FDIC Quarterly Banking Profile
ALL INSTITUTIONS PERFORMANCE
THIRD QUARTER 2017
FDIC-Insured Institutions Earn $47.9 Billion in the Third Quarter Industry Net Income Is 5.2 Percent Higher Than a Year Earlier Annual Loan and Lease Growth Slows to 3.5 Percent Net Interest Income Rises 7.4 Percent From Third Quarter 2016 Community Bank Earnings Increase 9.4 Percent From a Year Earlier
Higher Net Interest Income Lifts Industry Earnings
Higher net interest income, reflecting modest growth in interest-bearing assets and wider net interest margins, helped earnings increase in the third quarter. Quarterly net income at the 5,737 commercial banks and savings institutions insured by the FDIC rose to $47.9 billion, an increase of $2.4 billion (5.2 percent) from third quarter 2016.1 The average return on assets (ROA) rose to 1.12 percent from 1.10 percent a year earlier. More than two out of every three banks—67.3 percent—reported year-over-year increases in earnings, and 59.8 percent reported higher quarterly ROAs. Only 3.9 percent of banks reported net losses for the quarter, compared with 4.6 percent in third quarter 2016.
Net Interest Margins Continue to Improve
Net operating revenue—the sum of net interest income and total noninterest income—totaled $191.7 billion, an increase of $8.2 billion (4.5 percent). Net interest income was $8.8 billion higher (7.4 percent), as 83.5 percent of all banks reported year-over-year increases. The average net interest margin (NIM) increased to 3.30 percent from 3.18 percent a year earlier, as average interest-bearing assets rose by 3.6 percent. Almost two out of every three banks—65.9 percent—reported higher net interest margins than a year earlier. Noninterest income was $639 million (1 percent) lower than in third quarter 2016. Gains on loan sales were down $1.1 billion (26.7 percent), while servicing fee income was $290 million (11.2 percent) lower. Trading income was down $25 million (0.4 percent), while income from fiduciary activities was $612 million (7.2 percent) higher than a year earlier.
Banks Increase Loan-Loss Provisions
For the 12th time in the past 13 quarters, banks increased their provisions for loan and lease losses from year-earlier levels. Loss provisions totaled $13.8 billion, an increase of $2.4 billion (20.9 percent). This is the largest quarterly loss provision for the industry since fourth quarter 2012. Only 37.3 percent of banks reported year-over-year increases in their loss provisions, while 32.2 percent reported lower provisions than in third quarter 2016.
Net Charge-Off Rate Continues to Rise at a Slow Pace
Banks charged off $11 billion in uncollectible loans during the third quarter, up $813 million (8 percent) from a year earlier. This is the eighth consecutive quarter that charge-offs have increased. Credit card charge-offs were $1.2 billion (21.9 percent) higher, while charge-offs of auto loans were up $238 million (29.1 percent). Charge-offs of commercial and industrial (C&I) loans were $433 million (20.6 percent) lower than a year earlier, and charge-offs of residential mortgage loans were $227 million (72 percent) lower. The average net charge-off rate rose to 0.46 percent for the quarter, compared with 0.44 percent in third quarter 2016.
Noncurrent Balances Fall for Mortgages and C&I Loans, Rise for Consumer Loans
For the 29th time in the past 30 quarters, the amount of loans and leases that were noncurrent—90 days or more past due or in nonaccrual status—declined, falling by $2.1 billion (1.8 percent) during the three months ended September 30. The decline in noncurrent balances was led by a $1.5 billion (7.2 percent) drop in noncurrent C&I loans. Noncurrent residential mortgage loans fell by $1.6 billion (2.9 percent), while noncurrent credit cards increased by $1.2 billion (12.4 percent) and noncurrent auto loans rose by $296 million (20.3 percent). The average noncurrent rate fell from 1.23 percent to 1.20 percent during the quarter. This is the lowest noncurrent rate for the industry since third quarter 2007.
Reserve Allocations Mirror Loan Performance Trends
Banks increased their reserves for loan and lease losses by $2.1 billion (1.8 percent) during the quarter, as loss provisions of $13.8 billion exceeded net charge-offs of $11 billion. At banks with assets greater than $1 billion, which account for 90 percent of total industry reserves, most of the growth in reserves occurred in reserves for credit card losses (up $2.3 billion, 6.9 percent). These banks, which report their reserves on a disaggregated basis, reduced their reserves for commercial loan losses and residential real estate losses during the quarter. The overall increase in reserves, combined with the reduction in noncurrent loan balances, meant that the industry's coverage ratio of reserves to noncurrent loans rose from 104.2 percent to 107.9 percent during the quarter. This is the highest level for the coverage ratio since midyear 2007.
Banks Increase Dividends in the Third Quarter
Equity capital growth slowed in the third quarter, as a number of banks increased their dividends. Total equity capital increased by $16.3 billion (0.8 percent), with retained earnings contributing $12.1 billion to capital growth and with an increase in accumulated other comprehensive income adding $2.1 billion. Retained earnings were $2.9 billion lower than a year earlier, as dividends were $5.3 billion (17.2 percent) higher. More than a quarter of all banks (28 percent), including four of the five largest banks, increased their quarterly dividends from year-earlier levels. At the end of the quarter, 99.4 percent of all banks, representing 99.97 percent of total industry assets, met or exceeded the highest regulatory capital standards, as defined for Prompt Corrective Action purposes.
Asset Growth Slows for Fourth Consecutive Quarter
Total assets increased by $168.8 billion (1 percent) during the three months ended September 30. Banks increased their securities holdings by $45.7 billion (1.3 percent), as mortgage-backed securities increased by $44.5 billion (2.1 percent). Cash and balances due from depository institutions rose by $53.3 billion (2.8 percent), as balances due from Federal Reserve banks increased by only $2 billion (0.2 percent). Assets in trading accounts rose by $912 million (0.2 percent) during the quarter.
Annual Loan and Lease Growth Slows to 3.5 Percent
Total loan and lease balances grew by $96.2 billion (1 percent) during the quarter. Growth was led by residential mortgage loans (up $20.5 billion, 1 percent), credit cards (up $15.7 billion, 2 percent), real estate loans secured by nonfarm nonresidential real estate properties (up $12.1 billion, 0.9 percent), real estate construction and development loans (up $6.7 billion, 2.1 percent), and C&I loans (up $6.5 billion, 0.3 percent). Unused loan commitments increased by $61.4 billion (0.8 percent) during the quarter. For the 12 months ended September 30, total loan balances were up 3.5 percent, compared with a 3.7 percent annual growth rate last quarter and 6.8 percent a year earlier. Unused loan commitments rose 3.1 percent over the past 12 months, down from a 3.9 percent annual growth rate last quarter and 4.8 percent a year earlier. The slowdowns in loan and unused commitment growth occurred across all major loan categories and are reflective of an economy in its ninth year of expansion.
Large Denomination Deposits and Nondeposit Liabilities Fund Most of Asset Growth
Total deposits increased by $110.9 billion (0.8 percent) in the third quarter. Domestic office deposits rose by $136.1 billion (1.2 percent), while deposits in foreign offices declined by $25.2 billion (1.9 percent). Deposits in consumer accounts declined by $69 billion (1.6 percent). Domestic interest-bearing deposits rose by $140.2 billion, while deposits in noninterest-bearing accounts fell by $4.1 billion (0.1 percent). Domestic deposits in accounts larger than $250,000 increased by $87.6 billion (1.4 percent). Banks increased their nondeposit liabilities by $41.7 billion (2.1 percent) during the quarter. Federal Home Loan Bank advances rose by $9.7 billion (1.7 billion), and unsecured borrowings increased by $15.8 billion (4.5 percent).
Two New Charters Are Added
The number of FDIC-insured commercial banks and savings institutions reporting quarterly financial results declined to 5,737 in the third quarter, from 5,787 reporters in the second quarter. During the third quarter, mergers absorbed 50 insured institutions. Two new charters were added during the third quarter, and there were no bank failures. One insured institution had not filed a September 30 Call Report at the time this report was prepared. The number of banks on the FDIC's "Problem Bank List" declined from 105 to 104 during the third quarter. Total assets of "problem" banks fell from $17.2 billion to $16 billion. The number of full-time equivalent employees at FDIC-insured institutions in the third quarter was 2,083,029. This is 10,245 fewer than in the second quarter but 39,572 more than a year ago.
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. Third Quarter 2017, All FDIC-Insured Institutions
TABLE IV-A. First Three Quarters 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