FDIC Quarterly Banking Profile
ALL INSTITUTIONS PERFORMANCE
SECOND QUARTER 2017
FDIC-Insured Institutions Earn $48.3 Billion in the Second Quarter Quarterly Net Income Is 10.7 Percent Higher Than a Year Earlier Community Bank Net Income Rises 8.5 Percent From the Year Before Average Return on Assets of 1.14 Percent Is Highest in 10 Years Total Loans and Leases Increase 3.7 Percent From the Previous Year
Higher Net Interest Income Lifts Industry Earnings
Higher net interest income and restrained growth in operating expenses helped lift banking industry profits in second quarter 2017. The 5,787 commercial banks and savings institutions insured by the FDIC reported net income of $48.3 billion for the quarter, an increase of $4.7 billion (10.7 percent) compared with the second quarter of 2016. Almost two out of every three banks—63.4 percent—reported year-over-year earnings improvement, while only 4.1 percent were unprofitable, down from 4.6 percent a year earlier. The average return on assets (ROA) rose to 1.14 percent from 1.06 percent the year before. This is the highest quarterly ROA for the industry since second quarter 2007.
Net Interest Margins Improve
Net operating revenue—the sum of net interest income and total noninterest income—rose to $190.5 billion in the second quarter, an $11 billion (6.1 percent) increase from second quarter 2016. Most of the improvement consisted of higher net interest income, which was $10.3 billion (9.1 percent) higher than a year earlier. The increase in net interest income helped lift the industry’s net interest margin (NIM) to 3.22 percent, from 3.08 percent in second quarter 2016. This is the highest quarterly NIM since fourth quarter 2013. While 57.7 percent of all banks reported higher NIMs, the improvement was greatest at larger institutions. More of their assets reprice or mature in the short term, and they are better-positioned to benefit from rising short-term interest rates. Noninterest income totaled $66.8 billion, up $654 million (1 percent) from a year earlier. Income from asset servicing was $1 billion (93.9 percent) higher, while gains on asset sales were $1.6 billion (31.7 percent) lower. Trading income fell $313 million (4.5 percent).
Noninterest Expense Growth Is Moderate
Banks set aside $12 billion in loan-loss provisions during the second quarter, up $273 million (2.3 percent) from the previous year. Slightly more than one-third of all banks—36.5 percent—increased their loss provisions versus second quarter 2016, while 32.2 percent reported lower provisions. Noninterest expenses totaled $108.6 billion, an increase of $3.5 billion (3.3 percent). Expenses for salaries and employee benefits were $2.1 billion (4.3 percent) higher than a year earlier, as the total number of employees rose by 48,019 (2.3 percent).
Credit Card Charge-Offs Continue to Increase
Loan losses rose from the year-ago level for a seventh consecutive quarter. Net charge-offs of loans and leases totaled $11.3 billion in the second quarter, an increase of $1.1 billion (11.2 percent) from a year earlier. Credit card charge-offs increased year over year for a seventh consecutive quarter, rising by $1.4 billion (24.5 percent), while charge-offs in other major loan categories declined. Net charge-offs of loans to commercial and industrial (C&I) borrowers were $210 million (9.7 percent) below the year-earlier level. The average net charge-off rate rose to 0.48 percent, from 0.45 percent in second quarter 2016.
Noncurrent Loan Balances Decline Further
The amount of loans and leases that were noncurrent—90 days or more past due or in nonaccrual status—fell for the 28th time in the last 29 quarters, declining by $8.4 billion (6.7 percent) in the three months ended June 30. Noncurrent balances declined in all major loan categories during the quarter. Noncurrent residential mortgage loans fell by $4.8 billion (7.9 percent), while noncurrent C&I loans declined by $2.2 billion (9.5 percent). The average noncurrent loan rate fell from 1.34 percent to 1.23 percent during the quarter, the lowest since third quarter 2007.
Banks Shift Their Reserve Allocations
Total loan-loss reserves posted a modest ($197 million, 0.2 percent) decline during the second quarter. The industry’s coverage ratio of reserves to noncurrent loans and leases rose from 97.5 percent to 104.3 percent, the highest level since third quarter 2007. Banks with assets greater than $1 billion, which account for 90 percent of the industry’s loss reserves, increased their reserves for credit card losses by $1.4 billion (4.3 percent), while reducing their reserves for commercial loan losses by $1.1 billion (3.3 percent) and their reserves for residential real estate loan losses by $922 million (5.5 percent).
Retained Earnings Drive Capital Growth
Equity capital increased by $38.7 billion (2 percent) during the quarter. Retained earnings contributed $20 billion to the growth in capital, $322 million (1.6 percent) less than in second quarter 2016. Banks declared $28.3 billion in dividends in the quarter, up $5 billion (21.4 percent) from the year-earlier quarter. Lower long-term interest rates contributed to an $8 billion improvement in accumulated other comprehensive income, which was reflected in the equity capital increase. At the end of the quarter, 99.4 percent of all FDIC-insured institutions, representing 99.96 percent of total industry assets, met or exceeded the requirements for well-capitalized banks, as defined for Prompt Corrective Action purposes.
Banks Reduce Their Federal Reserve Bank Balances
Industry assets surpassed $17 trillion for the first time at the end of the second quarter, rising by $100.8 billion (0.6 percent) during the three months ended June 30. Banks reduced their balances at Federal Reserve banks by $102.4 billion (8 percent). They also reduced their investment securities by $15 billion (0.4 percent), as U.S. Treasury securities fell by $49.9 billion (9.7 percent), and mortgage-backed securities rose by $38 billion (1.9 percent). Securities held in available-for-sale accounts declined by $59 billion (9.7 percent), while securities in held-to-maturity accounts increased by $44 billion (4.7 percent). Assets in trading accounts increased by $18.7 billion (3.2 percent) during the quarter. The percentage of industry assets maturing or repricing in more than three years remained unchanged from the first quarter, at 35.4 percent. The all-time high level for this percentage—35.5 percent—occurred at the end of fourth quarter 2016.
The Annual Loan Growth Rate Slows for a Third Consecutive Quarter
Total loans and leases increased by $161.2 billion (1.7 percent) during the second quarter. All major loan categories posted increases, led by residential mortgage loans (up $35.1 billion, 1.8 percent), credit card balances (up $23.6 billion, 3.1 percent), and C&I loans (up $22.1 billion, 1.1 percent). Unused loan commitments increased by $25.9 billion (0.4 percent). For the 12 months ended June 30, total loans and leases increased by $337.6 billion (3.7 percent), while unused loan commitments rose by $274.8 billion (3.9 percent). The 12-month growth rate for total loans and leases has slowed in each of the last three quarters. A year ago, the 12-month loan growth rate was 6.7 percent. The 12-month growth rate in unused loan commitments has slowed for six consecutive quarters. In 2015, unused commitments increased 6.6 percent.
The Number of Banking Employees Rises 2.3 Percent Over the Past Year
The number of FDIC-insured commercial banks and savings institutions reporting financial results fell to 5,787 in the second quarter, from 5,856 in the first quarter. During the second quarter, three insured institutions failed, while 62 institutions were absorbed by mergers. No new reporters were added during the quarter. The number of institutions on the FDIC’s Problem Bank List declined for a 25th consecutive quarter, from 112 to 105. This is the smallest number of problem banks since March 31, 2008, and is almost 90 percent below the peak of 888 at the end of March 2011. The number of full-time equivalent employees rose by 11,663 (0.6 percent) to 2,093,278 during the quarter, which was 48,019 higher than second quarter 2016 (2.3 percent). This is still 5.9 percent below the peak of 2,223,383 employees in first quarter 2007.
Chart 1. Quarterly Net Income
Chart 2. Quarterly Net Operating Revenue
Chart 3. Quarterly Net Interest Margin
Chart 5. Reserve Coverage Ratio
Chart 6. 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. Second Quarter 2017, All FDIC-Insured Institutions
TABLE IV-A. First Half 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