FDIC Quarterly Banking Profile
ALL INSTITUTIONS PERFORMANCE
SECOND QUARTER 2018
Quarterly Net Income Rises 25.1 Percent Over Second Quarter 2017 Income, Led by Higher Net Operating Revenue and a Lower Effective Tax Rate Margins Increase as Average Yields Outpace Growth in Funding Costs Loan Balances Expand 4.2 Percent From Second Quarter 2017 Noncurrent Loan Rate Declines, While Net Charge-Off Rate Remains Stable Two New Charters Added in Second Quarter 2018
Net Income Rises 25.1 Percent Over Second Quarter 2017, Led by Higher Net Operating Revenue and a Lower Effective Tax Rate
The 5,542 FDIC-insured commercial banks and savings institutions reported net income of $60.2 billion during the three months ended June 30, an increase of $12.1 billion (25.1 percent) from a year earlier. Higher net operating revenue (the sum of net interest income and noninterest income) and a lower effective tax rate contributed to the increase in industry net income. Assuming the effective tax rate before the new tax law, net income would have totaled an estimated $53.8 billion, an increase of $5.6 billion (11.7 percent) from second quarter 2017.1 The average return on assets was 1.37 percent, up from 1.13 percent a year earlier. Only 3.8 percent of institutions were unprofitable during the quarter, down from 4.3 percent in second quarter 2017.
Margins Increase as Average Yields Outpace Growth in Funding Costs
Net interest income totaled $134.1 billion, an increase of $10.7 billion (8.7 percent) from 12 months earlier and the largest annual dollar increase ever reported by the industry. More than four out of five banks (85.1 percent) reported year-over-year increases. Net interest margin (NIM) rose to 3.38 percent, up 16 basis points from a year earlier, as average asset yields grew more rapidly than average funding costs. Institutions with assets of $10 billion to $250 billion reported the largest annual increase in average funding costs (up 30 basis points). The improvement in NIM was widespread, as more than two out of three banks (70.2 percent) reported increases from a year earlier.
Provisions Decline Modestly From Second Quarter 2017
Banks set aside $11.7 billion in loan-loss provisions during the second quarter, a decline of $293.5 million (2.4 percent) from the previous year. Almost one-third of all banks (31.3 percent) reported lower loan-loss provisions than in second quarter 2017. Loan-loss provisions as a percentage of net operating revenue declined to 5.8 percent for the current quarter, the lowest level since third quarter 2015.
Noninterest Income Expands 2 Percent From a Year Earlier
Noninterest income totaled $68.1 billion, an increase of $1.3 billion (2 percent) from the previous year. The 12-month increase in noninterest income was attributable to servicing fees (up $638.2 million, or 29.5 percent), fiduciary activity (up $558.4 million, or 6.3 percent), and net gains on sales of other assets (up $388.3 million). Slightly more than half of all institutions (55.6 percent) reported increases in noninterest income from a year earlier.
Noninterest Expense Grows 4.6 Percent Year-Over-Year
Noninterest expenses rose by $5 billion (4.6 percent) from a year earlier, as salary and employee benefits grew by $2.7 billion (5.2 percent) and other noninterest expense increased by $1.8 billion (4.2 percent).2 Average assets per employee totaled $8.4 million for the current quarter, up from $8.2 million in second quarter 2017. The efficiency ratio (noninterest expense as a percent of net operating revenue) improved to 55.5 percent in the second quarter, the lowest level since first quarter 2010.
Net Charge-Off Rate Remains Stable
For the past eleven quarters in a row, net charge-offs increased compared with a year earlier but at a slower rate. During the second quarter, banks charged-off $11.7 billion in uncollectable loans, an increase of $446.4 billion (4 percent) over the past 12 months. The annual increase in net charge-offs was led by credit card balances (up $918.9 million, or 12.8 percent). The average net charge-off rate remained stable from a year earlier at 0.48 percent.
Noncurrent Loan Rate Declines to 1.06 Percent
Noncurrent loan balances (90 days or more past due or in nonaccrual status) declined by $7.7 billion (6.8 percent) from the first quarter, as more than half (52 percent) of all institutions reported quarterly declines. The improvement was led by residential mortgages (down $5.2 billion, or 9.7 percent), commercial and industrial loans (down $1.2 billion, or 6.8 percent), and credit cards (down $848.6 million, or 7.4 percent). The average noncurrent rate fell from 1.15 percent in the first quarter to 1.06 percent.
Reserve Coverage of Noncurrent Loans Continues to Grow
Loan-loss reserves declined by $330 million (0.3 percent) from the first quarter, as less than one-third (25.3 percent) of all institutions reported a quarterly decline. At banks that itemize their loan-loss reserves, which represent almost 91 percent of total industry loan-loss reserves, losses on credit cards increased by $284.2 million (0.7 percent). Itemized reserves for residential real estate losses fell by $522.3 million (3.7 percent). As noncurrent loan balances declined at a faster quarterly rate than loan-loss reserves, the coverage ratio (loan-loss reserves to noncurrent loan balances) grew from 110 percent in the first quarter to 117.7 percent.
Equity Capital Increases From the First Quarter
Equity capital of $2 trillion rose by $15.3 billion (0.8 percent) from the first quarter. Retained earnings contributed $22.4 billion to equity growth but were partly offset by a $7.8 billion reduction in accumulated other comprehensive income. With a decline in market value of available-for-sale securities, unrealized losses totaled $40.2 billion for the current quarter, an increase of $6 billion (17.4 percent) from the previous quarter. Declared dividends totaled $37.8 billion, an increase of $9.5 billion (33.4 percent) from the year before. At the end of the quarter, 99.6 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.
Balances at Federal Reserve Banks Decline Almost 12 Percent
Total assets rose modestly (up $1.3 billion) from the previous quarter, as cash and balances due from depository institutions declined by $126.4 billion (6.5 percent), the largest quarterly dollar decline since second quarter 2015. Balances at Federal Reserve banks declined by $139.7 billion (11.7 percent), and mortgage-backed securities rose by $43.5 billion (2.1 percent).
Loan Balances Expand 4.2 Percent From Second Quarter 2017
Total loan and lease balances increased by $104.3 billion (1.1 percent) from the first quarter, as more than three out of four banks (76.2 percent) reported quarterly increases. All major loan categories registered quarterly increases, led by commercial and industrial loans (up $25.5 billion, or 1.2 percent); consumer loans, which include credit card balances (up $23.7 billion, or 1.4 percent); nonfarm nonresidential loans (up $18.9 billion, or 1.3 percent); and residential mortgage loans (up $17.9 billion, or 0.9 percent).3 Over the past year, total loan and lease balances grew by $398.5 billion (4.2 percent), a slight decline from last quarter's annual growth rate of 4.9 percent. Commercial and industrial loans rose by $95.2 (4.8 percent); consumer loans, which include credit card balances, increased by $84.4 billion (5.4 percent); residential mortgage loans grew by $70.6 billion (3.5 percent); and nonfarm nonresidential loans expanded by $56.4 billion (4.1 percent).
Deposits Decline From the Previous Quarter
Total deposits fell by $60.2 billion (0.4 percent) from the previous quarter, as deposits in both foreign offices (down $38.8 billion, or 3 percent) and domestic offices (down $21.5 billion, or 0.2 percent) declined. Domestic interest-bearing deposits rose by $13.5 billion (0.1 percent), while noninterest-bearing deposits declined by $34.9 billion (1.1 percent). Banks increased their nondeposit liabilities by $46.3 billion (2.3 percent) from the first quarter, led by Federal Home Loan Banks advances (up $30 billion, or 5.4 percent) and other liabilities (up $11.7 billion, or 3.1 percent).
Two New Charters Added in Second Quarter 2018
During the three months ended June 30, the number of FDIC-insured commercial banks and savings institutions declined by 65 to 5,542. Two new charters were added, 64 institutions were absorbed by mergers, and no banks failed. The number of institutions on the FDIC's "Problem Bank List" fell from 92 to 82, the lowest number since fourth quarter 2007. Assets of problem banks declined from $56.4 billion to $54.4 billion.
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. Second Quarter 2018, All FDIC-Insured Institutions
TABLE IV-A. First Half 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
3 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.