure on interest income. Then, again, consistent expense control and stable balance sheets should act as tailwinds in the upcoming quarters.
With lingering uncertainty in the economy, we do not see this issue-ridden sector returning to its pre-recession levels anytime soon. What encourages us though is that a lot depends on to what extent Trump lives up to his promises. Bank stocks may be hit hard if he does not deliver on certain policy goals. There is absolutely no reason to be pessimistic about the prospects of bank stocks, so far, since the President has already signed two directives – review of the Dodd-Frank Act and delay in implementing the fiduciary rule.
The Fed’s actions on expediting rate hike – which is again a function of economic growth based on Trump’s policy alterations – will also play a major role in keeping the optimism on bank stocks alive.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look. See the pot trades we're targeting>>