Bank net income nationwide declined 1.5% in 2019

The 5,177 commercial banks and savings institutions insured by the Federal Deposit Insurance Corp. (FDIC) reported net income fell 1.5%, or by $3.6 billion, to $233.1 billion in 2019, from 2018, according to the FDIC.

The FDIC released Wednesday (March 11) the FDIC Quarterly that includes 2019 Summary of Deposits Highlights and banking industry results from the fourth quarter of 2019.

The number of FDIC-insured commercial banks and savings institutions fell from 5,258 to 5,177 in the fourth quarter of 2019. Three new banks were added, 77 institutions were absorbed by mergers and three banks failed. For 2019, 13 new banks were added, 226 institutions were absorbed by mergers and four banks failed.

The number of banks on FDIC’s Problem Bank List fell from 55 at the end of the third quarter to 51 at the end of the fourth quarter, the lowest level since the fourth quarter of 2006. Aggregate total assets of problem banks fell from $48.8 billion in the third quarter of 2019, to $46.2 billion in the fourth quarter of 2019.

The net income decline could be attributed to slower growth in net interest income, which rose 1%, or by $5.5 billion, and higher loan-loss provisions, which increased 9.9%, or by $5 billion. Average net interest margin fell from 3.4% in 2018 to 3.36% in 2019, as average earning assets increased at a faster rate than net interest income. The average return on assets (ROA) fell from 1.35% in 2018 to 1.29% in 2019.

In the fourth quarter, banks reported net income fell 6.9%, or by $4.1 billion, to $55.2 billion, from the same period in 2018. The annual decline in quarterly net income can be attributed to lower net interest income and higher noninterest expenses, the report shows. About half of all banks reported year-over-year declines in net income, and 7.2% of banks were unprofitable, which is stable from a year ago. The average ROA fell 13 basis points to 1.2%.

Community banks, which comprise 92% of insured institutions, reported net income rose 4.4%, or by $270.3 million, to $6.4 billion in the fourth quarter of 2019. Higher net operating revenue and increased gains on securities more than offset the growth in noninterest expense. The Deposit Insurance Fund (DIF) balance rose by $1.4 billion in the fourth quarter of 2019 to $110.3 billion as of Dec. 31. Assessment income and interest earned on investments contributed to the rise. The DIF reserve ratio, or the fund balance as a percentage of estimated insured deposits, was 1.41% on Dec. 31, flat from Sept. 30. It was 1.36% on Dec. 31, 2018.

MORE BANK OFFICES CLOSE
The 2019 Summary of Deposits Survey shows a continuation of existing trends, with deposits rising and the number of branch offices falling. The number of bank offices has fallen nationwide, while the number of counties with a bank office has remained stable over the past five years. The decline was faster for banks in metropolitan counties, limited-service offices and offices with lower reported levels of deposits. The rate of deposit growth increased for both community banks and noncommunity banks, but the merger-adjusted or organic rate of deposit growth at community banks exceeded noncommunity banks for the third consecutive year.

Net interest income fell 2.4%, or by $3.4 billion, in the fourth quarter of 2019, from the same period in 2018. It was the first annual decline since the third quarter of 2013. Net interest income for the banking industry declined by 20 basis points to 3.28%, as average asset yields fell more rapidly than average funding costs. The annual decline in net interest income happened for all five asset size groups in the Quarterly Banking Profile but was especially pronounced among banks with total assets between $10 billion and $250 billion. In response to the low interest-rate environment, banks increased longer-term assets, but these assets produced lower yields and contributed to a decline in net interest income.

In the fourth quarter, banks set aside $14.8 billion in loan-loss provisions, an increase of 5.5%, or $779 million, from the same period in 2018. More than one-third of all banks reported year-over-year increases in loan-loss provisions. The rise was concentrated at larger institutions. Loan-loss provisions as a share of net operating revenue rose to 7.3% in the fourth quarter, the highest level since the end of 2012.

Net charge-offs rose 10.4%, or by $1.3 billion, to $13.9 billion in the fourth quarter, from the same period in 2018. The rise can be attributed to the commercial and industrial loan portfolio, in which charge-offs increased 34.3%, or by $591.2 million, and the credit card portfolio, which had a charge-off increase of 5%, or $409.9 million. The average net charge-off rate rose 4 basis points from the fourth quarter of 2018 to 0.54%. The commercial and industrial loan portfolio net charge-off rate was 0.42% in the fourth quarter of 2019, up from 0.32% in the same period in 2018, but below the recent high of 0.5% in the fourth quarter of 2016. The credit card net charge-off rate rose 4 basis points from the fourth quarter of 2018 to 3.75%.

ASSETS, DEPOSITS RISE
Total assets rose 0.9%, or by $163.4 billion, from the previous quarter as a result of growth in loan and lease balances, which was up $117.9 billion. Banks increased their securities holdings by 1.2%, or by $45.5 billion, as mortgage-backed securities rose 1%, or by $24.4 billion, and holdings of U.S. Treasury securities increased 1.4%, or by $8.5 billion. Cash and balances due from depository institutions rose 2.5%, or by $40.6 billion.

Total loan and lease balances increased 1.1%, or by $117.9 billion, from the third quarter of 2019. More than half of all banks increased their loan and lease balances from the third quarter. Nearly all the major loan categories had quarterly increases, except for the commercial and industrial loan portfolio, which had the first quarterly decline since the fourth quarter of 2016, down 0.5%, or by $11 billion. Quarterly growth in major loan categories included consumer loans, which was up 3.3%, or by $58.2 billion, nonfarm nonresidential loans, which increased 1.4%, or by $21.5 billion, and residential mortgage loans, which rose 0.9%, or by 3.6%. Over the past year, total loan and lease balances increased 3.6%, or by $366.3 billion, and this was slightly below the annual growth rate reported in the third quarter of 2019. The slowdown in annual growth of total loan and lease balances can be attributed to the commercial and industrial loan portfolio, which expanded at 1.9%, the slowest rate since 2010.

Total deposit balances increased 1.8%, or by $258.4 billion, from the previous quarter, as interest-bearing accounts increased 2.2%, or by $216.3 billion, and noninterest-bearing accounts increased 0.7%, or by $22.6 billion. Deposits in foreign offices increased 1.5%, or by $19.5 billion. Nondeposit liabilities, which include fed funds purchased, repurchase agreements, Federal Home Loan Bank (FHLB) advances and secured and unsecured borrowings, declined 5%, or by $69 billion, from the previous quarter. The change in nondeposit liability included a decline in securities sold under agreements to repurchase, down 13.3%, or by $30 billion, the largest quarterly dollar decrease since the fourth quarter of 2013. FHLB advances fell 3.3%, or by $16.3 billion.