WASHINGTON–The nation’s banks reported a decline in net income of nearly 41% in the fourth quarter as compared to the same period in 2016, due largely to the new tax laws, according to the FDIC.
Profits for the full year are also lower than the year before, the agency added.
The FDIC said in its analysis that the decrease in net income stems from one-time charges banks tied to passage of the Tax Cuts and Jobs Act of 2017. The FDIC reported aggregate net income at its insured banks was $25.5 billion for the fourth quarter, down $17.7 billion (40.9%) from Q4 2016.
“The decline in net income is primarily due to one-time income tax effects from the new tax law, including the revaluation of deferred tax assets and repatriation of income from foreign subsidiaries,” the FDIC said in a released statement.
According to the FDIC, the one-time tax charge means full-year net income for 2017 for banks was down 3.5% ($6 billion) from 2016.
“Despite the decline in net income, the banking industry continued to show steady improvement,” said FDIC Board Chairman Martin Gruenberg in a statement. “Loan balances grew, net interest margins increased, asset quality remained stable, and the number of ‘problem banks’ continued to fall,” he said during a press conference announcing the quarter- and year-end results.
Nevertheless, the data also show that even without the change in the tax code, net income at banks in Q4 would have trailed 2016, with the FDIC saying excluding the one-time income tax effects still would have resulted in quarterly net income of $42.2 billion – a decline of 2.3% from a year earlier.
Other data points released by the FDIC:
- Net interest income was up 8.5% from Q4 2016. More than four out of five banks (86.4%) reported an improvement in net interest income from a year ago. The average net interest margin was 3.31% in the fourth quarter, up from 3.16% a year ago.
- Number of banks on “problem list” lowest in 10 years. The number declined from 104 banks to 95 during the quarter, the lowest number of problem banks since first quarter 2008. Total assets of problem banks declined from $16 billion in the third quarter to $13.9 billion in the fourth. There were 64 mergers During the fourth quarter, merger transactions absorbed 64 institutions, two institutions failed, and one new charter was added.
- Total loan and lease balances rose $164.1 billion during Q4. Loan balances at banks were up of 1.7% from Q3 2017. All major loan categories increased, the FDIC said, including credit card balances, up $69.6 billion (8.8%) from the previous quarter; commercial and industrial loans, up $24.5 billion (1.2%); and residential mortgage loans, up $21.7 billion (1.1%). Over the past year, loan and lease balances increased $416.1 billion (4.5%).
- Noncurrent loan rate remains stable; net charge-off rate increases slightly. Loans 90 days or more past due or in nonaccrual status at banks increased $1.5 billion (1.3%) during the fourth quarter. Net charge-offs increased $1 billion (8.6%) from a year ago, as the average net charge-off rate rose from 0.52% to 0.55%.
- Deposit Insurance Fund’s (DIF) reserve ratio rose to 1.30%, highest since 2004. By law, the fund must achieve a minimum reserve ratio of 1.35% by Sept. 30, 2020. FDIC said it expects the reserve ratio to reach 1.35% this year, ahead of the statutory deadline.