Last week the FDIC released its Quarterly Banking Profile. For the third quarter, bank earnings increased 7.3% from a year ago to $38.7B. According to FDIC Chairman Martin Gruenberg, “third quarter income growth was based on revenue growth rather than lower loan-loss provisions. This can be a more sustainable foundation for continued earnings growth going forward.”
Revenue growth was key to the industry’s overall performance, as both noninterest income and net interest income were better than the third quarter a year ago. The year-over-year increase of $7.8B (4.8 percent) represented the largest revenue increase since 4th quarter 2009.
Community bank’s continued to outperform the industry overall, with net income up 10.7% over 3Q 2013. More than 70% of community banks saw an increase in net interest income. Net interest margin for community banks was 3.65%, 51 bps higher than the overall industry average. However, Chairman Gruenberg points out that “banks have been extending asset maturities as they reach for yield in this low interest rate environment.” While the portion of assets that mature in 5 years or more did not increase in the 3rd quarter, it has increased by 15 percentage points for community banks since 2007. “This increase in longer-term assets has helped margins at many institutions, and community banks in particular. But it has left them more vulnerable to interest rate risk as rates normalize and the yield curve flattens” according to Gruenberg. Community banks represent 93% of all banks.
Noninterest expense increased 3.9% YOY at community banks, and 1.9% for the industry overall. The community bank increase was led by higher salary and benefit expenses. Even with revenues improving, banks must continue to manage expenses to maximize overall earnings growth.
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For a complete look at the FDIC Quarterly Banking Profile at: https://www2.fdic.gov/qbp/2014sep/qbp.pdf. The FDIC Chairman’s remarks can be found here: https://www.fdic.gov/news/news/speeches/spnov2514.html.