FDIC Quarterly Banking Profile
ALL INSTITUTIONS PERFORMANCE
THIRD QUARTER 2016
Banking Industry Net Income Is $5.2 Billion Higher Than a Year Earlier Community Bank Revenue and Loan Growth Outpace Industry Total Loan Balances Rise 6.8 Percent During the Past Year
Net Income Registers Strong Increase
Increased net interest income helped boost operating revenues at FDIC-insured institutions in the third quarter. The industry reported net income of $45.6 billion for the quarter, an increase of $5.2 billion (12.9 percent) compared with the year before. More than 60 percent of all banks reported year-over-year increases in quarterly earnings. Only 4.6 percent of banks were unprofitable for the quarter, down from 5.2 percent the previous year. The average return on assets (ROA) rose to 1.10 percent, from 1.03 percent in third quarter 2015.
Net Interest Margins Decline at a Majority of Banks
Net operating revenue—the sum of net interest income and total noninterest income—totaled $183.3 billion, up $11.2 billion (6.5 percent). Net interest income was $10 billion (9.2 percent) higher, while noninterest income rose by $1.2 billion (1.9 percent). The increase was attributable to growth in interest-bearing assets (up 6.7 percent over the past 12 months) and improvement in the industry’s aggregate net interest margin (NIM), which rose to 3.18 percent, from 3.08 percent in third quarter 2015. The NIM improvement was not broad-based. A majority of banks—53.5 percent— reported lower NIMs than the year earlier. In addition, an accounting change at one large bank resulted in a sizable increase in its interest income for the quarter that contributed to the size of the improvement in the industry’s quarterly NIM. The rise in noninterest income was driven by a $1.1 billion increase in trading revenue and a $1.6 billion rise in servicing income.
Expense Growth Is Modest
Total noninterest expenses were $1.1 billion (1 percent) higher than the year before. Expenses for goodwill impairment were $678 million (97.8 percent) lower, while itemized litigation expenses were $248 million less. Salary and employee benefit expenses were up $2.4 billion (5 percent). The average efficiency ratio—noninterest expense as a percentage of net operating revenue—improved to 57.5 percent in the third quarter, from 60.2 percent a year earlier. This is the lowest level for the ratio since second quarter 2010.
Loss Provisions Absorb a Rising Share of Revenues
Loan-loss provisions rose year over year for a ninth consecutive quarter to $11.4 billion, a $2.9 billion (34 percent) increase over third quarter 2015. Only 39 percent of banks reported increases in their provisions, while 30 percent reported reduced provision expenses. For the industry, quarterly provisions represented 6.2 percent of the quarter’s net operating revenue, up from 4.9 percent the previous year.
Charge-Offs Rise for a Fourth Consecutive Quarter
Net loan losses totaled $10.1 billion, up $1.5 billion (16.9 percent) from a year earlier. This is the fourth quarter in a row that net charge-offs have posted a year-over-year increase. Net charge-offs of loans to commercial and industrial (C&I) borrowers rose $946 million (82.7 percent), while credit card charge-offs were $658 million (13.4 percent) higher. Charge-offs of residential and commercial real estate loans were $371 million (39.1 percent) below year-earlier levels. The average net charge-off rate rose to 0.44 percent, from 0.40 percent the year before.
Improvement in Real Estate Loans Helps Reduce Total Noncurrent Loan Balances
Noncurrent loans and leases—those 90 days or more past-due or in nonaccrual status—declined for the 25th time in the last 26 quarters, falling by $2.5 billion (1.8 percent) during the three months ended September 30. During the quarter, noncurrent residential mortgage loan balances fell by $2.7 billion (3.8 percent), while noncurrent home equity loans declined by $386 million, and noncurrent nonfarm nonresidential real estate loans fell by $367 million (3.7 percent). These improvements exceeded the $1 billion increase in noncurrent credit cards. Noncurrent C&I loans increased for a seventh consecutive quarter, rising by $154 million. This is the smallest of the seven quarterly increases in noncurrent C&I loans. The average noncurrent loan rate fell from 1.50 percent to 1.45 percent, the lowest level since year-end 2007.
Loan-Loss Reserves Post a Small Increase
Banks increased their reserves for loan and lease losses for a fourth consecutive quarter, as loan-loss provisions exceeded net charge-offs. Loss reserves rose by $372 million (0.3 percent). At banks that itemize their reserves, representing 90 percent of total industry reserves, the increase was driven by higher reserves for credit card losses, which rose by $1.7 billion (6.1 percent). In contrast with the previous seven quarters, itemized reserves for losses on commercial loans declined, falling by $774 million (2.1 percent). The increase in industry reserves, combined with the reduction in noncurrent loan balances, caused the coverage ratio of reserves to noncurrent loans to rise from 89.2 percent to 91.1 percent during the quarter, the highest level since year-end 2007.
Retained Earnings Account for Most of Equity Growth
Total equity capital increased by $16.3 billion (0.9 percent) in third quarter 2016. Retained earnings contributed $15.1 billion to equity growth in the third quarter, $458 million (0.3 percent) more than a year earlier. Banks declared $30.5 billion in quarterly dividends, a $4.8 billion (18.5 percent) increase over third quarter 2015. A $3.7 billion decline in accumulated other comprehensive income limited the growth in equity. The average equity-to-assets ratio for the industry declined from 11.28 percent to 11.22 percent. At the end of the quarter, more than 99 percent of all banks, representing 99.9 percent of industry assets, met or exceeded the requirements for the highest regulatory capital category as defined for Prompt Corrective Action purposes.
Loan Growth Remains Steady
Total assets rose by $232.6 billion (1.4 percent) during the third quarter. Total loan and lease balances increased by $112 billion (1.2 percent), while investment securities portfolios rose by $86.8 billion (2.5 percent), and balances at Federal Reserve banks grew by $41.5 billion (3.5 percent). Assets in trading accounts declined by $27 billion (4.4 percent). Growth in loans was led by residential mortgage loans (up $28.6 billion, 1.5 percent), loans secured by nonfarm nonresidential real estate properties (up $22.4 billion, 1.8 percent), and credit card balances (up $15.7 billion, 2.1 percent). For the 12 months ended September 30, total loan and lease balances were up $590.8 billion (6.8 percent). The growth in securities was attributable to a $55.3 billion (2.9 percent) rise in mortgage-backed securities, and a $37 billion (8.5 percent) increase in U.S. Treasury securities. Unrealized gains on banks’ available-for-sale securities fell by $5 billion (11.4 percent), while unrealized gains on securities in held-to-maturity accounts declined by $2.8 billion (11.7 percent).
Deposits Rise by $271 Billion
Deposit growth was strong in the third quarter. Total deposits rose by $270.7 billion (2.2 percent) in the third quarter. Deposits in domestic offices increased by $259.6 billion (2.3 percent), with balances in interest-bearing accounts rising by $140 billion (1.7 percent), and balances in noninterest-bearing accounts up by $119.5 billion (4 percent). Balances in consumer-oriented accounts increased by $103.8 billion (2.6 percent), while all other domestic office deposits rose by $156.8 billion (2.2 percent). Deposits in foreign offices increased by $11.2 billion (0.8 percent). Banks reduced their nondeposit liabilities by $54.3 billion (2.5 percent), as trading account liabilities fell by $44.4 billion (14.7 percent).
Number of FDIC-Insured Institutions Is 5,980
The number of FDIC-insured commercial banks and savings institutions reporting quarterly financial results fell to 5,980 in the third quarter, from 6,058 in the second quarter of 2016. There were 71 mergers of insured institutions, while two insured banks failed. No new charters were added during the quarter. Banks reported 2,043,480 full-time equivalent employees, an increase of 4,990 from third quarter 2015. The number of insured institutions on the FDIC’s “Problem List” declined from 147 to 132, as total assets of problem banks fell from $29 billion to $24.9 billion.
Chart 1. Quarterly Net Income
Chart 3. Quarterly Net Operating Revenue
Chart 4. Quarterly Loan-Loss Provisions
Chart 6. Reserve Coverage Ratio
TABLE I-A. Selected Indicators, All FDIC-Insured Institutions
TABLE II-A. Aggregate Condition and Income Data, All FDIC-Insured Institutions
TABLE III-A. Third Quarter 2016, All FDIC-Insured Institutions
TABLE IV-A. First Three Quarters 2016, All FDIC-Insured Institutions
TABLE V-A. Loan Performance, All FDIC-Insured Institutions
TABLE VI-A. Derivatives, All FDIC-Insured Call Report Filers
TABLE VII-A. Servicing, Securitization, and Asset Sales Activities