Wednesday, October 17, 2018

US Bancorp filed its third-quarter earnings release on Wednesday, and we noticed something in the nitty-gritty: its net interest income rose much faster from second quarter (1.7 percent) than non-interest income (0.2 percent).

That’s not surprising, of course. The Federal Reserve has been raising interest rates slowly but surely since 2016, and one would therefore expect banks to follow suit with their rates, and see more interest income. We just hadn’t noticed that change until today. (So much financial data to read, after all.)

So we started to wonder — is that hypothesis true? Are financial firms seeing more growth in interest income than non-interest income? Are total revenues tilting that way?

Indeed they are.

We visited our handy Data Query Tool and pulled up the data for all depository institutions — a list of 853 firms ranging from publicly traded community banks all the way up to Citigroup, Bank of America, and the other big boys. Then we looked for interest income and non-interest income from first-quarter 2015 to second-quarter 2015.

Across all quarters, interest income has always been larger than non-interest income. So we also divided interest income into non-interest income, and expressed that number as a ratio. The ratio went from 1.24 at the start of 2015 to 1.42 by summer 2018.

OK, that sounds like a lot, but too many numbers make our head hurt. So we graphed them onto a chart, and got this, below.

The trend-line in red tells the tale. Interest income is pulling away from non-interest income as the primary revenue source for banks. The slope on that line is 14.5 percent. Try that on a treadmill and your hamstrings will never speak to you again.

And while we don’t show it in this chart, when you examine the changes within each year and from one year to the next (we did), that growth in interest income is accelerating. So we’ll be back in a few weeks once third-quarter numbers are completely filed with an update.

Analysts following financial firms, meanwhile, may want to contemplate what that acceleration toward interest income means.

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