2015 Best Year Ever For Banks

Richard X. Bove, Vice President Equity Research at Rafferty Capital Markets, highlights the major issues with banks in 2015.

Major issues

2015 was the most successful year fundamentally in banking industry’s history; not so stock wise
Financial Indices
- XLF declined 3.6%; down 6.9% YTD in 2016
- KBW Index declined 1.6%; down 11.1% YTD in 2016
- S&P 500 declined 0.7% in 2015; down 2.5% YTD in 2016
Total commercial banking industry balance sheet in 2015 as reported by the FDIC
- Equity (unusually high levels)
  - Common equity at all-time record $1.68 trillion
  - Common equity to assets at 11.3% highest since 1939
  - Equity plus reserves as a percent of assets highest since 1935
- Liabilities (solid funding base)
  - Deposits at all-time record $11.35 trillion
  - Deposits highest as a percent of assets since 1991
- Assets (high level of liquidity indicates low level of loan risk)
  - Cash and Securities 2nd highest on record after 2014 at $4.75 trillion
  - Cash and Securities at 31.9% of assets lower than 2014 but highest since 1983
  - Net loans at $8.06 trillion highest in history
  - Loans equal 170% of cash and securities in 2015 compared to 315% in 2007
  - Loans to deposits 71.0% in 2015 compared to 89.4% in 2007
  - Loans to common equity have risen in this cycle (2010 to 2015) but prior to this at lowest level since 1950
Total commercial banking industry income statement in 2015 as reported by FDIC
- Revenues
  - Net interest income at all-time record of $398 billion despite record low interest rates on Fed Funds
  - Non-interest income second highest of all-time at $234 billion despite trading issues
  - Revenues at all-time record at $632 billion
  - Operating income up by $15.4 billion in year while operating expenses dropped by $5.9 billion
- Profits
  - Pre-Provision, pretax income 2nd highest of all-time at $247 billion
  - Pretax income at all-time record at $214 billion
  - Net income at all-time record of $152 billion
  - Common dividends at all-time record $97 billion
Total commercial banking industry loan quality in 2015 as reported by FDIC
- Non-performing loans at $114 billion down from $253 billion in 2009
- Non-performing loans at 1.39% of loans compared to 31 year average of 2.11% (1984 first year information gathered)
- Net charge-offs at $33 billion down from $176 billion in 2010
- Net charge-offs to loans at 41 basis points compared to 81 year average of 56 basis points (1934 first year information gathered)
Bottom line stocks being pounded lower in most successful year fundamentally in the industry’s history