FDIC Quarterly Banking Profile
ALL INSTITUTIONS PERFORMANCE
FIRST QUARTER 2017
Quarterly Net Income Is 12.7 Percent Higher Than a Year Earlier Community Bank Net Income Rises 10.4 Percent From a Year Ago Annual Loan Growth Rate Slows to 4 Percent, on Par With Nominal GDP Growth "Problem Bank List" Falls to Nine-Year Low
First Quarter Net Income of $44 Billion Is 12.7 Percent Higher Than a Year Ago
Higher net operating revenue helped lift quarterly earnings of FDIC-insured institutions to $44 billion in the first quarter of 2017. First quarter net income was $5 billion (12.7 percent) higher than the year-earlier total. More than 57 percent of all banks reported year-over-year increases in quarterly earnings, while only 4.1 percent reported negative net income for the quarter. In the first quarter of 2016, 5.1 percent of banks were unprofitable. The average return on assets (ROA) rose to 1.04 percent, from 0.97 percent a year ago.
Banks Post 6.3 Percent Year-Over-Year Growth in Net Operating Revenue
Net operating revenue—the sum of net interest income and total noninterest income—totaled $183.6 billion, an increase of $10.9 billion (6.3 percent) from a year ago. More than two out of three banks—69.7 percent—reported year-over-year growth in net operating revenue. Noninterest income increased $2.1 billion (3.4 percent) over first quarter 2016, as trading income rose by $1.5 billion (26 percent), and servicing income increased by $1.9 billion (220.6 percent). Net interest income was $8.8 billion (7.8 percent) higher, as average interest-bearing assets rose 4.9 percent, and the average net interest margin (NIM) improved to 3.19 percent from 3.10 percent a year ago. Much of the NIM improvement occurred at large banks, as higher short-term interest rates lifted average asset yields. Smaller banks, which have a larger share of their assets in longer-term investments, did not see their NIMs benefit from the rise in short-term rates. More than half of all banks—53.7 percent—reported lower NIMs than a year ago. Noninterest expenses were $4.5 billion (4.3 percent) higher than a year ago. Salary and employee benefits costs rose $3.3 billion (6.6 percent), as FDIC-insured institutions reported 41,469 more employees than a year ago, a 2 percent increase. Expenses for premises and fixed assets increased by $435 million (3.9 percent) compared to first quarter 2016.
Provisions Register First Decline in Almost Three Years
Banks set aside $12 billion in provisions for loan losses in the first quarter, a decline of $541 million (4.3 percent) from a year earlier. This is the first time in the past 11 quarters that loss provisions have fallen. A slightly larger proportion of banks reported higher provision expenses—34.8 percent—compared to the 31.5 percent who had lower quarterly provisions.
Banks Report Higher Charge-Offs on Loans to Individuals
During the first quarter, banks charged-off $11.5 billion in loans, an increase of $1.4 billion (13.4 percent) over the total for first quarter 2016. This is the sixth consecutive quarter that charge-offs have posted a year-over-year increase. Most of the increase consisted of higher losses on loans to individuals. Net charge-offs of credit card balances were up $1.3 billion (22.1 percent), while auto loan charge-offs increased $199 million (27.7 percent), and charge-offs of other loans to individuals rose by $474 million (66.4 percent). In contrast, charge-offs on loans to commercial and industrial (C&I) borrowers were $291 million (15.7 percent) lower than a year ago, while residential mortgage charge-offs were $221 million (52.5 percent) lower. The average net charge-off rate in the first quarter was 0.49 percent, compared to 0.46 percent a year earlier.
Noncurrent Loan Balances Continue to Decline
The amount of loans and leases that were noncurrent—90 days or more past due or in nonaccrual status—fell for the 27th time in the last 28 quarters. In the first three months of 2017, noncurrent loan balances declined by $7 billion (5.3 percent). All major loan categories saw noncurrent balances fall during the quarter. Noncurrent residential mortgage loans declined by $5.3 billion (8.2 percent), while noncurrent C&I loans fell by $1.2 billion (4.6 percent). The average noncurrent loan rate improved from 1.42 percent at year-end 2016 to 1.34 percent at the end of March. This is the lowest average noncurrent rate for the industry since third quarter 2007.
Coverage Ratio Nears 100 Percent
The industry's reserves for loan losses were essentially unchanged in the first quarter. Industry reserves stood at $121.8 billion at the end of the quarter, only $99 million (0.1 percent) higher than the total at year-end 2016. Banks with assets greater than $1 billion, which together account for more than 96 percent of total industry reserves, increased their reserves for credit card losses by $1.1 billion (3.7 percent) during the quarter, while reducing their reserves for residential real estate losses by $646 million (3.7 percent), and lowering their reserves for commercial loan losses by $559 million (1.6 percent). As a result of the decline in noncurrent loan balances during the quarter, the industry's coverage ratio of reserves to noncurrent loans improved from 92.2 percent to 97.5 percent. This is the highest level for the coverage ratio since the end of third quarter 2007.
Equity Capital Posts Relatively Strong Increase
Equity capital increased by $28.6 billion (1.5 percent) during the quarter. Retained earnings contributed $16.7 billion to equity growth in the quarter. This is $1.6 billion (8.9 percent) less than a year ago, as first quarter dividends were $6.6 billion (31.7 percent) higher. Accumulated other comprehensive income posted a $3.3 billion improvement, as a slight decline in long-term interest rates caused a reduction in unrealized losses in securities portfolios.
Banks Increase Balances at Federal Reserve Banks
Total assets increased by $186.1 billion (1.1 percent) during the quarter. Banks increased their balances at Federal Reserve banks by $187.4 billion (17 percent), while assets in trading accounts rose by $27 billion (4.9 percent). Securities portfolios increased by $24.5 billion (0.7 percent), as securities in held-to-maturity accounts rose by $52.6 billion (5.9 percent), and securities in available-for-sale accounts declined by 28.1 billion (1.1 percent). Balances due from banks in foreign countries declined by $30.3 billion (8 percent).
Pace of Loan Growth Slows
Total loans and leases declined by $8.1 billion (0.1 percent) during the three months ended March 31. This is the first quarterly decline in loan balances since first quarter 2013. Credit card loans posted a seasonal decline of $43.7 billion (5.5 percent), as cardholders paid down outstanding balances. Residential mortgage loans fell by $10.2 billion (0.5 percent), reflecting increased loan sales activity. C&I loans increased by $25.6 billion (1.3 percent), while real estate loans secured by nonfarm nonresidential properties rose by $22.5 billion (1.7 percent). Unused loan commitments increased by $119.3 billion (1.7 percent) during the quarter. The slowing in loan growth that began in the second half of last year continued through the first quarter. The 12-month loan growth rate slowed to 4 percent, down from 5.3 percent in calendar year 2016. While all major loan categories saw balances rise over the past 12 months, annual growth rates are now lower than they were in the previous quarter and a year ago. The rate of loan growth remains above the nominal GDP growth rate.
Retail Deposits Provide Most of the Growth in Funding
Buoyed by growth in consumer accounts, total deposits increased by $189.1 billion (1.5 percent) during the quarter. Deposits in domestic offices of FDIC-insured institutions rose by $165.5 billion (1.4 percent), while deposits in foreign offices were up $23.6 billion (1.9 percent). Domestic deposit balances in consumer accounts increased by $181 billion (4.3 percent). During the quarter, banks reduced their nondeposit liabilities by $30.7 billion (1.5 percent), as Federal Home Loan Bank advances declined by $40.8 billion (7.2 percent), and trading liabilities fell by $8.4 billion (3.4 percent).
Two New Charters Added in the First Quarter
The number of FDIC-insured commercial banks and savings institutions declined from 5,913 to 5,856 during the first quarter. In the first three months of 2017, mergers absorbed 54 insured institutions, while 3 banks failed. Two new charters were added during the quarter, the first new charters since third quarter 2015. Banks reported 2,081,422 full-time equivalent employees in the first quarter, an increase of 28,444 from fourth quarter 2016, and 41,469 (2 percent) more than a year ago. The number of insured institutions on the FDIC's Problem Bank List fell from 123 to 112 during the first quarter. This is the smallest number since first quarter 2008. Total assets of "Problem" banks declined from $27.6 billion to $23.4 billion.
Chart 1. Quarterly Net Income
Chart 3. Quarterly Net Operating Revenue
Chart 4. Quarterly Net Interest Margin
Chart 6. 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. First Quarter 2017, All FDIC-Insured Institutions
TABLE IV-A. Full Year 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