FDIC Quarterly Banking Profile
ALL INSTITUTIONS PERFORMANCE
THIRD QUARTER 2018
- Net Income Registers a Strong Increase of 29.3 Percent From a Year Earlier
- Higher Net Operating Revenue and a Lower Effective Tax Rate Boost Net Income
- Net Interest Margin Rises as Increases in Asset Yields Exceed Funding Cost Growth
- Loan and Lease Balances Expand 4 Percent From a Year Ago
- The Noncurrent Rate Continues to Fall
- One New Charter Is Added in Third Quarter 2018
Net Income Registers a Strong Increase of 29.3 Percent From a Year Earlier
Quarterly net income for the 5,477 FDIC-insured commercial banks and savings institutions increased to $62 billion in the third quarter, up $14 billion (29.3 percent) from a year earlier.1 Higher net operating revenue (the sum of net interest income and noninterest income) and a lower effective tax rate combined to boost industry quarterly net income. Assuming the effective tax rate before the new tax law, net income would have totaled an estimated $54.6 billion, an increase of $6.7 billion (13.9 percent) from third quarter 2017.2 The average return on assets ratio rose by 29 basis points to 1.41 percent, the highest quarterly level reported by the industry since the Quarterly Banking Profile began in 1986. The percentage of unprofitable banks in the third quarter declined to 3.5 percent, from 4 percent a year earlier.
Net Interest Margin Rises as Increases in Asset Yields Exceed Funding Cost Growth
Net interest income rose by $9.6 billion (7.5 percent) to $137.1 billion from 12 months ago, reflecting a modest growth in interest-bearing assets and wider net interest margins (NIM). More than four out of five banks (83 percent) reported annual increases in net interest income. NIM rose to 3.45 percent, up 15 basis points from a year earlier, as increases in average asset yields (up 44 basis points) exceeded average funding costs (up 29 basis points).The improvement in NIM was widespread, as almost 70 percent of banks reported increases from the previous year. Banks with assets of $10 billion to $250 billion reported the largest year-over-year increases in average asset yields (up 51 basis points) and average funding costs (up 33 basis points).
Loan-Loss Provisions Decline Over 12 Months
Banks assigned $11.9 billion in loan-loss provisions, a decline of $1.7 billion (12.6 percent) from third quarter 2017. Loan-loss provisions declined for the second consecutive quarter, posting the largest year-over-year decline since second quarter 2014. One-third of all banks reported lower loan-loss provisions than a year earlier.
Noninterest Income Expands Almost 4 Percent From a Year Earlier
Noninterest income rose to $66.7 billion in the third quarter, up $2.4 billion (3.8 percent) from the year before. The annual increase in noninterest income was led by servicing fees, which increased by $432.9 million (18.8 percent); investment banking fees, which rose by $287.8 million (10.4 percent); and other noninterest income, which grew by $1.5 billion (5.1 percent). Slightly more than half of all banks (54.2 percent) reported increases in noninterest income compared with a year earlier.
Noninterest Expense Increases 4 Percent From Third Quarter 2017
Noninterest expenses rose by $4.3 billion (4 percent) over the past 12 months, as almost 75 percent of all banks reported increases. The yearly increase was attributable to salary and employee benefits, which grew by $2.1 billion (4.1 percent), and other noninterest expense, which increased by $1.8 billion (4.1 percent). The average assets per employee increased from $8.3 million in third quarter 2017 to $8.5 million.
Net Charge-Off Rate Remains Stable From a Year Earlier
Net charge-offs (NCOs) totaled $11.2 billion in the third quarter, an increase of $171.9 million (1.6 percent) from a year earlier. NCOs continued rising, but at a slower rate than previous quarters. Credit card balances registered the largest dollar increase in NCOs this quarter (up $837.8 million, or 12.3 percent). The average net charge-off rate declined 1 basis point from a year earlier to 0.45 percent.
Noncurrent Loan Rate Falls to 1.02 Percent
Noncurrent loan balances (90 days or more past due or in nonaccrual status) fell by $3.6 billion (3.4 percent) during the quarter. Almost half of all banks (49.5 percent) reported reductions in noncurrent loan balances. The quarterly dollar decline was attributable to residential mortgage balances, which fell by $3.1 billion (6.3 percent) and commercial and industrial loan balances, which declined by $1.1 billion (6.8 percent). Credit card balances had the largest quarterly dollar increase, rising by $806.5 million (7.6 percent). The average noncurrent rate declined by 4 basis points from the previous quarter to 1.02 percent.
Coverage Ratio Rises to 122.2 Percent
Loan-loss reserves rose by $303.7 million (0.2 percent) during the third quarter, as loan-loss provisions of $11.9 billion surpassed the $11.2 billion in NCOs. Almost 61 percent of all banks reported a quarterly increase in loan-loss reserves. At the 713 banks that itemize their loan-loss reserves and hold almost 91 percent of total industry loan-loss reserves, losses on credit cards rose by $813.9 million (2.1 percent), while residential real estate losses declined by $655.8 million (4.9 percent). With a $3.6 billion reduction in noncurrent loan balances, the coverage ratio (loan-loss reserves to noncurrent loan balances) rose to 122.2 percent, the highest level since first quarter 2007. This marks the sixth consecutive quarter that the industry’s coverage ratio was above 100 percent.
Equity Capital Increases From the Previous Quarter
Equity capital grew by $13.5 billion (0.7 percent) from the previous quarter. Decline in market value for available-for-sale securities limited the growth, as unrealized losses rose by $11.3 billion (28.1 percent) to $51.5 billion during the quarter. The unrealized losses on available-for-sale securities were 2 percent of their amortized cost, the highest loss level since first quarter 2009. Declared dividends totaled $43.8 billion, an increase of $7.9 billion (22 percent) from the year before. At the end of the quarter, 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 Despite the Decline in Available-For-Sale Securities
Total assets increased by $140 billion (0.8 percent) from the previous quarter. The investment securities portfolio declined by $3.2 billion (0.1 percent) from the second quarter, as the increase in held-to-maturity securities (up $32.6 billion, or 3.1 percent) was offset by a decline in available-for-sale securities (down $36.2 billion, or 1.4 percent). State and municipal securities declined by $14.1 billion (4.1 percent), marking a third consecutive quarterly decline.
Loan and Lease Balances Expand 4 Percent From a Year Ago
With close to 72 percent of all banks reporting increases in loan and lease balances from the previous quarter, aggregate balances grew by $82.7 billion (0.8 percent). All major loan categories registered quarterly increases.3 Consumer loans, which include credit card balances, had the largest dollar increase (up 32.4 billion, or 2 percent). Over the past 12 months, aggregate loan and lease balances rose by $382.4 billion (4 percent), a slight decline from the 4.2 percent annual growth rate reported last quarter. All major loan categories reported annual increases, led by commercial and industrial loans (up $98.7 billion, or 5 percent) and consumer loans, which includes credit card balances (up $88 billion, or 5.5 percent).
Deposits Increase From the Previous Quarter
Total deposits rose by $105 billion (0.8 percent) from the previous quarter. Interest-bearing deposits increased by $159.3 billion (1.8 percent), while noninterest-bearing deposits declined by $72.9 billion (2.3 percent), the largest quarterly dollar decline since first quarter 2013. Nondeposit liabilities increased by $21.5 billion (1 percent) from the second quarter, as trading liabilities grew by $20.8 billion (8.7 percent) and other liabilities rose by $17.5 billion (4.5 percent). Federal Home Loan Bank advances declined by $30.6 billion (5.2 percent).
One New Charter Is Added in Third Quarter 2018
The number of FDIC-insured commercial banks and savings institutions fell from 5,542 to 5,477 during the three months ended September 30. One new charter was added during the third quarter, 60 institutions were absorbed by mergers, and there were no bank failures. The number of banks on the FDIC’s “Problem Bank List” declined from 82 to 71, the lowest number since third quarter 2007. Total assets of problem banks declined from $54.4 billion to $53.3 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. Third Quarter 2018, All FDIC-Insured Institutions
TABLE IV-A. First Three Quarters 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.