FDIC Quarterly Banking Profile
ALL INSTITUTIONS PERFORMANCE
FOURTH QUARTER 2018
- Net Income Rises $33.8 Billion Over Fourth Quarter 2017 to $59.1 Billion
- Higher Net Operating Revenue and Lower Income Tax Expenses Lift Net Income
- Net Interest Income Increases 8.1 Percent From a Year Earlier
- Total Loan and Lease Balances Rise 4.4 Percent Over 12 Months
- Full-Year 2018 Net Income Grows to $236.7 Billion
- The Number of Banks on the “Problem Bank List” Declines to 60
Net Income Rises $33.8 Billion Over Fourth Quarter 2017 to $59.1 Billion
The 5,406 FDIC-insured commercial banks and savings institutions reported quarterly net income of $59.1 billion in the fourth quarter, an increase of $33.8 billion (133.4 percent) from a year earlier.1 Improvement in quarterly net income was attributable to higher net operating revenue (the sum of net interest income and noninterest income) and lower income tax expenses. Assuming the effective tax rate before the new tax law, quarterly net income would have totaled an estimated $50.3 billion, up $7.9 billion (18.5 percent) from 12 months ago.2 The average return on assets was 1.33 percent for the quarter, up from 0.58 percent in fourth quarter 2017. The percentage of unprofitable banks in the fourth quarter declined to 6.5 percent from 16.6 percent a year ago.
Full-Year 2018 Net Income Grows to $236.7 Billion
Growth in net operating revenue (up $53.1 billion, or 7 percent), coupled with lower income tax expenses (down $36.9 billion, or 37.7 percent) and loan-loss provisions (down $1.1 billion, or 2.2 percent), lifted full-year 2018 net income to $236.7 billion, an improvement of $72.4 billion (44.1 percent) from 2017. Assuming the effective tax rate before the new tax law, full-year 2018 net income would have totaled an estimated $207.9 billion, compared with $183.1 billion in 2017.3 The average net interest margin (NIM) rose from 3.25 percent in 2017 to 3.40 percent, as average asset yields (up 43 basis points) exceeded average funding costs (up 28 basis points). The average return on assets for 2018 was 1.35 percent, up from 0.97 percent for 2017.
Net Interest Income Increases 8.1 Percent From a Year Earlier
Quarterly net interest income rose to $140.2 billion, up $10.5 billion (8.1 percent) from a year earlier, owing to growth in interest-bearing assets and wider net interest margins (NIM). More than four out of five banks (82.6 percent) reported year-over-year increases in net interest income. NIM was 3.48 percent for the quarter, an improvement from the 3.31 percent margin reported a year ago, as average asset yields grew more rapidly than average funding costs. Banks with assets of $10 billion to $250 billion reported the largest annual increases in average asset yields (up 58 basis points) and average funding costs (up 40 basis points).
Loan-Loss Provisions Increase Modestly
Banks set aside $14 billion in loan-loss provisions during the fourth quarter, the highest level since fourth quarter 2012. Loan-loss provisions rose by $397.3 million (2.9 percent) from fourth quarter 2017, with close to 40 percent of all banks reporting increases. Loan-loss provisions as a percent of net operating revenue declined from 8.3 percent at year-end 2017 to 8.2 percent.
Noninterest Income Expands From a Year Earlier
Noninterest income increased $1.6 billion (2.6 percent) from a year earlier, as all other noninterest income grew by $3.5 billion (11.9 percent) and net gains on sales of other assets rose by $393 million (120.3 percent). Despite the overall increase in noninterest income, trading revenue declined by $1.5 billion (25.9 percent) and servicing fees fell by $850.9 million (36.1 percent). Slightly more than half of all banks (53.6 percent) reported increases in noninterest income compared with the year-ago quarter.
Noninterest Expense Increases From Fourth Quarter 2017
Noninterest expense posted a modest increase of $194.9 million (0.2 percent) over the past 12 months. Increases in other noninterest expense (up $2.6 billion, or 5 percent) and salary and employee benefits (up $717 million, or 1.3 percent) were partially offset by a decline in premises and fixed asset expense (down $2.7 billion, or 22.5 percent). The average assets per employee increased from $8.4 million in fourth quarter 2017 to $8.7 million.
Net Charge-Offs Decline 4.6 Percent From a Year Ago
Banks charged off $12.6 billion in uncollectable loans during the quarter, a decline of $ 605.9 million (4.6 percent) from a year ago. This marks the first time since third quarter 2015 that net charge-offs registered a year-over-year decline. Credit card balances registered the largest annual dollar increase in net-charge offs (up $347.7 million, or 4.4 percent), while commercial and industrial loans had the largest annual dollar decline (down $522.6 million, or 23.4 percent). The average net charge-off rate declined from 0.55 percent in fourth quarter 2017 to 0.50 percent.
Noncurrent Loan Rate Falls Below 1 Percent
Noncurrent loan balances (90 days or more past due or in nonaccrual status) were $1 billion (1 percent) lower than the previous quarter. More than half of all banks (53.3 percent) reported lower noncurrent loan balances. The quarter-over-quarter decline was reflected in residential mortgages balances, which declined by $2 billion (4.4 percent), and commercial and industrial loan balances, which fell by $554.3 million (3.6 percent). Credit card balances continued to register the largest quarterly dollar increase, growing by $1.6 billion (13.8 percent). The average noncurrent rate was 0.99 percent during the current quarter, down 3 basis points from the previous quarter. This is the first time since second quarter 2007 that the noncurrent rate was below 1 percent.
Loan-Loss Reserves Increase From Third Quarter 2018
Loan-loss reserves totaled $124.7 billion at the end of the fourth quarter, an increase of $1 billion (0.8 percent) from third quarter 2018. The banking industry continued to build reserves, as loan-loss provisions of $14 billion exceeded net charge-offs of $12.6 billion. More than half of all banks (57.8 percent) reported a quarterly increase in loan-loss reserves. Banks that itemize their loan-loss reserves (banks with assets greater than $1 billion and representing 93 percent of total industry assets) reported higher reserves for credit card losses (up $997.4 million, or 2.5 percent) and lower reserves for residential real estate losses (down $556 million, or 4.4 percent). After declining for the past nine consecutive quarters, itemized reserves for losses on commercial loans reported quarterly growth of $409 million (1.3 percent).
Equity Capital Increases From the Third Quarter
Equity capital increased by $25.3 billion (1.3 percent) during the fourth quarter, led by accumulated other comprehensive income. Retained earnings rose by $70.8 billion (10.3 percent) from a year ago. Declared dividends in the fourth quarter totaled $52.7 billion, the highest level ever reported by the banking industry. At year-end 2018, 99.6 percent of all insured institutions, which account for 99.98 percent of total industry assets, met or exceeded the requirements for the well-capitalized category, as defined for Prompt Corrective Action purposes.
Total Assets Increase 1.5 Percent During the Fourth Quarter
Total assets rose by $270.4 billion (1.5 percent) during the fourth quarter. Cash and balances due from depository institutions declined by $144.4 billion (7.9 percent) and total securities holdings grew by $93 billion (2.6 percent). U.S. Treasury securities increased $55.4 billion (11.2 percent) during the quarter, the largest quarterly dollar increase since fourth quarter 2014.
Total Loan and Lease Balances Rise 4.4 Percent Over 12 Months
Total loan and lease balances were $213 billion (2.1 percent) higher compared with the previous quarter. All major loan categories registered quarterly increases.4 Commercial and industrial loans increased by $80.7 billion (3.9 percent), and consumer loans (including credit card balances) rose by $52.2 billion (3.1 percent). During the 12 months ended December 31, total loan and lease balances rose by $431.2 billion (4.4 percent), a slight increase from the 4 percent annual grow rate reported last quarter. All major loan categories reported year-over-year increases, led by commercial and industrial loans, which increased by $156.2 billion (7.8 percent), and consumer loans (including credit card balances), which rose by $64.9 billion (3.9 percent).
Deposits Increase 2.2 Percent From the Previous Quarter
Total deposits increased by $292.6 billion (2.2 percent) from the third quarter, the largest quarterly dollar increase since fourth quarter 2012. Interest-bearing deposits grew by $296.5 billion (3.2 percent), while noninterest-bearing deposits fell by $ 5.4 billion (0.2 percent). Reliance on nondeposit liabilities declined by $47.5 billion (2.3 percent) from the previous quarter, as trade liabilities were reduced by $23.1 billion (8.9 percent) and other liabilities fell by $24.4 billion (6 percent).
The Number of Banks on the “Problem Bank List” Declines to 60
The number of banks on the FDIC’s “Problem Bank List” declined from 71 to 60 at year-end 2018, the fewest since first quarter 2007. Total assets of problem banks fell from $53.3 billion to $48.5 billion. During the fourth quarter, two new charters were added, 70 institutions were absorbed by mergers, and there were no bank failures. For full-year 2018, eight new charters were added, 259 institutions were absorbed by mergers, and there were no bank failures.
Chart 1. Quarterly Net Income
Chart 2. Quarterly Net Operating Revenue
Chart 4. 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. Full Year 2018, All FDIC-Insured Institutions
TABLE IV-A. Fourth Quarter 2018, 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
2 This estimate of quarterly net income normalizes fourth quarters 2017 and 2018 by applying the average quarterly tax rate between fourth quarter 2011 and third quarter 2017 to income before taxes and discontinued operations.
4 Major loan categories include commercial and industrial loans, residential mortgage loans, consumer loans, and nonfarm nonresidential loans. Consumer loans include credit card loans, automobile loans, and all other consumer loans.