2Q’13 Bank Earnings, Loans, Loan Quality Up, Margins Down

2Q’13 Bank Earnings, Loans, Loan Quality Up, Margins Down


Second quarter numbers for the banking industry (released on Thursday, August 29)  reveal a healthier industry emerging. With an aggregate net income of $42.2 billion, this marks the sixteenth consecutive quarter that bank earnings have increased year-over-year. Only 8.2% of the industry posted losses for the quarter, down from 11.3% a year ago.

Another measure of profitability, the industry average return on assets (ROA) of 1.17% is the highest it’s been in six years (since second quarter of 2007).


Not only is lending starting to make a comeback, but the quality of those loans is improved as well. Loan balances increased 1.8% ($73.8 billion) In the second quarter with commercial and industrial loans leading the way. Nonfarm, nonresidential real estate, credit cards and auto loans were all up as well. Home equity lines  and other loans secured by residential real estate witnessed a decline.

Loan Quality:

Charge-offs of loans deemed uncollectible declined over 30% from second quarter last year and loans 90 days or more past due or in nonaccrual status dropped 8%. The percent of noncurrent loans and leases was the lowest seen since 2008.

Another indicator of improved loan quality is the fact that banks only set aside $8.6 billion for loan loss provisions. That’s $5.6 billion (nearly 40%) less than a year ago.

Net Interest Margin:

Operating income at the nation’s banks increased by 3% from a year ago. But you have to look at the breakdown to get the full understanding. Noninterest income increased by 11.1%;, while interest income dropped 1.7%. The average net interest margin, which is the difference between what banks earn from the interest on loans and investments and what they spend to fund them, dropped to 3.26%.  If we don’t want banks to depend on fees and investments, interest rates will have to go up.