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Community banks are reporting first-quarter declines in net interest income despite increased lending. Low rates and competition are to blame.
April 25 -
Richard Davis, whose U.S. Bancorp reported a quarterly revenue slowdown, says the threat of higher rates actually would stir complacent corporate borrowers to seek more credit. But when that would happen is anybody's guess.
April 16 -
Credit card delinquencies ticked down in March, and releases of reserves for loan losses boosted first quarter profits.
April 15 -
Large bank holding companies have positioned themselves aggressively for a rise in interest rates, based on levels of short-term assets and liabilities. Smaller holding companies have not.
March 4
Margin compression once again overpowered loan growth in the first quarter, sapping banks traditional source of revenue.
Net interest income dropped from the fourth quarter at nine out of ten companies in a group of publicly traded banks with more than $5 billion of assets. Narrower net interest margins outweighed increases in average loans at 75% of them. (Use the dropdown in the graphic below to see net interest income data for each member of the group, which excludes companies that bought banks or branches during the year through March 31. Select the other tabs for industrywide overviews.)
The results were similar for the more than 600 listed banks for which first quarter numbers were available as of this week. Average earning assets rose at 54% of them from the fourth quarter, and average loans rose at 60%, but margins fell at 73% and net interest income fell at 72%.
Across the industry, including banks with stock that does not trade on public markets, average earning assets have been steadily growing since the first quarter of 2010, and average loans have consistently grown since late 2011 (see the second, Net Interest Income tab in the graphic above).
Net interest income has notched quarter-over-quarter increases in just two periods since the first quarter of 2010, however, as net interest margins have ground tighter. (See the Net Interest Margin tab. The Federal Deposit Insurance Corp. will publish industrywide data for the first quarter in its next
In general, tumbling funding costs (the Cost of Funds tab) have been outpaced by declines in asset yields (the Yield tab). The yield curve steepened from mid-November to mid-March as the spread between the rate on 10-year and two-year Treasuries widened 31 basis points from the third quarter to an average 1.69% in the first quarter. A steeper yield curve helps margins
The dispiriting downward drift in net interest income and margins is to some degree an illusion created by the addition of hundreds of billions of dollars of high-yielding credit card loans that were brought onto balance sheets under new accounting rules at the beginning of 2010. Industrywide net interest income shot to an all-time high of $109 billion in the first quarter that year and performance was poised to deteriorate as those loans ran off.
Accounting for acquisitions of impaired assets also created distortions, and median NIMs for publicly listed banks have been more stable than industrywide aggregates. In fact, at $104 billion in the fourth quarter, industrywide net interest income was 4% higher than in the fourth quarter of 2009 just before implementation of the new accounting rules for securitizations or about on par with the increase in total average loans over the same period.
While loans have been growing, the expansion is nowhere near the pace before the recession. As balance sheets slowly increase, banks appear to be making a slow turn away from the
