Bank stocks and financial-related exchange traded funds are beginning to pick up steam, with increased loan sales and trading income lifting year-over-year revenue growth to a five-year high.
Over the past month, the Financial Select Sector SPDR (NYSEArca: XLF), which includes a 36.2% tilt toward the banks sub-sector, was up 5.5%. Meanwhile, the SPDR S&P Regional Banking ETF (NYSEArca: KRE) increased 7.0% and the SPDR S&P Bank ETF (NYSEArca: KBE) rose 7.3% over the past month.
The banking sectors were also outperforming Tuesday, with KRE and KBE both up about 0.2%. In comparison, XLF was down 0.1% while the S&P 500 index was 0.1% higher.
Bank stocks strengthened after the Federal Deposit Insurance Corporation revealed that U.S. banks posted profits of $38.7 billion in the third quarter, compared to $36.1 billion for the same period last year, reports Jesse Hamilton for Bloomberg.
“Net income was up, revenue growth was relatively strong and broad-based, asset quality improved and loan balances grew,” FDIC Chairman Martin Gruenberg said in the Bloomberg article.
“Community banks, in particular, performed better than a year ago.,” Gruenberg said, according to StarTribune. “Third quarter results were largely good news for community banks and for the entire banking industry.”
The First Trust NASDAQ ABA Community Bank Index Fund (NasdaqGM: QABA) was up 0.1% Tuesday and increased 6.7% over the past month.
James Chessen, chief economist at the American Bankers Association, said it is “terrific” that banks are experiencing modest growth through revenue instead of reducing loan-loss reserves to shore up their balance sheets. [Financial ETFs Could Bank on Improved Loan Growth]
Specifically, loan sales increased 46% in the three months ended September. Additionally, other loan categories were broadly higher, along with 2.4% rise in auto loans. Bank loan balances hit a record $8.2 trillion in the third quarter, adding onto loan balance growth over the second quarter, which increased above $8 trillion, reports Ryan Tracy for the Wall Street Journal.
The number of problem banks with a greater risk of failure are also on the decline, diminishing to 329 from 354 over the second quarter. However, two banks failed in the third quarter.
SPDR S&P Bank ETF
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Max Chen contributed to this article.