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FDIC-Insured Banks Q4 Earnings Dismal, Tax Charge Recorded
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Federal Deposit Insurance Corporation (FDIC)-insured commercial banks and savings institutions reported fourth-quarter 2017 earnings of $42.2 billion, down 2.3% year over year. Including the one-time tax-reform impact, net income came in at $25.5 billion, plunging 40.9% year over year.
Notably, community banks, constituting 92% of all FDIC-insured institutions, reported net income of $5.6 billion, up 17% on a year-over-year basis. Including the one-time tax-reform impact, net income came in at $4.1 billion, down 14.2% year over year.
Banks’ earnings were affected by elevated income taxes, higher non-interest expenses and loan loss provisions.
Banks, with assets worth more than $10 billion, accounted for a major part of earnings in the 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) .
For 2017, FDIC-insured banks reported net income of $183.1 billion, up 7.2% year over year. Including the one-time tax-reform impact, net income came in at $164.8 billion, down 3.5% year over year.
Net Interest Income & Margin Rise, Non-Interest Income Falls, Costs Flare Up
As of Dec 31, 2017, the measure for profitability or average return on assets (ROA) edged down to 0.97% from 1.04% recorded as of Dec 31, 2016.
Net operating revenues were $192.2 billion, up 5.5% year over year. A rise in net interest income, partially offset by lower non-interest income, was a driving factor.
Net interest income was recorded at $129.5 billion, up 8.5% year over year, driven by rise in net interest income of 86.4% of banks. Net interest margin (NIM) inched up to 3.31% from 3.16% recorded in the year-earlier quarter owing to a rise in interest-bearing assets. This depicts the highest average margin for the industry since fourth-quarter 2012.
Non-interest income for the banks declined slightly year over year to $62.7 billion.
Total non-interest expenses for the establishments were $118 billion in the quarter, up 8.6% on a year-over-year basis, due to rise in other non-interest expenses.
Credit Quality: A Concern?
Overall, credit quality was a mixed bag in the reported quarter. Net charge-offs increased to $13.2 billion, up 8.7% year over year, reflecting the ninth quarterly rise. Notably, higher credit card charge-offs drove the upside.
In the reported quarter, provisions for loan losses for the institutions were $13.6 billion, up 8.9% year over year. The level of non-current loans and leases declined 11.8% year over year to $116.4 billion. The non-current rate was 1.20%, reflecting the lowest rate since third-quarter 2007.
Strong Loan & Deposit Growth
The capital position of the banks remained solid. Total deposits continued to rise and were recorded at $13.4 trillion, up 3.9% year over year. Further, total loans and leases were $9.7 trillion, up 4.5% year over year.
As of Dec 31, 2017, the Deposit Insurance Fund (DIF) balance increased to $92.7 billion from $83.2 billion as of Dec 31, 2016. Furthermore, interest earned on investment securities primarily led to growth in fund balance.
Two Bank Failures, Shrinking Problem Institutions, New Charter Added
During fourth-quarter 2017, two banks failed, one new charter was added, while 64 were merged. As of Dec 31, 2017, the number of ‘problem’ banks declined from 104 to 95. This signifies the lowest number in more than seven years, down from 888 recorded in first-quarter 2011. Total assets of the ‘problem’ institutions declined to $13.9 billion from $16 billion.
Notably, for 2017, five new charters were added, 230 institutions merged and eight banks failed.
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 lending standards and trending toward higher fees to counter pressure on the top line. In addition, more interest rate hikes will help ease the pressure on interest income. Also, continued expense control and stable balance sheets are likely to act as tailwinds in the upcoming quarters.
What encourages us is that a lot depends on to what extent Trump lives up to his promises. Bank stocks are likely to face the brunt if the promised policy goals are not achieved.
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 key role in keeping the optimism on bank stocks alive.
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Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
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FDIC-Insured Banks Q4 Earnings Dismal, Tax Charge Recorded
Federal Deposit Insurance Corporation (FDIC)-insured commercial banks and savings institutions reported fourth-quarter 2017 earnings of $42.2 billion, down 2.3% year over year. Including the one-time tax-reform impact, net income came in at $25.5 billion, plunging 40.9% year over year.
Notably, community banks, constituting 92% of all FDIC-insured institutions, reported net income of $5.6 billion, up 17% on a year-over-year basis. Including the one-time tax-reform impact, net income came in at $4.1 billion, down 14.2% year over year.
Banks’ earnings were affected by elevated income taxes, higher non-interest expenses and loan loss provisions.
Banks, with assets worth more than $10 billion, accounted for a major part of earnings in the 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) .
For 2017, FDIC-insured banks reported net income of $183.1 billion, up 7.2% year over year. Including the one-time tax-reform impact, net income came in at $164.8 billion, down 3.5% year over year.
Net Interest Income & Margin Rise, Non-Interest Income Falls, Costs Flare Up
As of Dec 31, 2017, the measure for profitability or average return on assets (ROA) edged down to 0.97% from 1.04% recorded as of Dec 31, 2016.
Net operating revenues were $192.2 billion, up 5.5% year over year. A rise in net interest income, partially offset by lower non-interest income, was a driving factor.
Net interest income was recorded at $129.5 billion, up 8.5% year over year, driven by rise in net interest income of 86.4% of banks. Net interest margin (NIM) inched up to 3.31% from 3.16% recorded in the year-earlier quarter owing to a rise in interest-bearing assets. This depicts the highest average margin for the industry since fourth-quarter 2012.
Non-interest income for the banks declined slightly year over year to $62.7 billion.
Total non-interest expenses for the establishments were $118 billion in the quarter, up 8.6% on a year-over-year basis, due to rise in other non-interest expenses.
Credit Quality: A Concern?
Overall, credit quality was a mixed bag in the reported quarter. Net charge-offs increased to $13.2 billion, up 8.7% year over year, reflecting the ninth quarterly rise. Notably, higher credit card charge-offs drove the upside.
In the reported quarter, provisions for loan losses for the institutions were $13.6 billion, up 8.9% year over year. The level of non-current loans and leases declined 11.8% year over year to $116.4 billion. The non-current rate was 1.20%, reflecting the lowest rate since third-quarter 2007.
Strong Loan & Deposit Growth
The capital position of the banks remained solid. Total deposits continued to rise and were recorded at $13.4 trillion, up 3.9% year over year. Further, total loans and leases were $9.7 trillion, up 4.5% year over year.
As of Dec 31, 2017, the Deposit Insurance Fund (DIF) balance increased to $92.7 billion from $83.2 billion as of Dec 31, 2016. Furthermore, interest earned on investment securities primarily led to growth in fund balance.
Two Bank Failures, Shrinking Problem Institutions, New Charter Added
During fourth-quarter 2017, two banks failed, one new charter was added, while 64 were merged. As of Dec 31, 2017, the number of ‘problem’ banks declined from 104 to 95. This signifies the lowest number in more than seven years, down from 888 recorded in first-quarter 2011. Total assets of the ‘problem’ institutions declined to $13.9 billion from $16 billion.
Notably, for 2017, five new charters were added, 230 institutions merged and eight banks failed.
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 lending standards and trending toward higher fees to counter pressure on the top line. In addition, more interest rate hikes will help ease the pressure on interest income. Also, continued expense control and stable balance sheets are likely to act as tailwinds in the upcoming quarters.
What encourages us is that a lot depends on to what extent Trump lives up to his promises. Bank stocks are likely to face the brunt if the promised policy goals are not achieved.
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 key role in keeping the optimism on bank stocks alive.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>