U.S. bank income up 12.7% in first quarter, number of ‘problem banks’ continues to fall

Commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC) reported Wednesday (May 24) aggregate net income of $44 billion in the first quarter of 2017, up $5 billion (12.7%) from a year ago.

Of the 5,856 insured institutions reporting first quarter financial results, 57% reported year-over-year growth in quarterly earnings. The number of banks that were unprofitable in the first quarter fell to 4.1% from 5.1% a year earlier.

FDIC Chairman Martin Gruenberg noted in the report that despite the largely positive results for the first quarter, the operating environment continues to pose challenges for banks.

“In the past two quarters, the industry has seen a slowdown in loan growth that is broad-based across major lending categories,” he wrote in the report. “This slowdown has occurred as the economy approaches the end of the eighth year of a relatively modest expansion. Still, loan growth has remained at or above nominal GDP growth.

“Low interest rates for an extended period and a competitive lending environment have led some institutions to reach for yield. This has led to heightened exposure to interest-rate risk, liquidity risk, and credit risk. Banks must manage these risks prudently to maintain growth on a long-run, sustainable path.”

REPORT HIGHLIGHTS

• Net income for the 5,401 community banks in first quarter 2017 totaled $5.6 billion, an increase of $522.9 million (10.4%) from the first quarter of 2016. Higher net interest income and noninterest income drove the increase in quarterly net income, but were offset in part by higher loan-loss provisions and noninterest expense. More than half of community banks (56%) reported higher net income compared to a year ago. The pretax return on assets increased to 1.33 percent, up 14 basis points from the previous quarter and 6 basis points from the year before. Three community banks failed during the quarter, and one de novo community bank was added.
• Total loan and lease balances increased $358.1 billion (4%) during the 12 months ended March 31, compared with a 5.3% growth rate over the 12 months ending in March 2016. The slowdown in loan growth occurred across all major loan categories. During the first three months of 2017, total loan balances declined by $8.1 billion (0.1%) from the fourth quarter, as borrowers reduced their credit card balances by $43.7 billion (5.5%). Community banks increased their loan balances by $16.7 billion (1.1%) during the quarter and by $109.9 billion (7.7%) over the past 12 months. Still, loan growth has remained at or above nominal GDP growth.
• The number of banks on the FDIC’s Problem Bank List fell from 123 to 112 during the first quarter. This is the smallest number of problem banks since March 31, 2008, and is down significantly from the post-crisis peak of 888 in the first quarter of 2011. Total assets of problem banks fell from $27.6 billion to $23.7 billion during the first quarter.
• The Deposit Insurance Fund (DIF) balance increased $1.8 billion during the first quarter to $84.9 billion at March 31, largely driven by assessment income, including surcharges on large banks. Estimated insured deposits increased 2.3 percent in the first quarter. The DIF reserve ratio remained unchanged from year-end 2016 at 1.20 percent, due in part to strong insured deposit growth.