FDIC Quarterly Banking Profile
ALL INSTITUTIONS PERFORMANCE
FOURTH QUARTER 2017
Notes to Users
Quarterly Net Income Is 40.9 Percent Lower Than a Year Ago Largely Due to One-Time Changes From the New Tax Law
In the fourth quarter, 5,670 insured institutions reported quarterly net income of $25.5 billion, down $17.7 billion (40.9 percent) from a year ago. Higher income taxes, reflecting one-time income tax effects enacted from the new tax law,1 coupled with higher noninterest expense and loan-loss provisions, lowered quarterly net income. Excluding one-time income tax effects, estimated quarterly net income would have been $42.2 billion, down 2.3 percent.2
Full-Year 2017 Net Income Declines 3.5 Percent Due to One-Time Tax Changes
Net income for full-year 2017 totaled $164.8 billion, a decline of $6 billion (3.5 percent) compared to 2016. The decline in full-year net income was due to higher income taxes (up $21.6 billion, or 28.4 percent), which reflects one-time changes from the new tax law, combined with higher noninterest expense (up $19.5 billion, or 4.6 percent) and higher loan-loss provisions (up $3 billion, or 6.2 percent). Net operating revenue (the sum of net interest income and total noninterest income) increased by $39.5 billion from 2016, as net interest income rose by $37.7 billion (8.2 percent) and noninterest income grew by $1.8 billion (0.7 percent). The average net interest margin (NIM) increased to 3.25 percent from 3.13 percent in 2016. Without the one-time tax charges in the fourth quarter, estimated full-year 2017 net income would have been $183.1 billion, an increase of 7.2 percent from 2016.3
Net Interest Income Rises 8.5 Percent From Fourth Quarter 2016
Net operating revenue of $192.2 billion, was $10 billion (5.5 percent) higher than fourth quarter 2016. Net interest income grew by $10.2 billion (8.5 percent), while noninterest income fell by $202.4 million (0.3 percent). More than four out of five banks (86.4 percent) reported higher net interest income from a year ago, as interest-bearing assets increased (up 4.4 percent) and the average NIM increased to 3.31 percent from 3.16 percent a year ago. This is the highest quarterly NIM for the industry since fourth quarter 2012. More than two out of three banks (70 percent) reported higher net interest margins than a year earlier.
Provisions Increase 8.9 Percent From a Year Ago
Loan-loss provisions totaled $13.6 billion in the fourth quarter, an increase of $1.1 billion (8.9 percent) from a year ago. More than one in three (38.9 percent) institutions reported higher loan-loss provisions than in fourth quarter 2016. Fourth quarter loan-loss provisions totaled 7.1 percent of net operating revenue, up from 6.8 percent a year ago.
Noninterest Expense Increases From a Year Ago
Noninterest expense for the banking industry was $9.4 billion (8.6 percent) higher than fourth quarter 2016, led by an increase in "other" noninterest expense (up $6.3 billion, or 14.1 percent). Other noninterest expense includes, but is not limited to, information technology costs, legal fees, consulting services, and audit fees. Salary and employee benefits rose by $3.2 billion (6.3 percent) from a year ago. Full-time equivalent employees at FDIC-insured institutions rose by 1.1 percent from a year ago, while industry assets increased by 3.8 percent. Average assets per employee rose to $8.4 million from $8.2 million in fourth quarter 2016.
Net Charge-Off Rate Increases Slightly
Banks charged off $13.2 billion in uncollectable loans during the quarter, an increase of $1 billion (8.6 percent) from a year ago. This marks a ninth consecutive quarter that net charge-offs increased. Less than half (45.3 percent) of all banks reported an annual increase in their quarterly net charge-offs. The increase in net charge-offs was led by credit card balances, which grew by $1.1 billion (15.7 percent). Net charge-offs declined for commercial and industrial loans (down $210.3 million, 8.6 percent), home equity loans (down $178.1 million, or 68.6 percent), and residential mortgage loans (down $68.3 million, or 36.4 percent). The average net charge-off rate rose from 0.52 percent in fourth quarter 2016 to 0.55 percent.
Noncurrent Loan Rate Remains Stable
After declining for the past six consecutive quarters, noncurrent balances (90 days or more past due or in nonaccrual status) for total loans and leases increased by $1.5 billion (1.3 percent) during the fourth quarter. The increase in noncurrent balances was led by residential mortgages (up 2.8 billion, or 5.2 percent) and credit cards (up $1.2 billion, or 11.5 percent), and was partially offset by a decline in noncurrent commercial and industrial loans (down $1.7 billion, or 8.5 percent). Despite the overall dollar increase, the average noncurrent loan rate remained unchanged at 1.20 percent from the previous quarter.
Loan-Loss Reserves Increase From the Previous Quarter
Banks continued to increase their loan-loss reserves (up $236.2 million, or 0.2 percent) during the quarter, as loan-loss provisions of $13.6 billion exceeded net charge-offs of $13.2 billion. Banks that itemize their reserves (banks with assets greater than $1 billion) reported higher reserves for credit card losses (up $1.9 billion, or 5.2 percent) from the previous quarter, and lower reserves for residential real estate losses (down $827.2 million, or 5.4 percent) and commercial and industrial loan losses (down $723.5 million, or 2.2 percent) during the quarter. The coverage ratio (loan-loss reserves to noncurrent loan balances) declined slightly to 106.3 percent, but has been above 100 percent for the past three quarters.
Equity Capital Rises Modestly
Total equity capital increased by $3.6 billion (0.2 percent) in fourth quarter 2017. Declared dividends of $30.1 billion exceeded the quarterly net income of $25.5 billion during the quarter, reducing retained earnings by $4.6 billion. Accumulated other comprehensive income declined by $8.5 billion in the quarter, which was led by a decline in the market value of available-for-sale securities. The equity-to-asset ratio declined to 11.22 percent from 11.31 percent in third quarter 2017, but remained above the year-ago ratio of 11.10 percent. At year-end 2017, 99.4 percent of all insured institutions, which account for 99.97 percent of total industry assets, met or exceeded the requirements for the highest regulatory capital category, as defined for Prompt Corrective Action purposes.
Total Loan and Lease Balances Increase $164.1 Billion During the Fourth Quarter
Total loan and lease balances increased by $164.1 billion (1.7 percent) from third quarter 2017, as balances in all major loan categories increased. Credit card balances increased by $69.6 billion (8.8 percent) from the previous quarter, commercial and industrial loans grew by $24.5 billion (1.2 percent), and residential mortgage loans rose by $21.7 billion (1.1 percent). Unused loan commitments were $108.9 billion (1.5 percent) higher than the previous quarter, led by higher unused credit card lines (up $57.7 billion, or 1.6 percent). Over the past 12 months, loan and lease balances increased by $416.1 billion (4.5 percent), exceeding last quarter's annual growth rate of 3.5 percent. The 12-month increase in loan and lease balances was led by commercial and industrial loans (up $78.4 billion, or 4.1 percent), residential mortgage loans (up $68.7 million, or 3.4 percent), nonfarm nonresidential loans (up $67.1 billion, or 5.1 percent), and credit card balances (up $65.2 billion, or 8.2 percent). Home equity lines of credit continued with the year-over-year decline (down $23 billion, or 5.3 percent). Unused loan commitments increased 4.4 percent from a year ago, the largest annual growth rate since third quarter 2016.
Deposits Grew 1.4 Percent From the Previous Quarter
Total deposits increased by $179.8 billion (1.4 percent) in the fourth quarter. Balances in domestic interest-bearing accounts rose by $153.7 billion (1.8 percent), and balances in noninterest-bearing accounts grew by $7.8 billion (0.2 percent). Domestic deposits in accounts larger than $250,000 increased by $159.6 billion (2.5 percent) from third quarter 2017. Nondeposit liabilities declined by $8.9 billion (0.4 percent), as other liabilities were down $29.3 billion (7.3 percent).
"Problem Bank List" Falls Below 100
The FDIC's Problem Bank List declined from 104 to 95 at year-end 2017, the lowest number of problem banks since first quarter 2008. Total assets of problem banks were down from $16 billion in the third quarter to $13.9 billion. During the quarter, merger transactions absorbed 64 institutions, two institutions failed, and one new charter was added. For full-year 2017, five new charters were added, 230 institutions were absorbed by mergers, and eight institutions failed.
Chart 1. Quarterly Net Income
Chart 2. Annual Net Income
Chart 3. Quarterly Net Operating Revenue
Chart 5. Reserve Coverage Ratio
Chart 7. Quarterly Change in Loan Balances
TABLE I-A. Selected Indicators, All FDIC-Insured Institutions
TABLE II-A. Aggregate Condition and Income Data, All FDIC-Insured Institutions
TABLE III-A. Full Year 2017, All FDIC-Insured Institutions
TABLE IV-A. Fourth Quarter 2017, 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
TABLE VIII-A. Trust Services, All FDIC-Insured Institutions
1 See FIL-6-2018, New Tax Law: Accounting and Reporting Implications, https://www.fdic.gov/news/news/financial/2018/fil18006.html.