WASHINGTON–FDIC-insured commercial banks and savings institutions reported aggregate net income of $56 billion in the first quarter of 2018, up $12.1 billion (27.5%) from a year ago.
The improvement in earnings was attributable to higher net operating revenue and a lower effective tax rate, according to the FDIC’s latest Quarterly Banking Profile.
Of the 5,606 insured institutions reporting first quarter financial results, more than 70% reported year-over-year growth in quarterly earnings, the FDIC said. The percentage of unprofitable banks in the first quarter declined to 3.9% from 4.3% a year ago.
“The banking industry reported another positive quarter. However, the interest-rate environment and competitive lending conditions continue to pose challenges for many institutions,” said FDIC Chairman Martin J. Gruenberg. “The industry must manage risks carefully to continue to grow on a long-run, sustainable path. Higher net operating revenue and a lower effective tax rate boosted net income. Loan balances grew, net interest margins improved, and the number of ‘problem banks’ continued to fall. Community banks also reported a solid quarter with loan growth that exceeded the overall industry.”
Gruenberg added the “extended period of low interest rates and an increasingly competitive lending environment have led some institutions to reach for yield. This has led to heightened exposure to interest-rate risk, liquidity risk, and credit risk. In addition, with the current expansion in its latter stage, the industry needs to be prepared to manage the inevitable downturn in order to avoid financial system disruption and sustain lending through the economic cycle.”
Among the Q1 performance numbers for FDIC-insured institutions:
- The average return on assets increased to 1.28%, up from 1.04% in first quarter 2017.
- In the first quarter, 5,168 insured institutions identified as community banks reported $6.1 billion in net income, an increase of $913.1 million (17.7%) from a year earlier. Higher net operating revenue and a lower effective tax rate boosted first quarter net income. Net operating revenue rose by $1.8 billion (8.3%) from first quarter 2017, led by higher net interest income (up $1.6 billion, or 9.7%) and noninterest income (up $127.6 million, or 2.9%). Loan-loss provisions increased by $154.1 million (23.7%), while noninterest expenses were $963.9 million (6.9%) higher, the FDIC said.
- Net interest income was $131.3 billion in the first quarter, up $10.3 billion (8.5%) from a year earlier. More than four out of five banks (85.9%) reported an improvement in net interest income from a year earlier. The average net interest margin increased to 3.32% from 3.19% in first quarter 2017.
- Noninterest income was $67.4 billion in the first quarter, up $4.9 billion (7.9%) from first quarter 2017. The annual increase was led by higher trading revenue (up $1.1 billion, or 14.9%) and other noninterest income (up $2.4 billion, or 8.8%).
- Loan and lease balances increased by $31.3 billion (0.3%) from fourth quarter 2017. All major loan categories registered growth, except for credit card balances (down $44.6 billion, or 5.2%), which showed a seasonal decline in the first quarter. Commercial and industrial loans grew by $38.6 billion (1.9%), nonfarm nonresidential loans rose by $11.5 billion (0.8%), and residential mortgage loans increased by $8.8 billion (0.4%), the FDIC said.
- The amount of loans that were noncurrent — 90 days or more past due or in nonaccrual status — declined by $3.9 billion (3.4%) during the first quarter. Noncurrent balances declined for residential mortgages (down $2.8 billion, or 4.9%), and commercial and industrial loans (down $617.2 million, or 3.4%). The average noncurrent loan rate declined to 1.15% from 1.20% in fourth quarter 2017. Net charge-offs increased by $540.6 million (4.7%) from a year ago, led by a $1.1 billion (16.3%) increase in net charge-offs for credit cards. The average net charge-off rate (0.50%) remained stable from a year ago.
- The FDIC’s Problem Bank List declined from 95 to 92 during the quarter, the lowest number of problem banks since first quarter 2008. Total assets of problem banks increased from $13.9 billion in the fourth quarter to $56.4 billion. During the quarter, merger transactions absorbed 65 institutions, three new charters were added, and there were no failures.
- The Deposit Insurance Fund (DIF) balance rose by $2.3 billion during the first quarter to $95.1 billion on March 31, driven by assessment income. The DIF reserve ratio remained unchanged (1.30%) from the previous quarter. Estimated insured deposits increased by 2.6% from the previous quarter and 3.7% from a year ago.