Cutting Interest Rates

Banks Brace for Rate Cuts, Credit Card Crunch

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The FDIC put a positive spin on second quarter bank results, and with good reason. There was a lot to be pleased about:

· Net Income was up 4.1% from second quarter 2018 for the industry while Community Banks reported an increase of 8.1%;

· Net Interest Income for the industry was up 3.7% during the same period;

· Total loan balances were up 1.5% from first quarter 2019;

· The number of banks on the FDIC’s “Problem Bank List” decreased to 56, its lowest level since 2007; and

· Five new banks opened during the second quarter.

But there are also areas of concern. For example, the FDIC attributed the improvement in net income to a 3.7% increase in net interest income.  However, with the Federal Reserve’s quarter point rate cut in July and another expected this week, interest margins will feel the pinch.

They also tout an increase in loan balances, but that increase was led by consumer loans—including credit cards—which grew by 2½%. Whether that increase is need-based or an increase in confidence is unclear.

And, while five new banks were chartered during the second quarter, that doesn’t make a dent in the number that were lost. In the second quarter alone, 60 banks were lost to mergers. Added to the 43 lost in the first quarter, the industry lost over 100 banks in just six months.

While there were exceptions, the majority of the lost banks were community banks. The most glaring exception was JPMorgan Chase’s decision to roll its $141 billion asset Chase Bank USA, NA into the larger 4-Star JPMorgan Bank, NA, which now boasts assets of $2.4 trillion.

But the largest “non affiliated” bank merger to take place since the financial crisis is still unfolding. That, of course, is the mega-merger between the $223 billion asset BB&T, Winston-Salem, NC and $216 billion asset SunTrust Bank, out of Atlanta, GA (JRN 36:07).

Once merged, the new Truist Bank will be headquartered in Charlotte, NC. The transaction is expected to be completed in the fourth quarter 2019. Information on this and other large scale 2019 transactions can be found on page 7.

For Credit Unions, It’s a Matter of Size

As for the credit union industry, the number lost from consolidation during the second quarter was 27 but 172 were lost during the 12 months ended June 30th. That’s pretty consistent with long-running trends. Also consistent with long-running trends is that the larger credit unions, those with at least $1 billion in assets, are reporting the strongest growth in loans, membership and net worth.

While not separated out below, there are now 317 federally insured credit unions that have hit the $1 billion asset mark. (The largest is $106 billion 5-Star Navy Federal C.U. in VA.) Together, they hold $1.0 trillion in assets or 67% of the assets for the entire industry. As a group, these Big CUs reported loan growth of 9%, membership growth of 8% and an increase in net worth of 12.5%.

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