WASHINGTON–Commercial banks and savings institutions insured by the FDIC reported aggregate net income of $60.7 billion in first quarter of 2019, up $4.9 billion or 8.7% from one year earlier.
The increase in net income was mainly attributable to a $7.9 billion (6%) increase in net interest income, according to the FDICs just released Quarterly Banking Profile.
“Net interest margins improved, asset quality indicators remained stable, and the number of ‘problem banks’ continued to decline,” said FDIC Chairman Jelena McWilliams in a statement. “Community banks also reported a strong quarter, with annual loan growth and a net interest margin surpassing the overall industry. With a historically low interest-rate environment and strong competition to attract lending, some institutions have ‘reached for yield,’ which limited net interest margin expansion. With the recent stabilization of interest rate hikes, some institutions may face new challenges in lending and funding. Therefore, banks must maintain prudent risk management in order to support lending through this economic cycle.”
Among the highlights from the Q1 2019 Quarterly Banking Profile:
- Net Income Rises 8.7% from a Year Earlier: The aggregate net income for the 5,362 FDIC-insured institutions increased by $4.9 billion (8.7%) from a year ago to $60.7 billion, led by higher net interest income. Almost two-thirds of all institutions reported annual increases in net income and less than 4% of institutions were unprofitable. The average return on assets increased to 1.35%, up from 1.28% a year earlier.
- Community Banks Quarterly Net Income Increased 10.1% from a Year Earlier: The 4,930 insured institutions identified as community banks reported net income of $6.5 billion in the first quarter, up $596 million (10.1%) from a year earlier. The increase was driven by higher net interest income (up $1.1 billion, or 6.4%), higher securities gains (up $110 million, or 206.7%), and lower provision expense (down $137 million, or 17.3%). Lower noninterest income (down $84 million, or 1.9%) and higher noninterest expense (up $585 million, or 4%) partially offset improvements to net income, the FDIC reported.
- Net Interest Income Rose 6% Over 12 Months: Net interest income totaled $139.3 billion in the first quarter, up $7.9 billion (6%) from first quarter 2018. Nearly four out of five banks (79.3%) reported an improvement in net interest income from a year earlier. The average net interest margin rose to 3.42%, up from 3.32% a year ago.
- Total Loan and Lease Balances Increase 4.1% from First Quarter 2018: Over the past 12 months, total loan and lease balances increased by 4.1%, a slight decline from the 4.4% annual growth rate reported last quarter. Growth among major loan categories was led by commercial and industrial loans, which increased by $37.7 billion (1.7%), but was offset by credit card balances, which fell by $43.5 billion (4.8%). Total loan and lease balances fell by $4.8 billion from fourth quarter 2018, with commercial and industrial loans registering the largest dollar increase from a year ago (up $155.6 billion, or 7.6%).
- Asset Quality Indicators Remain Stable: The amount of loans that were noncurrent – 90 days or more past due or in nonaccrual status – increased by $461.6 million (0.5%) during the first quarter. Noncurrent balances declined for residential mortgages (down $2.2 billion, or 5%), but increased for commercial and industrial loans (up $3.3 billion, or 22.8%). The average noncurrent loan rate remained unchanged from the previous quarter (0.99%). Net charge-offs increased by $667.8 million (5.5%) from a year ago, but the average net charge-off rate remained unchanged (0.50%), the FDIC said.
- The Number of Banks on the “Problem Bank List” Declines to 59: The FDIC’s Problem Bank List declined from 60 to 59 during the first quarter, the lowest number of problem banks since first quarter 2007. Total assets of problem banks declined from $48.5 billion in the fourth quarter to $46.7 billion. During the first quarter, merger transactions absorbed 43 institutions, one new charter was added, and no failures occurred.
- The Deposit Insurance Fund’s Reserve Ratio Remained Unchanged at 1.36%: The Deposit Insurance Fund (DIF) balance increased by $2.3 billion from the previous quarter to $104.9 billion. The increase was mainly driven by assessment income, interest income, and unrealized gains on securities held by the DIF. The reserve ratio remained unchanged (1.36%) from the previous quarter, as strong seasonal growth in insured deposits offset the growth in DIF.