If you have seen the post-election rally in banks, you might just assume that the gains are tied to expectations of higher earnings, more growth and less regulation ahead. That may only be part of the issue. According to the Federal Deposit Insurance Corporation (FDIC), its 5,980 insured banks posted record net income in the third quarter of 2016.
Many of the earnings reports from the top banks have been flattish enough for long enough that many investors wanted to look for better opportunities elsewhere. Now we are seeing that the mid-tier and smaller banks might be helping more on the overall banking sector’s earnings.
The FDIC showed that net income rose by $5.2 billion to $45.59 billion in the third quarter of 2016 from the third quarter of 2015. That was also up from $43.69 billion in the second quarter of 2016.
The breakdown of these numbers is interesting, particularly when you consider that the number of institutions reporting was 6,058 in the second quarter and 6,270 a year ago. Mergers have helped to shrink that number as the number of problem banks and bank closures has been on the decline for years.
Total interest income was $132.537 billion in the third quarter, versus $126.869 billion in the second quarter and $120.284 billion a year ago.
There was a slight decrease in loan and lease loss provisions as well. The third-quarter loan loss provisions were $11.4 billion, down from $11.76 billion in the second quarter but compared with $8.5 billion a year earlier — the big jump being seen in the fourth quarter of 2015 and peaking in the first quarter of 2016.
Banks also paid more in applicable income taxes. They shelled out $20.344 billion in taxes in the third quarter, compared with $20.168 billion in the second quarter and $18.279 billion a year ago.
There is another interesting metric to see in the quarterly earnings report, and that is the number of institutions with year-over-year earnings gains. This figure was 3,636 in the third quarter of 2016, versus 3,640 in the second quarter and 3,686 a year ago.