Bank Industry’s “Mostly” Stellar Q2

Bank Industry’s “Mostly” Stellar Q2

As we reported last week, “the FDIC released its Quarterly Banking Profile on Tuesday, August 22nd and by most accounts, the banking industry had a stellar 2nd quarter.”  Now we’ll take a look at what that really means.

•Quarterly Net Income
The banking industry’s $48.3 billion net income in the second quarter 2017 was $4.7 billion (10.7%) higher than a year earlier. The primary reason for this was a 9.1% year over year increase in net interest income. Thank Janet Yellen and the Federal Reserve’s Open Market Committee for raising short term interest rates. Noninterest income was up just 1%.

•Average Return on Assets
At 1.14%, the average industry ROA is the highest it’s been since Q2’07.

•Problem Banks 
The number of problem banks continues to decline, but so does the number of healthy banks. Total banks reporting dropped 4.5% from Q2’2016 (from 6,058 to 5,787). The number of banks on the FDIC Problem List is currently at 105—its lowest level since Q1’2008. The number of banks on Bauer’s Troubled and Problematic Bank Report (rated 2-Stars or below) is at 127, a level not seen in ten years.

With 11.7% of its banks rated 2-Stars or below, Georgia is the only state that continues to have over 10% of its banks represented on Bauer’s T&P Report (see page 7). Nationwide, only 2.2% of banks earn this dubious distinction.

•Loans and Leases 
Total loans and leases increased 3.7% from June 30, 2016, and based on the monthly Consumer Confidence Survey® conducted for the Conference Board by Nielsen, we can expect that upward trend will continue. The survey results show that, because of a strong labor market, consumer confidence was up in July and then again in August. The Commerce Department seemed to back that up as it revised its GDP second quarter growth up to an annual rate of 3%.

Now to the less than stellar part…

Banks charged-off $11.3 billion in loans during the second quarter—$1.1 billion more than second quarter 2016. While the majority of loan categories registered lower charge-offs than a year ago, they were offset by a 24.5% year over year increase in credit card charge-offs. This is the 7th consecutive quarter in which credit card charge-offs have registered a year over year increase. As a result, banks  with assets > $1 billion increased their reserves for credit card losses by $1.4 billion (4.3%) in the second quarter.

•Number of Banks
The number of banks reporting declined… again. Three banks failed during the second quarter; 62 were lost to mergers/acquisitions. No new banks were added this quarter, although there were two new reporters in the first quarter.