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FDIC-Insured Banks' Q2 Earnings Ramp Up on High Revenues
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The Federal Deposit Insurance Corporation (FDIC)-insured commercial banks and savings institutions reported second-quarter 2018 earnings of $60.2 billion, up 25.1% year over year. Notably, community banks, constituting 92% of all FDIC-insured institutions, reported net income of $6.5 billion, up 21.1% on a year-over-year basis.
Banks’ earnings were driven by higher net operating revenues and a lower effective tax rate. Further, rise in loans and net interest margin were tailwinds. Moreover, decline in number of ‘problem banks’ and lower provisions were positives. Nonetheless, elevated non-interest expenses remained an undermining factor.
Banks, with assets worth more than $10 billion, accounted for a major part of earnings in the recently-reported quarter. Though such banks constitute only 1.8% of the total number of domestic banks, these accounted for approximately 80% of the industry’s earnings. Leading names in this space include JPMorgan (JPM - Free Report) , Bank of America (BAC - Free Report) , Citigroup (C - Free Report) and U.S. Bancorp (USB - Free Report) .
Net Operating Revenues & Margin Improve, Costs Flare Up
Banks have been striving to gain profits and are boosting their productivity. More than 70% of all FDIC-insured institutions reported improvement in quarterly net income, while the remaining witnessed a decline from the prior-year quarter level. Additionally, the percentage of institutions reporting net losses in the quarter edged down to 3.8% from 4.3% witnessed in the year-ago quarter.
As of Jun 30, 2018, the measure for profitability or average return on assets (ROA) inched up to 1.37% from 1.13% recorded as of Jun 30, 2017.
Net operating revenues came in at $202.2 billion, up 6.4% 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 $134.1 billion, up 8.7% year over year, aided by rise in net interest income of 85.1% of banks. Net interest margin (NIM) inched up to 3.38% from 3.22% recorded in the year-earlier quarter, stemming from faster growth in average asset yields than average funding costs. Notably, 70.2% of banks reported rise in NIM.
Non-interest income for the banks improved 2% year over year to $68.1 billion. This upswing stemmed from higher servicing income, fiduciary activity, and net gains on sales of other assets.
Total non-interest expenses for the establishments were $113.4 billion in the quarter, up 4.6% on a year-over-year basis, due to rise in other non-interest expenses, and elevated salary and employee-benefit expenses.
Credit Quality: A Mixed Bag
Overall, credit quality was a mixed bag in the reported quarter. Net charge-offs increased to $11.7 billion, up 4% year over year. Notably, higher credit card charge-offs aided this upside.
In the June-end quarter, provisions for loan losses for the institutions were $11.7 billion, down 2.4% year over year. The level of non-current loans and leases declined 10% year over year to $104.8 billion. The non-current rate was 1.06%.
Strong Loan & Deposit Growth
The capital position of banks remained solid. Total deposits continued to rise and were recorded at $13.5 trillion, up 2.8% year over year. Further, total loans and leases were $9.9 trillion, up 4.2% year over year.
As of Jun 30, 2018, the Deposit Insurance Fund (DIF) balance increased to $95.1 billion from $84.9 billion as of Jun 30, 2017. Furthermore, interest earned on investment securities primarily supported growth in fund balance.
No Bank Failures, Shrinking Problem Institutions, New Charters Added
During the April-June quarter, none of the banks failed, two new charters were added, while 64 were merged. As of Jun 30, 2018, the number of ‘problem’ banks declined from 92 to 82. This signifies the lowest number reported since fourth-quarter 2007. Total assets of the ‘problem’ institutions declined to $54.4 billion from $56.4 billion reported in the prior quarter.
Our Viewpoint
The drop in the number of problem institutions looks encouraging, with the second quarter witnessing top-line growth on higher NIM and lower taxes. 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 and loan growth will help ease the stress on interest income.
Also, continued expense control and stable balance sheets are likely to act as tailwinds in the upcoming quarters. Moreover, with improving economy, significant improvement in banks’ profitability is expected.
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Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
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FDIC-Insured Banks' Q2 Earnings Ramp Up on High Revenues
The Federal Deposit Insurance Corporation (FDIC)-insured commercial banks and savings institutions reported second-quarter 2018 earnings of $60.2 billion, up 25.1% year over year. Notably, community banks, constituting 92% of all FDIC-insured institutions, reported net income of $6.5 billion, up 21.1% on a year-over-year basis.
Banks’ earnings were driven by higher net operating revenues and a lower effective tax rate. Further, rise in loans and net interest margin were tailwinds. Moreover, decline in number of ‘problem banks’ and lower provisions were positives. Nonetheless, elevated non-interest expenses remained an undermining factor.
Banks, with assets worth more than $10 billion, accounted for a major part of earnings in the recently-reported quarter. Though such banks constitute only 1.8% of the total number of domestic banks, these accounted for approximately 80% of the industry’s earnings. Leading names in this space include JPMorgan (JPM - Free Report) , Bank of America (BAC - Free Report) , Citigroup (C - Free Report) and U.S. Bancorp (USB - Free Report) .
All the above-mentioned banks carry a Zacks Rank #3 (Hold), at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Net Operating Revenues & Margin Improve, Costs Flare Up
Banks have been striving to gain profits and are boosting their productivity. More than 70% of all FDIC-insured institutions reported improvement in quarterly net income, while the remaining witnessed a decline from the prior-year quarter level. Additionally, the percentage of institutions reporting net losses in the quarter edged down to 3.8% from 4.3% witnessed in the year-ago quarter.
As of Jun 30, 2018, the measure for profitability or average return on assets (ROA) inched up to 1.37% from 1.13% recorded as of Jun 30, 2017.
Net operating revenues came in at $202.2 billion, up 6.4% 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 $134.1 billion, up 8.7% year over year, aided by rise in net interest income of 85.1% of banks. Net interest margin (NIM) inched up to 3.38% from 3.22% recorded in the year-earlier quarter, stemming from faster growth in average asset yields than average funding costs. Notably, 70.2% of banks reported rise in NIM.
Non-interest income for the banks improved 2% year over year to $68.1 billion. This upswing stemmed from higher servicing income, fiduciary activity, and net gains on sales of other assets.
Total non-interest expenses for the establishments were $113.4 billion in the quarter, up 4.6% on a year-over-year basis, due to rise in other non-interest expenses, and elevated salary and employee-benefit expenses.
Credit Quality: A Mixed Bag
Overall, credit quality was a mixed bag in the reported quarter. Net charge-offs increased to $11.7 billion, up 4% year over year. Notably, higher credit card charge-offs aided this upside.
In the June-end quarter, provisions for loan losses for the institutions were $11.7 billion, down 2.4% year over year. The level of non-current loans and leases declined 10% year over year to $104.8 billion. The non-current rate was 1.06%.
Strong Loan & Deposit Growth
The capital position of banks remained solid. Total deposits continued to rise and were recorded at $13.5 trillion, up 2.8% year over year. Further, total loans and leases were $9.9 trillion, up 4.2% year over year.
As of Jun 30, 2018, the Deposit Insurance Fund (DIF) balance increased to $95.1 billion from $84.9 billion as of Jun 30, 2017. Furthermore, interest earned on investment securities primarily supported growth in fund balance.
No Bank Failures, Shrinking Problem Institutions, New Charters Added
During the April-June quarter, none of the banks failed, two new charters were added, while 64 were merged. As of Jun 30, 2018, the number of ‘problem’ banks declined from 92 to 82. This signifies the lowest number reported since fourth-quarter 2007. Total assets of the ‘problem’ institutions declined to $54.4 billion from $56.4 billion reported in the prior quarter.
Our Viewpoint
The drop in the number of problem institutions looks encouraging, with the second quarter witnessing top-line growth on higher NIM and lower taxes. 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 and loan growth will help ease the stress on interest income.
Also, continued expense control and stable balance sheets are likely to act as tailwinds in the upcoming quarters. Moreover, with improving economy, significant improvement in banks’ profitability is expected.
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
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