Bank Industry Insights: 2012′s Record Earnings Offset by Declining NIM

Lee Kyriacou, head of bank industry research

Our latest Bank Industry Insights report analyzes the earnings reports from the 15 largest non-specialty bank holding companies to provide a picture of the industry’s overall earnings performance in 2012. With the official FDIC earnings report due in the next few weeks, it provides a hint of what’s to come from their official report, as well.

So what did we see? The banking industry overall is approaching record earnings, with many big banks showing healthy earnings growth in the double-digits. But industry profitability overall, which is measured by return on equity and return on assets, remains well below historical norms. Across nearly all 15 of the banks, a continued downward drift in the Net Interest Margin is offsetting that record growth, due to a combination of low interest rates and insufficient loan demands. The lack of high margins from bank balance sheets, along with regulatory limits on fee and high expense and capital bases, have limited improvement in return on equity and return on assets for most banks.

Moving forward, all banks (regardless of their 2012 earnings performance) need to find ways to grow lending and revenue faster than their peers. This will support fixed cost restructuring (like high branch costs) and modest investment, while still reducing efficiency ratios.

A free preview of the report is available here.