Wednesday, May 27, 2015

ABA Statement on FDIC’s First Quarter Bank Earnings Report

“The banking industry has settled into steady growth bolstered by a continued improvement in the quality of bank portfolios and strong levels of capital. Lending is growing – particularly to small businesses – and real estate loans are starting to return with more enthusiasm. Today’s report is another indication that banks are in a great position to continue making the loans that drive our economy forward.”

Hometown Banks Drive Business Loan Growth
“We’re continuing to see robust lending growth driven by strong demand for business loans. Borrowing is likely to remain elevated as businesses look to jumpstart expansion plans before an expected increase in rates by the Fed later this year. People borrow when they feel they have the capacity to repay debt, and the comfort level of both businesses and consumers is increasing as the economy continues on the road to recovery. Maintaining confidence, particularly for businesses, is critical to supporting economic growth and job creation. More confidence translates into more borrowing and a better future. Banks remain eager to make the loans that fuel economic expansion.”

Increased Lending and Diversification Drive Earnings Growth
“Strong lending growth has driven higher earnings for banks of all sizes, with trading revenue playing an important supporting role. Diversification of revenue streams continues to support income growth, particularly for many larger banks. Community banks have continued to excel at their bread and butter product, small business lending. Margins remain strained under the weight of competition to fund loans and the challenges associated with deploying the large number of new deposits that continue to flow into the U.S. banking system. Expense control remains a high priority as regulatory costs continue to rise.”

Banks Prepared for Rising Interest Rates
“The expected increase in rates from the Fed later this year comes as no surprise to our industry, and banks are actively engaged in preparing for that eventuality. This is one of many risks that banks must manage as they work to balance customer demands for longer-term, low-interest loans against the negative impact of rising rates on funding costs.”

Asset Quality Improves Across the Board
“Loan quality has improved across the board due to prudent underwriting by banks and careful management of debt by businesses and individuals. Banks are now back to more normal levels of provisioning funds to cover the possibility of loan losses in the future. Problem loans are back to levels we saw nine years ago, and losses have reduced to pre-crisis levels. The level of non-performing loans are back to levels we saw seven years ago, declining more than 68 percent since its peak in the first quarter of 2010. ”

Higher Capital Supports Lending Base
“The level and quality of bank capital continues to increase, providing a strong base that supports lending to consumers and businesses. With industry capital at a record high, the focus has shifted toward deploying it in the form of loans and community reinvestment. Total industry capital is now $1.8 trillion, and with reserves banks have set aside for possible loan losses, there is a total buffer of $1.9 trillion protecting the industry from any economic circumstance that could arise.”

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