Major US banks reported earnings last week and the theme was uniform: decreased mortgage refinancing due to rising interest rates created a drag on revenue growth. Lost mortgage revenue was partially made up by other lending activity including student, credit card and auto loans, albeit at lower margins. The bright spot in earnings was a consistent increase in consumer credit quality as banks reported some of the lowest delinquency rates in years. Improvements in credit quality allowed banks to release provisions for loan-losses, which was the main driver of bottom-line growth across the industry. Consumers have been reluctant to increase borrowing since the 2008 financial crisis but there is a silver lining: The Federal Reserve’s “Financial Accounts” report indicated that in the third quarter of 2013 household mortgage debt increased for the first time since the first quarter of 2008. The same report has shown increases in household debt due to non-mortgage borrowing every quarter since the end of 2010. Much of this borrowing is student loans, which, coupled with under-employment for those under the age of 30, is limiting the spending ability of young people. That said, if a positive trend in mortgage borrowing develops in spite of rising interest rates and home prices, it will be a powerful indicator of consumer willingness to make long-term economic investments. For banks, refinancing revenue will likely not rebound anytime soon and reserve-release-generated bottom-line growth is unsustainable; other sources of growth will need to be discovered for earnings to continue to increase. SNW remains optimistic on bank credit due to record capital levels, and continues to position portfolios for the time when the market recognizes further bank credit-spread tightening is not justified. Until then, we look to consumer borrowing habits to help predict economic growth prospects and right now they are improving.